Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fiserv Inc (FI, Financial) reported strong second-quarter results with adjusted earnings per share of $2.13, up 18% year-over-year.
- The company achieved 7% adjusted revenue growth and a 160 basis point increase in adjusted operating margin to 38.4%.
- Clover revenue grew by 28%, driven by new product rollouts and international expansion plans in Brazil, Mexico, and Australia.
- Fiserv Inc (FI) signed multiple high-profile clients, including Verizon and Apple, and expanded into new verticals such as Petro Gaming, government, and healthcare.
- The company generated $1 billion in free cash flow for the quarter and returned $1.5 billion to shareholders through share repurchases.
Negative Points
- The merchant processing segment experienced a decline in volumes and revenue from a few large processing clients.
- Organic revenue growth was partially driven by a transitory contribution from Argentina, which is expected to decline faster than anticipated.
- The company maintained its full-year revenue outlook despite a more rapid return to historic average inflation and interest rates in Argentina, which could impact future growth.
- There was a noted slowdown in small business volume growth and enterprise transaction growth in Q2, attributed to various macroeconomic factors.
- The company faces ongoing challenges in maintaining growth in the processing business line, which is expected to remain flat over the medium term.
Q & A Highlights
Q: Could you update us on the international expansion in Brazil and Mexico? What are your expectations for the back half of this year and into 2025?
A: We have talked about Mexico, Australia, and Brazil. You should expect Brazil and Mexico in August as a pilot, with a full ramp in 2025. We feel our Mexico and Brazil build is very similar, and we have growth projections for those markets. For Australia, we expect a friends and family launch in September, with larger partner wins in 2025. We don't expect significant growth this year but will update later on 2025 expectations.
Q: Can you give us more specifics on the sources of the margin outlook that was raised?
A: The margin outlook was raised due to two factors: scale and volume of the company, which adds more revenue, and ongoing productivity improvements. The combination of strong organic growth (15% to 17%) and productivity allows us to expand margins. On the merchant processing side, we saw some volume decline in processing contracts in Q2, but year-to-date, we are up 1%, in line with our expectations.
Q: Can you unpack the small business volume growth and enterprise transaction growth in Q2?
A: We saw a bit of a slowing in Q2, with April and May in line with expectations, but June came in slower. Despite this, we are maintaining our full-year organic growth rate at 15% to 17%. The business is performing at or better than expected outside of the slowing transitory benefit in Argentina. We see growth in July, slightly ahead of June, and our volume and revenue growth are supported by value-added services.
Q: Can you break down the monetization of CashFlow Central and how the revenue will be recognized across the two segments?
A: CashFlow Central is a standout product, and our SMB strategy includes integrating it with Clover, Active D, and Spendlabs. Banks will likely charge their small business clients a subscription, generating revenue for themselves and us as transactions flow. The product is a long-term growth engine, and we have signed six large banks before going live, indicating strong demand.
Q: In the banking sub-unit, you grew 4% ex periodic revenue. Is this higher level sustainable?
A: We see large demand for our services from financial institutions, beyond merchant and CashFlow Central capabilities. Our relationship management model and commitment tracker have distinguished us in the market. Demand is strong, and we are confident in our ability to grow, supported by recent surveys and our differentiated service delivery.
Q: Can you provide a broad update on the financial solutions segment and the driving forces of growth?
A: Our expectation for the financial solutions segment is 5% to 7% growth this year, with an acceleration to 6% to 8% in 2025 and 2026. This is driven by CashFlow Central, XD digital banking solution, Finxact, and other capabilities. We also have large client wins like Verizon and Target going live in 2025, contributing to growth.
Q: Can you provide a bridge for maintaining the guidance for the year despite a muted tone from Visa?
A: We are maintaining our total company organic growth at 15% to 17%, with the merchant segment growing 25% to 28%. Despite the easing transitory benefit in Argentina, we see strength in Clover, value-added solutions, and CommerceHub. We also saw an increase in anticipation activity in Latin America and an additional quarter benefit of Dolar turista. Our resilience and adaptability to market changes support our guidance.
Q: Can you talk about the sales cycle for Clover and maintaining existing customers?
A: We feel good about the Clover strategy and continue to refine it. We see significant front book activity opportunities in international, ISV, and verticals like services and restaurants. Clover outperforms in attrition across our total book, and we are ramping up investment in value-added services and vertical expertise. We are on track with our commitments and expect to continue growing our financial institution partnerships.
Q: Does the valuation of public companies tilt the opportunity set for M&A more towards acquiring public peers?
A: We focus on value creation and long-term value for clients and shareholders, rather than public versus private. We have a tried and true capital deployment philosophy and look at everything possible for value creation. Our best distribution with financial institutions, ISVs, and embedded finance opportunities guide our M&A strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
