Fiserv(FI)2024-07-24 15:39Financial Data and Key Metrics - Adjusted EPS for Q2 2024 was $2.13, up 18% YoY, driven by strong revenue growth and operating margin expansion [9] - Adjusted revenue growth was 7%, with organic revenue growth at 18% [9] - Adjusted operating margin increased by 160 basis points to 38.4% [9] - Free cash flow was $1 billion in Q2 and $4 billion over the last 12 months, with $1.5 billion returned to shareholders via share repurchases [11] - Full-year adjusted EPS outlook raised to $8.65-$8.80, up from $8.60-$8.75, with organic revenue growth guidance maintained at 15%-17% [23][54] Business Line Performance - Merchant Solutions: Organic revenue growth was 28% in Q2, driven by Clover revenue growth of 28% and small business volume growth of 4% [24][37] - Clover's annualized payment volume grew 17%, with value-added solutions (VAS) penetration at 20% [37] - Enterprise organic revenue growth was 27%, driven by transaction growth of 8% and higher VAS penetration [38] - Processing organic revenue declined by 7%, with year-to-date growth at 1% [39] - Financial Solutions: Organic revenue growth was 8% in Q2, with digital payments and issuing growing 8% and 9% respectively [46][47] - Zelle transactions grew 43%, and 32 FIs signed up for FedNow in Q2 [46] - Banking organic revenue grew 6%, excluding periodic revenue [50] Market Performance - International Expansion: Pilots for Clover in Brazil and Mexico set to go live in August, with Australia following in September [25] - In Brazil, instant payment transactions reached 400 million in Q2, up 21% from Q1 [44] - In EMEA, partnerships expanded with BNP Paribas, H&M Group, and Deutsche Bahn [41][42][43] - Latin America: Sequential volume growth in Brazil was over 20%, with Pix platform pilot going live [44] - Asia Pacific: Merchant acquiring services launched in New Zealand, targeting hospitality and retail segments [45] Strategic Initiatives and Industry Competition - The company is integrating solutions like CashFlow Central and Experience Digital (XD) to enhance revenue generation for clients [16][19] - New partnerships with Apple enable features like "pay with points" and installment loans on credit cards, enhancing consumer choice at checkout [20][21] - The company is leveraging its data capabilities, including the Fiserv Small Business Index, to provide actionable intelligence and anti-fraud solutions [64][65] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's ability to sustain double-digit organic revenue and EPS growth, with 2024 marking the 39th consecutive year of such growth [23] - The company is focused on expanding its global footprint, particularly in Brazil, Mexico, and Australia, with full ramp-up expected in 2025 [70][72] - Management expressed confidence in the resilience of the business model, citing strong demand for Clover, CashFlow Central, and other value-added solutions [110] Other Important Information - The company is celebrating its 40th anniversary and the 5th anniversary of the Fiserv-First Data merger, highlighting the success of the integration and the vision set in 2019 [12] - The company is investing in AI and data science, with plans to launch client-facing anti-fraud solutions in the fall [63][64] Q&A Session Summary Question: International expansion in Brazil and Mexico [70] - Pilots in Brazil and Mexico are set to go live in August, with full ramp-up expected in 2025 [70][72] - The company has a strong growth trajectory in Brazil, with expectations for continued performance [71] Question: Margin outlook and productivity [81] - The margin outlook was raised due to strong organic growth and ongoing productivity improvements [81] - The company expects continued margin expansion driven by scale and operational efficiency [82] Question: Small business and enterprise transaction growth [83] - Small business volume growth slowed in Q2, with July showing growth in line with Q2 expectations [89] - Enterprise transaction growth was impacted by declines in processing volumes, but overall performance remains strong [87] Question: CashFlow Central monetization [92] - CashFlow Central is expected to generate revenue through subscription fees and transaction fees, with strong demand from financial institutions [96] - The product is part of a broader SMB strategy, integrating Clover, digital banking, and other solutions [95] Question: Banking sub-unit growth [98] - Banking organic revenue grew 6%, driven by strong demand for services and Finxact wins [99] - The company expects sustainable growth in this segment, supported by ongoing client demand [98] Question: Financial solutions segment growth [101] - The financial solutions segment is expected to accelerate growth into 2025 and 2026, driven by CashFlow Central, XD, and Finxact [102] - Large client wins like Verizon and Target will contribute to growth in 2025 and beyond [104] Question: Merchant segment guidance and macro factors [106] - The company maintained its full-year organic growth guidance despite easing transitory benefits from Argentina [108] - Growth is supported by strong performance in Clover, value-added solutions, and CommerceHub [109] Question: Clover growth and customer retention [113] - Clover continues to outperform in terms of customer retention, with strong demand for value-added services [115] - The company is focused on expanding Clover's product set and vertical expertise [117] Question: M&A strategy [119] - The company remains focused on value creation through acquisitions, with no preference for public vs private targets [120] - The strategy is centered on leveraging the company's distribution channels and embedded finance capabilities [120]