Fiserv, Inc. (FISV) Earnings Call Transcript & Summary

Okay. Good morning, and thank you for being with us here on day 4 of the best fintech conference there is. I'm Ashwin Shirvaikar, Citi's Global Co-Head of Fintech Research and also the New York-based payments analyst. Super excited about the next company and speaker. It gives me great pleasure to welcome Frank Bisignano, who is President and CEO of Fiserv. Thank you for being with us. Really appreciate it.

My pleasure always get to be here with you.

My first question to you is going to be, as Fiserv's CEO, can you confirm that the long-term -- long-standing Fiserv commitment of double-digit EPS growth and a healthy capital return via share repurchase was not changed. Now you answered the second part of that question with the announced $60 million share buyback this morning. Actions speak louder than words. So thank you for that. But maybe answer the first part of that question because I think it's important for investors to hear that from you. But beyond that, I got to ask, obviously, Jeff applied a lifetime of what he learned to be to -- as a great manager to how Fiserv was done. But you have a lifetime of learning also. What are one of the -- 1 or 2 things that you can bring sort of the running of the combined company that it can become your hallmark?

Yes. Thanks. So why don't we talk about capital allocation strategy first. Fiserv has a long commitment to double-digit EPS growth. And even in the height of this pandemic, you've seen us keep that commitment. During the course of the year, we have both bought back stock and paid down debt, both $1 billion -- over $1 billion each. And I think what you've seen from Fiserv in the past on its capital commitment strategy, notwithstanding our announcement this morning on share repurchase, will stay in effect. We will continue to invest in our businesses. We will continue to have a deep commitment to double-digit EPS growth. We will be an allocator of capital in a share repurchase program always. And we will do acquisitions as Fiserv always had smartly. I think you can count on us doing things that continue to build shareholder value. But I would start with that, our share buyback program, as first and foremost. We will pay down debt to get our leverage ratio to where we had said. But you've watched where our leverage ratio has performed and the debt paydown we've done so far. And look, Jeff has been a great partner to me, a friend to me. We continue -- we spent a fair amount of time together yesterday, and we continue to talk all the time. And what he built at Fiserv has been incredible. He often reminds me that I'm only the fourth CEO of this company in 35-plus years, and that's quite something I'm proud of and continue to carry -- want to carry that mantle. But I think I have a long history of running technology-based businesses and bringing technology in an innovative way both at Citi, where I think we took the global transaction bank in a 4-year period from $4 billion of revenue to $6 billion of revenue all through innovation in the client's office. I have a deep commitment to the client and innovating in the client. If you looked at when I ran in the mortgage business at JPMorgan, that was another double-digit grower, while we brought in new technology innovation, completely changed our grades with J.D. Power in the way they viewed us as a service entity. And you could go back to the '90s when I ran all the consumer lending businesses and made them technology-based. And in fact, I know you're in New Jersey, but it was back then that we even had a merchant business, one of the first ones to bring terminals into supermarkets. Now we've come a long way. And then you go look at First Data, which we took from 0% revenue growth to 7%; built out an e-comm business, which we're so darn proud of; built out Clover that we're so darn proud of. So -- and I think I've always been able to drive productivity through technology and innovation. So I think a lot of it were things that were done well in both companies, but the power of this company really gives us the opportunity to continue to accentuate those strengths. And those strengths are the strength of the whole management team. I would say the other thing is talent management is always at the top of my list, and retention of great talent is always at the top of my list.

Okay. Okay. That's all good stuff, good to know. I want to ask about a year into -- a little bit more than a year into the Fiserv-First Data deal, how would you grade yourself on deal execution? I know a lot has happened with the pandemic and everything, but what are a couple of things that went right? And what are a couple of things that you could have done better?

Well, this wasn't my grade. It's a team's grade. Because we run a team partnership mentality in how we deliver results. I think execution on synergies will increase it from $900 million to $1.2 billion; and integration of the company, the bringing together of the company, the brand together, the talent, the maniacal pursuit of excellence, both in the client's office and around our people. I think in some ways, the pandemic was an accelerant for us. And the team galvanized very, very well. So I think execution excellence, I think the ability to deliver double-digit EPS growth during a pandemic. You saw, I suppose, year-to-date, 11%. I think the strength of what we're able to do with Clover during the pandemic and what we've been able to do with our digital assets on banking, serving our FIs. So I think when I look at our overall performance through the pandemic, accelerating revenue and expense synergies, coming together in the way we have, building out new technology, building out infrastructure, upgrading, improving client service, bringing AI into the environment to serve our clients. I think the speed that we've executed, that's been very, very high and very, very good. I guess if you say what could go better, you'd have to say more time with the investment community given where our stock is, maybe. So as what brings me here this morning, I think we feel very committed to the capital allocation methodology with our clients and building out technology in a way nobody else will. This company is at the intersection of operational excellence and great execution while innovating in the client's office, and I think you see it in our numbers.

Yes, yes, yes. Well, let's talk about some of those numbers. And let's start with sales. So your sales commentary has been very robust in spite of the pandemic. So a couple of questions come up, right? Are there projects or products that your clients are speeding up their decisions on? Or conversely, are there areas where demand has dropped off? You also discussed maybe some of your recent large processing wins in terms of what drove them, when will they start showing up in revenue, any sizing type of thing? I mean help us understand sort of the transformation of the sales process in the middle of the pandemic that led to these results and talk about some of them maybe.

I think, first of all, all things digital, strong demand for digital. And our digital assets resonate in the financial institution's office. We offer the widest array of product and integration for FIs, and that's on the digital set side. I think when you look at the large credit processor wins, those were very transformative. When you look at somebody like ADS, who looked at everything possible and concluded that our stack would help transform their business. We have our card services division is building an integrated offering that's unparalleled in terms of what they bring. Our speed to market has been excellent, our implementation capability. I have to believe that our NYCB implementation is probably the largest full bank conversion virtually in the industry. So that's efficient integration, client focus. I think if you look at products like our Zelle product, it continues to sell very, very highly. And in fact, its implementation pipeline is very strong. I think it's been a very client-focused process. I think there's a lot of cross-selling going on. You look at what synergy benefits we are deriving from bringing these 2 assets together and having the teamwork as one in the client's office. So I think it's in the client's office and maybe virtually a lot of times in the client's office, but the receptivity is very high.

Got it. Got it. Maybe we should talk about segments. So let's start with Acceptance. You're certainly doing interesting things here. You have outperformed relative to your closest peers. So what's driving that? What's driving the 30% GPV growth in Clover that you've been seeing? Maybe you could also talk about e-commerce. Are there specific capabilities that you can maybe point to that maybe investors are not giving you credit for?

Well, we believe we have the leading business in the industry and I think our numbers are bearing that out. So there's no better way to look at it than size and scope and the amount of growth we have and even at the height of the pandemic. Now we think that derives from a series of factors. Clover is a mainstay product that we continue to innovate, that we've continued adding resource to Silicon Valley staff and building that out. Remember, that was a very early cloud-based system that started with us back at First Data building it. And it continues to build and have large client demand. And frequently, we're asked about the cannibalization of it in our client base. While our numbers demonstrate the growth -- and when you want to think about that, that's probably 90% net new clients coming on there. Secondly, our e-comm business is tremendously misunderstood. I look forward at Investor Day just walking you through the full facts and the full stack. That has been a large investment, and that's why you see us winning so much e-comm business. I think our clients, it's who are our clients and how deep are our clients, from grocers to petro, to serving mom-and-pop stores all across America, but bringing Clover gateway in innovation and bringing order-ahead capability. I think if you think about innovation and digital gift and us doing things around fraud management. So I think we have the largest business. We have the best clients. We have geographic dispersity. We have a front-end like Clover. And we think we have a multicurrency, world-class e-comm capability, and that's why we're winning.

Okay. Okay. And so if I kind of try to layer on the impact of what's going on in the environment out there. Recent flare-ups of COVID in a number of geographic regions since you reported earnings in late October. Has any of that affected how you feel about the rest of the year?

No. If you go back to earnings, we had talked about at least 11% EPS growth. And we hold firm on that. Obviously, there are flare-ups going on. And obviously, we see spots -- I mean I know you're sitting in Short Hills, New Jersey, but you cannot miss the fact that the New York City public schools are closed. These are all indications of COVID. Although spending is occurring, it may not be occurring at the growth rates we had seen, but spending is occurring and we share a confidence on the path forward. I mean we see shutdowns in EMEA. I think given we're 11.5 months into the year, given our strong expense management discipline, given the synergies that we have and given the business -- the resilient business model, the higher recurring revenue business model we have, our confidence is still high around that. But there's clearly flare-ups, and I mean it's across the world.

Right. Okay, okay. Understood. So let's talk about the Fintech business, the segment. Fiserv had one of the broadest portfolios in bank IT, right? But we have seen companies with a more rifle-shot approach, for example, let's say, lending or digital banking, that come in with a SaaS-based product. And you often see press releases, they have won such and such client. It's quite clear from your sales comments, you're winning overall. But the question is, can you sort of balance those 2 things? Can you win enough deals to accelerate your growth to better than mid-single digits and why?

Well, what we've talked about is that we see this as a strong mid-single-digit grower. I think when you look at it, we have a privileged core position. And we're uniquely positioned to deliver digital banking, lending, payments. It's the integration of what we can do with core data in branch, omnichannel experience. And we think we have the best in the industry on that. We have a bundle across the enterprise. We do have in our DNA product a fabulous modern core with cloud enablement. If an FI wants a single point solution with a fintech, we have market-leading APIs to integrate with that fintech. But we do find that we are a digital choice provider for many, and we drive many's digital transformation. I think that's an acceleration. I think you see it in our sales numbers. But we have a privileged position. We take it very seriously. We have a client-first mentality. And I think, our ability to grow will be very strong for the next decade here.

Okay. And just to clarify since I kind of tried to put specific numbers there. So what I kind of said was better than mid-single digits. That's something that you're shooting for, right?

Yes. I mean we've talked about that we see this as a strong single-digit grower. I think whether better or strong are 2 different words. But I mean, clearly, this is a core competency of this company. Its tried and true capabilities are strong. I think the combination of these 2 companies have only made that capability better. And you should see accelerated revenue growth in this segment.