Welcome to the Fiserv second 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 will 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 a reconciliation of those measure 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 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. Now I’ll turn the call over to Frank.

Thank you Julie, and thank you all for joining us today to discuss second quarter results that bring us closer to another year of double-digit organic revenue and adjusted earnings per share growth. Fiserv delivered strong results across our businesses with second quarter adjusted earnings per share of $2.13, up 18% driven by continued healthy revenue growth and further operating margin expansion. Adjusted revenue growth was 7% and adjusted operating margin rose 160 basis points to 38.4%. Organic revenue growth was 18%. We can point to many highlights in our business during the quarter, including Clover revenue of 28%, accelerated organic revenue growth in financial solutions to 8%, multiple wins with marquee clients including Verizon and Apple, plus new clients in important verticals such as petro, gaming, government and healthcare. Our free cash flow was $1 billion in the quarter and $4 billion over the last 12 months, and we returned $1.5 billion to shareholders via share repurchases. This month, we are celebrating the 40th anniversary of Fiserv, along with the fifth anniversary of the merger between Fiserv and First Data. Our vision back in 2019 was that if we brought together scaled platforms supporting a full breadth of solutions, merchant acquiring, debit and credit issuer services, digital payments of all kinds and core bank account systems modernized with cloud technologies, then clients would find value in the combination and the integration and Fiserv would become a partner of choice with unparalleled global reach. Today, we can see that’s exactly what has happened. As we realized revenue and cost synergies over this time, we increased our investment in technology innovation. Our purpose has been to deliver solutions to clients of all kinds, established and new, large and small, local and global, spanning all verticals. With the proper amount of disrupting…

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. Our performance in the second quarter showcased our ability to sustain strong revenue growth and margin expansion. Second quarter total company adjusted revenue grew 7% to $4.8 billion, and adjusted operating income grew 12% to $1.8 billion, resulting in an adjusted operating margin of 38.4%, an increase of 160 basis points versus the prior year. For the first half of the year, adjusted revenue grew 7% to $9.3 billion, and adjusted operating income grew 13% to $3.5 billion, resulting in an adjusted operating margin of 37.2%, an increase of 180 basis points versus the prior year. Organic revenue grew 18% in the quarter with strength in both segments. The transitory contribution from Argentina was five points to our total organic growth in the quarter, down from seven points in Q1. In the first six months of the year, organic revenue grew 19%. Second quarter adjusted earnings per share was $2.13 compared to $1.81 in the prior year, up 18% and above previous full year guidance of 4% to 16%. Year to date, our adjusted earnings per share increased 18% to $4 compare to $3.38 in the prior year. Free cash flow for the quarter was $1 billion and $1.5 billion for the first half of the year. We expect free cash flow to be much higher in the second half of this year due to the timing of cash flows for the green tax credit program. Turning to performance by segment, starting on Slide 5, organic revenue growth in the merchant solutions segment was 28% in the quarter and 32% year to date. For the quarter,…

Thanks Bob. There is another value creation opportunity within post-merger Fiserv, and that’s data. The proposition for us in extracting intelligence from the massive amounts of data that we generate daily is significant and can be an important growth driver beyond the medium term. Three years ago, long before AI was the hot topic it is today, we assembled a team of internal and external experts in the fields of data science and AI. We gave them a mandate to harness all of the data naturally captured through Fiserv transactions and account processing activity to drive actionable intelligence for us, the marketplace, and our merchant and financial institution clients. There are three advantages that Fiserv has in its data. Ours is available in real time, it’s granular to the transaction level, and it’s multi-faceted in that it spans merchant, issuing and banking activity. This makes our data quite powerful to apply in anti-fraud solutions which we are doing internally, with plans for a client-facing solution this fall. Our first great application to the market is the Fiserv Small Business Index, a real time assessment of consumer spending at millions of small businesses published monthly. It maximizes the features of Fiserv data with its timely release two days after month end, a detailed look at trends by industry and geography, and the inclusion of non-card spending data such as cash and checks. We’re also working to support clients in their AI journeys as they invest to process and understand their own data. Clients are recognizing that we can efficiently add Fiserv data and intelligence to help take decision making to the next level. It’s a major value-added solution that we’re already testing with several of our largest clients and on the Clover platform. We are still in the early stages of delivering our data and intelligence solutions, but the opportunity is significant given the power of our integrated platforms and our unmatched scale, breadth and investment. Finally, I’d like to thank our more than 40,000 employees for their steadfast commitment to our vision and hard work on the day to day execution. It’s clearly led to our leadership in product and innovation and the strong results you’re seeing us report today. Together, we strive to achieve excellence every day on behalf of our clients, partners and shareholders. 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] For our first question, we’ll go to the line of David Togut from Evercore ISI. Please go ahead.

Thank you, good morning Frank and Bob. Appreciate the update on new product launches for Clover, and also the vertical market expansion into services and retail. Could you update us on the international expansion in Brazil and Mexico? Frank, you called out some initiatives in Brazil, but in terms of the broader new market launch post friends and family, what are your expectations for the back half of this year and into 2025?

Yes, I think first of all, when you look at what we’re doing on global penetration, we have--you know we talked about Mexico, Australia and Brazil. You should expect Brazil and Mexico in August as a pilot. I would see it as a full ramp in 2025, I’d treat August like a friends and family. But remember, our business in Brazil, the things we’ve done with Caixa, the things we’ve done growing the business, you know, probably eight, nine years ago from a start-up into a tremendous competitor, so we have growth projections for that market that we would expect it to perform as our business has in Brazil. Mexico - you know, we’ve built a business there, we continue to grow that business. We feel our Mexico and Brazil build is very similar, that’s why you see them coming out together. Once again, a friends and family in August [indiscernible], and obviously we’ll watch that build through the fourth quarter and then full effect in ’25. We feel really great about our position on Australia and what we’re going to do in Australia. You’ll see us in September, and that as a friends and family. We have expectations of larger partner wins there also that are very, very highly motivated to have Clover in market in ’25, so. I don’t think you’ll get a ton of growth out of it this year. We’ll update you later in the year on our expectations in ’25, but those builds are in full force. We have partners who want it bad, and we see the market demand for all that. Thanks for that question. You know, David, we got on the call and talked about a celebration that we’re really having right now, which is the 40th anniversary of Fiserv and the fifth anniversary of the merger. But I think what I realized when I got up this morning is we’re actually celebrating your retirement from Evercore, and if my information’s right, because you know we love to count everything here, you’ve covered Fiserv for 29 years and that’s spanned four CEOs, and I’m fortunate to stand on the shoulders of those who became before me, so I cherish our time together. Then I think I’m right in 32 years on First Data - I can’t really account for all the CEOs that came before me specifically post KKR, but thank you for everything you’ve done for the industry. Thank you for the work, and I think it’s a celebration of your career and your retirement from Evercore. Thanks for being here with us today.

Thank you so much, Frank. That really means a lot to me. I really enjoyed working with you, Bob and Julie, and in the tradition of your predecessors, you continue to create tremendous shareholder value, so I’ll continue to watch your progress with great interest.

Congratulations, David.

Thank you Bob.

Next, we’ll go to the line of Tien-Tsin Huang with JP Morgan. Please go ahead.

I was going to say, I can’t remember any First Data or Fiserv call without David Togut on it, so I echo that. My question for you guys, just on the margin outlook that was raised, can you give us a little bit more specifics on the sources of the upside there? Then just a clarification on the merchant processing side, was that related to some bank losses? I heard a comment that there were some declines on the bank side, so I wanted to clarify if that was line specific or due to attrition. Thank you.

Yes, thanks Tien-Tsin, good morning. First on the margin outlook, as you heard in our prepared remarks, we raised our margin outlook actually for the second quarter in a row, and now greater than 135 basis points. The original guide back in February was greater than 100 basis points. That’s really driven by two factors. One is just the scale and volume of the company - as we add more revenue, it drops through to the company average--excuse me, better than company average rates, and continue to see good growth. The second one, of course, is ongoing productivity - we continue on an ongoing basis, as Frank said earlier, measure everything, and we continue to see progress towards achieving increased productivity across the organization, and so the combination of very strong organic growth, 15% to 17% this year plus productivity allows us to continue to expand margin on a multiple year basis. Then in the merchant processing side, as you know, the processing business line for us is where our clients own the merchant contracts, and so we are providing the back end processing for those clients. In many cases, it’s banks, could be wholesale ISOs, and what we saw is some volume decline out of those processing contracts in the second quarter. Of course, on a year-to-date basis, we are plus-1% for the first half of the year, and that’s in line with our ongoing expectation that it’s roughly flat in this business line going forward.

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

Good morning guys. Thanks for taking the question. Great to see the ongoing revenue performance here. I was curious just to ask about some of the underlying metrics - small business volume growth, enterprise transaction growth. We did some slowdown there in Q2, probably more than can likely be explained just by leap year, so was hoping you could unpack those a little bit in terms of where you saw some of the softness. Was it certain verticals or higher income versus lower income consumers, and then just anything you can give us on what you’ve seen in July so far? We heard from Visa last night about a little bit of softness related to hurricane and CrowdStrike. Thank you.

Yes Jason, good morning. There’s obviously lots of variables in both of those, both for small business and the enterprise business lines. Generally, we saw a bit of a slowing, and in fact through the second quarter, April and May were in line with our expectations, July came in a little bit slower. But I would emphasize that that was in line with our expectations, so it’s partly why we’re maintaining our full year organic growth rate at 15% to 17%, and in fact for the merchant segment holding at the 25% to 28% despite acceleration in easing of that transitory benefit down in Argentina. Generally, the business is performing at or better than we had previously expected outside of that slowing in the transitory benefit, which by the way, we think is a good thing for the Argentine economy. A more normalized growth rate in inflation and interest is good long term, and so we’re encouraged by how that’s going and how the overall business is responding.

Yes, maybe I’d make a couple other general macro comments. One, when you looked at--you know, we’re very, very proud of what we believe we’ve created with the FSBI and our ability to track it. Obviously we talked about how our numbers don’t exactly mirror the FSBI because of our international presence and the fact that we have verticals that we think outperform. We see a slowness in July, but we see growth in July as we look at it right now. It’s in line with really Q2 if you look at it, and slightly ahead of June. I think also as you look across our book and our total portfolio, you’ll also see the slowing in credit originations across our book which covers retail private label and general purpose, but all of this within our expectation range. I’d also make a secondary point around volume and revenue. We are no longer a volume-only shop. We have lots of VAS, both at the enterprise level and at the SMB level, and it really was the design of how to proceed. We have great feeling about our ability to grow merchants globally, and that’s inclusive of the U.S., so that all falls into our expectation set and I think in total when you look at the business performance and the portfolio size and scope, our hedge is very, very strong.

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

Great, thank you for taking the question. I wanted to hit up on CashFlow Central, just given it’s about to go live here. It’s six large clients you mentioned. In terms of the monetization, I believe it’s a combination of subscription fees and then also transaction fees, including some interchange revenue potentially. I was hoping you could break that down a little bit more, and then also talk a little bit about how the revenue will be recognized across the two segments. Thanks a lot.

Yes, maybe I’ll elevate it a hair, just so we have pure clarity on our SMB strategy here, both with FIs and on our other direct channels. We referred to it in our prior comments, but I want to be very, very clear - first of all, those wins are large institutional wins before the product’s in the market in that fashion, and our pipeline is tremendously strong. Remember, we’re also going to bring this product to Clover, and we’re bringing the product to our ISV channels also. Then what we talk about is, as I like to call it, an SMB bundle. That SMB bundle will include Clover, CashFlow Central, the ability to integrate that information, bring it to Active D, which is also winning heavily in the market right now as our new digital banking platform, and Spendlabs. So I think what you’re going to find--and banks, FIs love the bundle, right? Yes, they’re buying CashFlow Central, but this will be a long-term growth engine, and you also heard us talk about our ability to go yes, we have 900 financial institutions, we plan on continuing to grow that number. CashFlow Central by itself is a standout product, which Bob will walk you through the economics, but I want you to focus on the SMB strategy that is an integrated strategy. I think we’re one of a kind in the ability to deliver digital banking, deliver card spend, deliver Clover, and deliver something like CashFlow Central AR/AP to this SMB set. Our banks are loving it. We’ve got two shots at helping our banks generate revenue through it. I didn’t want to minimize the question without articulating the strategy, which is a long term growth strategy for our total portfolio.

And Tim, I’d say we feel very good about signing up six large banks before we’ve gone live. We’re quite encouraged on the demand from those financial institutions and the excitement they have. As Frank points out, it’s a revenue generator with them, it allows them to bring themselves closer to their small business client, which is an important client base for them, and for us, the opposite of our consumer bill pay solution which is a fee that the banks pay us but typically do not charge consumers, and so it’s an expense item. For CashFlow Central, it’s actually a revenue generator - they’ll likely charge their small business clients a subscription, again generate revenue for themselves and obviously for us as transactions flow, so feel very good about the opportunity and very encouraged on the very, very early read.

Next, we’ll go the line of Dave Koning from Baird. Please go ahead.

Yes, hey guys. Thanks, and nice job. I guess my question, in the banking sub-unit, you grew 4% ex periodic revenue. That’s the best we can see in the six quarters or so since you’ve given the new segment data. Is there something about the market that’s getting better or something that you’re doing more specifically, and is this higher level sustainable?

Yes, maybe I’d cover that. I realize in my comments about business generation and demand, I didn’t include that we see large demand for our services out of the financial institutions, and that’s beyond this merchant and CFC capability, which both have tremendous demand. It goes to [indiscernible], which is winning the marketplace. You heard us talk about our Finxact wins. Our clients are growing, and you can look at things that we’ve done on Finxact with one, which has been a tremendous opportunity. I do think, you know, and you could point to recent surveys published that we’ve differentiated ourselves in the service area from where we might have been a couple years ago with the delivery of a commitment tracker, which allows us and our clients to have 100% synchronization on our commitments and our delivery rate. I think those have really, really distinguished ourselves. Our relationship management model is making a difference and will continue. Demand is strong, so I think it’s all those variables that gives us confidence about our ability to be the grower that we talked about to you back on i-day.

Next, we’ll go the line of Darrin Peller from Wolfe Research. Please go ahead.

Hey, thanks guys. If we could just hone in and just give a little bit more of a broad update on the financial solutions segment, just given the strength we’re seeing, obviously CashFlow Central is strong and then you have Zelle and some other implementations. But help us understand the driving forces of that growth going from where it is today, and then I know you’ve talked about it accelerating again into--like, through ’25 and into ’26 at your investor day. Is that still what you see happening, and what are the major drivers affecting that?

Yes Darrin, so our expectation, our outlook for this year for the financial solutions segment is 4% to 6%--excuse me, 5% to 7%. Year to date, we’re at 6%, so we’re right at the midpoint of that full year outlook. We anticipate as we go into ’25 and ’26, our medium term outlook for the financial solutions segment increases a point to 6% to 8%, so 5% to 7% this year, we’re right at midpoint halfway through the year, and we expect that to accelerate into ’25 and 2026. That’s really driven by the benefits of exactly what you called out - CashFlow Central coming online, growth in XD, our digital banking solution, Finxact, and a broad suite of capabilities that we have continuing to take hold and meet the demands of our financial solutions client base. We also have on the issuing side, as you heard us talk about back in November at the investor day, several large client wins that will go live in 2025 and beyond, things like Verizon and Target and Desjardins all giving us a lift, so we feel quite good about where we are first half of the year and what we see going into ’25 and ’26.

Next, we’ll go to the line of Dan Dolev from Mizuho Securities. Please go ahead.

Hey Frank and Bob. Really nice results. I just wanted to go back to the more sort of guidance in merchant and macro - I mean, pretty impressive results despite, I’d say, the more muted tone at Visa yesterday. Can you maybe provide just a little bridge in terms of what needs to happen for the guide, or the fact that you maintained the guide for the year? Is there anything--is it all idiosyncratic wins, etc., which is what we suspect, or is there anything else in there? And again, congrats.

Yes, thanks Dan. Overall, maintaining our total company organic growth at 15% to 17%, in order to do that, we expect the merchant segment to grow 25% to 28% organically first half of the year. We’re ahead of that slightly at the top end, good growth overall. We talked a little bit in our prepared remarks about the easing of the transitory benefit of inflation and interest. You’ve seen in our slides that that number has come down. Our previous expectation for the full year was that that would provide a 14-point benefit to merchant solutions, now a 9-point benefit, yet we’re maintaining our full year outlook, and that’s the strength of things like Clover selling very well, value-added solutions both in our small business and in our enterprise business. CommerceHub continues to see good uptake from our large enterprise clients. We definitely saw an increase in anticipation activity down in Latin America we talked about in our prepared remarks, as well as an additional quarter benefit of Dólar turista, so maybe a little bit of that idiosyncratic view from your point on the Dólar turista, expect that to go away at the tail end of this quarter, third quarter, but generally, growth across the business. I think this is one of the hallmarks of Fiserv over the 40 years that we’ve been in business, anticipating that 2024 will be our 39th consecutive year of double-digit EPS growth. We are incredibly resilient and we respond to changes in the marketplace. We respond to changes in the macroeconomic environment and it’s the breadth and depth of our capability, of our product set, of our client base and our distribution channels.

Next, we’ll go the line of James Faucette from Morgan Stanley. Please go ahead.

Great, thank you very much, and thanks for all of the color and detail here. I want to go back to Clover and Clover growth. One of the questions we get a lot is you talked at your analyst meeting back in November about using Clover and how the back book could contribute a little bit more going forward to that growth. But I’m wondering if you can talk to a little bit the sale cycle there and where your existing customer is seeing value on Clover, and how you’re feeling about that and maintaining those customers from a competitive standpoint, if they are re-evaluating solutions, etc. Thanks a lot.

Thanks Jim, good to hear from you. You know, we’ve been really, really feeling good about the Clover strategy and continuing to refine it. Obviously we know there will be a day where we’re going to come back to you and say, we hit it directly into the back book, but we see so much front book activity opportunity between our international, between our ISV, between how we’re thinking about the verticals like services, like restaurants, that we’re continuing to build that product set, that VAS. Obviously it’s an outperformer in attrition across the total book, and we have the benefit of looking at attrition rates from everything. We look at them from what our ISO portfolios are attriting versus our ISV portfolios attriting, versus our agent versus our direct book, and we feel really, really good about how it’s performed. We’re continuing to ramp up our investment in value-added services and vertical expertise there. We’ve made a set of commitments - you know, 3.5 and then 4.5 and pen rates, and you know, we think about the merchant business being $10 billion, then $12 billion, and all of those feels really, really tight and on track. Obviously--you know, I always have to say we started Clover with seven engineers and three [indiscernible], and now we’ve got a global franchise, so it’s straight in our sites. Obviously we have lots of other great things in our portfolio, but it also is a key to why we have 900 financial institutions, and I would expect over a period of time on this journey that if you ask me, we haven’t ever made a commitment or guided to any financial institution, but you should expect us to continue to grow that at a double-digit number every year. I don’t know if that’s helpful, Jim?

For our final question, we’ll go to the line of Ramsey El-Assal from Barclays. Please go ahead.

Hi, thanks for squeezing me in here. I wanted to ask about M&A, and I guess specifically given the valuation, multiples on the public company side seem to be much lower than on the private side. Does that tilt the opportunity set for you guys more towards acquiring public peers? Would you have an appetite to move in that direction, Frank?

Well, I don’t--you know, it’s not like I think about public-private. I think about--first of all, we have a tried and true capital deployment philosophy, which I think we’ve been performing well at. I frequently say, gee, I wish we had acquired more, and I frequently--and I always say, but there’s nothing that traded that I wish we had acquired, so I think it’s about value, it’s about long term value creation. Remember, we have the best distribution with our financial institutions, our ISVs. Our ability now to take financial products and bring them to our merchants - you know, we didn’t really talk about embedded finance at all today, but that is still an engine that’s moving for us. It’s where is value creation, how do we bring it to our clients and our shareholders, and I’m really not thinking public versus private as much as being involved in looking at everything humanly possible. That would be--I think that’s kind of where we are.

I’d like to thank everybody for their attention today. Obviously we’ve got a great IR team, so reach out to them with any further questions. Have a great day, and I look forward to talking to you in the future.

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