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

Ladies and gentlemen, the program is about to begin. [Operator Instructions] At this time, it is my pleasure to turn the program over to your host, Jason Kupferberg. You may begin.

Thank you, everybody, for joining us for day 2 of our virtual payments symposium. And very excited to kick off the day with Fiserv, specifically with CFO Bob Hau. We've got a lot of material to get through. And Bob, we really appreciate you taking the time with us this morning.

Actually, Jason, thanks for having me.

Sure. Sure. Well, a natural place to start obviously is just to get your take on the regional bank crisis. What kind of exposures does Fiserv have? Any impacts across the various business segments at the company that you'd want to highlight for investors? Maybe we can just start there.

Sure, Jason. Yes, we're certainly living in dynamic times, aren't we? I think the most straightforward way to think about it is, to date, no impact. We obviously do business with both SVB and Signature, but it represents about 1/10 of 1% of our revenue. And important to note, they're still in business, still operating. We're still supporting both banks, larger in terms of SVB, but both of them are relatively small on our $17 billion in revenue. And as you saw in the announcement over the weekend, NYCB taking on some of the assets from Signature. That's actually a plus to us, as NYCB operates on our core, among dozens of other products. So supporting those banks as they continue through the journey and we don't see [indiscernible].

Okay. What about just in the merchant segment? Like have you guys seen any change in trajectory of consumer spending in the past couple of weeks, consumers reacting at all to those?

No, definitely not. As we said during our fourth quarter earnings call back in February, we were seeing a good January in line with our expectations. We anticipated the February growth rate to slow relative to January but driven by year-over-year comps, as January of 2022 was impacted by COVID. And as you may recall, we had a flare-up in December, January. And in fact, as an example, Fiserv had been back in the office. We actually sent people home back in December and brought everybody back in the office, starting in February. And we're definitely seeing that dynamic but right in line with our expectations.

Okay, okay. Well, that's good to hear. And I mean, I guess, just as a point of clarification for the audience just given that the smaller financial institutions seem to be at the epicenter of this current situation: So within your Fintech segment, roughly what percent of the revenue would be coming from community banks, regional banks?

Yes. So broadly, as you know, we have some, well, strong exposure across the financial institutions segment. We do business with the largest financial institutions in the world, all the way down to the smallest community banks and credit unions. The "sweet spot" of the company has been in that, call it, $10 billion and smaller, based on what is referred to as community financial institutions. And over the last several years, with the strength of DNA in particular but also Signature and some of our other solutions, we've moved up the pace of it more into the $10 billion to $100 billion, but the majority of our revenue is still in that $10 billion and smaller [ piece ]. And of course, from a community financial institution, so far, there's really been no impact. The impact has been to 2 direct banks, with Signature and SVB, which would be more [indiscernible] community financial institutions.

Okay. And then, I guess, just looking at the general situation with the banks through another lens. I mean First Data historically made extensive use of the banks as a channel. And so your best-known joint ventures are with very large banks, but is there a material amount of payment volume that's coming through referral relationships with some of the small to mid-sized banks that we should keep in mind?

Yes. If you look at our merchant segment overall, the strength of our business over the last several years has really been driven by our depth of products and solutions; the depth and breadth of our distribution channels, whether it's through the bank channel, as you talked -- you referenced, through RSAs and referral arrangements, which of course are referrals, but the merchants are actually clients of ours directly. We just get referrals through the bank channel. We certainly have some joint ventures, but those are with very, very large financial institutions. We have large partners through ISOs and ISVs. And of course, over the last couple of years, we've been building out our direct channel. And so broad distribution capability, a broad depth; geographic reach both in the U.S. and internationally, with our international business continuing to grow quite well, representing order of magnitude about 25% of our revenue. So the direct referral agreements through the bank channel is an important channel for us, but relative to the overall portfolio, order of magnitude, it's probably very low double digit, call it 10%, 15%, of our revenue. But again those are our merchant clients or our clients, not a joint venture.

Right, right, yes. And that is an important distinction, so thanks for highlighting that. So let's talk a little bit about the outlook for this year. I mean, if I kind of start by flashing back to 2022, a real strong year for the company. You outperformed on organic top line growth. Margins, you ultimately got where you wanted to and granted it was maybe a hair below kind of the original medium-term guide but certainly solid performance. Now your 2023 guide, I believe you guys have said, assumes a mild U.S. recession. And this initial guide is in line with your medium-term framework, so hypothetically -- and maybe this question has now become more topical in the last couple of weeks, but if the macro environment does really become more challenging for everybody than anticipated, how would Fiserv approach potential trade-offs between revenue and margin if it comes down to that?

Yes. Let me take that question in 2 pieces. First, from an overall margin standpoint, you're right. We were slightly below the medium-term guide, which back in December of 2020 we indicated, over the next 3 years, we expected 500 basis points margin improvement, with 125 basis points in 2022 and 2023. And in 2022, we did 120 basis points. I think it's -- the math is actually 121 basis points. And we "missed" that 125 by about $8 million on almost $17 billion in revenue. So just short. And I would argue that, back in December of '20, we didn't anticipate the pandemic impact or the rate of inflation, macro economy to be quite what it was in '22. And when we achieve our 125 basis points for 2023, we'll have expanded 530 basis points [ over the 3 years ], so slightly outperforming the medium-term outlook of 500 basis points. With that said, we certainly look at "trade-offs." I don't see it as a trade-off per se. In other words, I think we can grow and expand margins. I don't think it's necessarily a trade-off we have to make. Ultimately I would tell you that, if I have a chance to add $1 of revenue at 35% operating margin, in line with our 2022 [ performance ], versus [ 36 and change ], which is our '23, we'll look to do that, but we certainly believe that we can grow meaningfully in that 7% to 9% range for 2023 while expanding margins in just about any macro environment. Obviously, if there's a massive recession, if the world were to fall apart, that would be a different dynamic, but right now I'm not calling for that by any stretch of imagination. We're almost 1/4 of the way through the year, and so far, we're off to a good start.

Okay, good to hear. Let's dive in a little bit more on the merchant segment. I think, if typical seasonal patterns kind of hold, Acceptance segment revenues would maybe be down 2% to 3% quarter-over-quarter coming off of typical holiday seasonality in Q1. So is that kind of a fair way to think about this year's Q1? And then just any comments around cadence of Acceptance revenue growth as we go through the year? And what might be some swing factors to consider there?

Yes. I think, typical seasonality, first quarter is below fourth quarter, fourth quarter actually a strong quarter. We actually typically are quite strong in second and third quarter, but then it do have that seasonal decline Q4 to Q1. Your 2% to 3% is probably a little bit strong. Call it 1% to 2%. Maybe that 2% range is, order of magnitude over a multiyear period, about right. And then from a year-over-year standpoint and our cadence for 2023, I think some of it will definitely be driven on the year-over-year comps. As I talked about, January was quite strong given the compare to January of last year which had some COVID impact. We also saw in particular in Europe and the U.K. some COVID impact in the first quarter, even into the second quarter of last year, so you'll see some strength of that from a year-over-year standpoint, but I anticipate all 4 quarters to be good growth and in the range of that 9% to 12% that we guided from a medium term.

Okay, okay, good, good to hear. I know that, flashing back to the fourth quarter for a second, you guys had mentioned that there were some price increases there in the merchant segment. And overall merchant revenue growth as well as that of Clover both came in well above volume growth. So we can kind of see it in the numbers. So maybe just some more color would be helpful on those pricing changes. How broad-based were they across the portfolio? Are they sticking? Have they induced any unforeseen amount of churn?

Yes. So those increases actually went into effect in Q3 and Q4, late Q3, early Q4. We have seen them hold and have not seen an impact from an attrition standpoint. Attrition remains on an improved basis over the last couple of years. You've heard us talk about the growth of our merchant business, jeez, a year ago now, I guess. We did our merchant call where we spent a couple of hours on a deep dive in our merchant business. And Jason, as you know, I'm a relatively simple individual. The growth algorithm for our merchant business is actually "very simple." Maybe our business doesn't quite feel it's as simple as this, but it really is the magic of get more merchants and sell more to those merchants, meaning value-added services, deeper penetration of that capability. We saw growth last year both from the standpoint of having more merchants as well as the value-added service penetrations as we continue to build out. And some of that is developing more services. Some of that is selling, better sell-through of those services. Some of it is the benefit of acquisitions, for example, BentoBox, where we see meaningful growth in ARPU on a client -- on Bento through Clover than we do on a direct non-Clover merchant and continue to build that out. So we see good growth. Pricing is one element of it, but certainly it's only one piece of it. And it's been in particular, third and fourth quarter of last year, on the SMB base, but we continue to look for opportunities where we can drive value for the value we're providing through that operating system that we provide through Clover.

Okay, okay. So I guess it will just be something for us to keep in mind. When we get to Q4 of this year, you'll be lapping that pricing and -- yes, okay.

[indiscernible].

And then just in terms of, I mean, if we put pricing on the side; and then just think about other trends you might be seeing in terms of yields that are driven by mix, cross-selling of some of the value-added services, like you mentioned, whatever other factors. I mean, what kind of trends would you highlight in terms of yields? And maybe if you'd want to break it into an SMB-versus-enterprise discussion.

Yes, yes. As you know, my favorite topic is yield. At the end of the day, yield is an output, not an input. And we're not managing the business for yield. We're managing the business for value-added services that we can provide to our client base. And I don't mean just software services through Clover, but it's providing value to our clients, whether it's the largest companies in the planet, to the smallest corner store around the corner of our [indiscernible]. With our Clover operating system; and Carat, our operating system for enterprises, we continue to grow that value for our merchants. Ultimately we wake up every morning looking for ways to help our clients grow, whether that's our merchant business, whether that's in our Fintech space, whether it's in our Payments and Network business. And that allows us to "get more yield" as an output in the merchant business as we continue to build out the Carat solution for enterprises and offer not only the leading point-of-sale capability but also our e-commerce and omni-commerce capability. We sell more services and deepen our relationship with our merchants, and that gets us more yield. We're focused, as I said earlier, about signing up more merchants and selling more services, getting more revenue per unit, ARPU, and driving that value for those clients. And we think there's a significant benefit for having an operating system. It increases the opportunity for more services, therefore higher yield. It increases the attach rate and it increases the retention as we become much more valuable to our merchants. That actually allows them to grow. And so we get growth from an organic standpoint, same-store sales because those merchants are more successful because they're growing their business and then in turn buy more services from us.

Right, right. And if we hone in on the enterprise piece for a minute. Fiserv has obviously had a long-held prominent position among large merchants. How often are they using a multi-acquirer strategy? Has that increased at all, the prevalence of that? And at merchants where that is in place, what is Fiserv seeing in terms of its wallet share, if you will, at those merchants that do the multi-acquirer approach?

Yes. Certainly in the enterprise space, particularly for the very large merchants, it's very, very typical to have a multi-acquiring relationship. That's been the standard for quite some time. I don't think we've seen any change in that, so to speak, or any growth in that. That's a standard practice for the largest merchants out there, and we compete quite nicely. In the very largest, they can move volume relatively regularly, and some of them do. And so you're competing not only to win the contract, but you're competing [indiscernible]. And that's that service mentality on our part, to make sure that we are providing the highest level of capability to help those merchants fulfill their business. And we think [ we do ] quite well both in terms of winning "mandates" with those large merchants in the enterprise space but also maintaining volumes from them where they have a multi-acquiring capability. That's in large part driven by our physical presence combined with our strong e-commerce, our omnichannel capability and why we've been investing in building out our Carat solution with commerce.

On the earnings call, there was some mention of rolling out pay-by-bank capabilities with some larger merchants, so just curious what the uptake of that has looked like among larger merchants. Also, what's consumer uptake been like? What is the value proposition for the consumer? And then maybe as part of that, just touch on how you see the introduction of FedNow in January perhaps touching various parts of Fiserv's business.

So you basically want me to wrap up with that question, Jason...

Right. Well, I just added another hour to the session, so I thought...

There you go. Certainly a multipronged question and, I think, touching on the continued evolution and innovation in the space broadly.

Yes.

And in both areas, we think we've got leading solution. And in both areas, we continue to innovate and something you've seen from us for a lot of years and you'll continue to see. This is a competitive space, whether it's in the merchant space or in the financial institutions, fintech space. And it's been for a lot of years. Pay by bank, quite frankly, is still very early. We're seeing lots of interest. We are signing up some large enterprise merchants right now and continue to see interest growing in that space. Right now I would tell you that the -- probably the highest level of interest is in the gaming, grocery and probably petrol markets, where we have good position in all 3 of those areas, but you also touched on an important aspect as consumer adoption and where does that stand. So very early both in terms of merchants bringing that solution to their consumer base and then consumer adoption. We have long held big position and a strategy of offering optionality to our clients. Wherever they want to meet their consumers, we'll provide that capability. And pay by bank is one of the many solutions and we're bringing that to our clients on a regular basis. And again, those conversations, the level of interest is growing. And we're beginning to sign merchants up for that capability and we -- provide that. If consumers want to use that, we'll certainly provide it for our merchants. In terms of FedNow, obviously going live soon. It will be we'll be one of the early offerers of that. We are signing clients up for it. We are connecting to FedNow through the Fiserv NOW network and providing as much real-time connectivity for our financial institutions as they want. And of course, there are multiple real-time networks out there. And the key for us continues to be, has been for quite some time and continues to be, breadth of capabilities, so we will be able to connect our financial institution clients to multiple real-time networks through that NOW network that we provide. And we will be an early adopter and early partner for the FedNow network.

Okay, let's move over to the SMB side of things. Would just love your take on the competitive environment in SMB. I mean, is there more bifurcation happening? It feels like there's been a lot of technology innovation at the point of sale for SMBs over the last 5 years, arguably accelerated during the pandemic. Where do we sit today, in your estimation?

Look. This has been a competitive industry for a lot of years, with high levels of innovation. One of the talk tracks that I hear regularly is, "With all of these upstarts, you big incumbents must be at a real disadvantage." And I think we've proven that that's absolutely 100% not the right way to think about it. Yes, we are a legacy merchant player. We are an incumbent [ and I'm aware that ], that brings real strength. And we think we've demonstrated that with outsized performance and gaining market share. We've outgrown the market the last several years. Several years ago, 7, 8 years ago, we acquired Clover. And people thought we were crazy to try to suggest we were going to outgrow Square. We are today bigger and growing faster than Square. We continue to innovate. We continue to drive new solutions. We continue to bring new capabilities to our small business as well as the largest enterprises. We think the ability to invest and bring innovative solutions to the market is one of our strengths. The breadth of our distribution channel, the breadth of our capabilities from our product solutions, being able to bring the world's leading point-of-sale solution combining with innovative software solutions, developing the operating system for small businesses in Clover has proven to be an important recipe for success and, we think, will be [ in the future ]. I personally like operating in a very competitive environment. We think it's good for the market. We think it brings innovation. And having a multibillion-dollar merchant business allows us to continue to invest in new solutions. Yes, there will be small upstarts, new formations, new businesses that grow faster than us from a percentage standpoint, but we don't believe anybody can bring the breadth of capability that we can bring to our client base. And we continue to invest both organically and inorganically. As you know, we spent about $1.5 billion last year on capital. Lots of that was software capital, bringing new innovative solutions to our clients. As well as about $1 billion in acquisitions, so we invested $2.5 billion back into our both merchant, Fintech and Payments and Network business. We'll continue to invest, continue to bring new solutions. And [ we're competing ] on a regular basis like we always have.

Yes, yes. No, scale is obviously huge. So on Clover, strong performance last year. You were up in the mid-20s both from a volume and a revenue standpoint. As you had referenced before, a year ago, you had your kind of Merchant Analysts Day, if you will, and talked about some 2025 targets. And obviously, now that we continue to inch closer to that, people start doing the math around what it takes to get from here to there. And I think it does imply that there would be some incremental -- not huge but some incremental acceleration beyond 2022, if we look, think about a CAGR through 2025 to get you to that 3-year target, so what drives that incremental acceleration? Is it the value-added services, the international piece? Would love to just hear some thoughts there.

Yes. The short answer to your question is yes.

Okay.

I would say, first and foremost, we're right on track. March of last year, we laid out a path to at least $10 billion of revenue for the merchant segment overall and $3.5 billion through Clover; and feel like we're right on track for delivering just that, in good shape. We continue to invest. We continue to have great opportunities in the international space, again both from a Clover standpoint as well as overall merchant. We announced the Deutsche Bank joint venture last year. That's now up and running; and will provide growth for us in '23, '24 and beyond. Continue to grow very nicely down in Latin America. You heard us talk about the Caixa deal down in Brazil. Continue to see very good growth in Latin America, particularly in Brazil and Argentina, as we build out more services globally. It's certainly [ a preponderance ] of growth out of the U.S. with strong international, good distribution capability. Building out Clover Connect for our ISV partners provides a nice growth opportunity for us. So we were in the high 20s in the last couple of years, 25%, 26%, 27%; right in line to hit that $3.5 billion for 2025; and in good shape to hit $10 billion for the overall merchant segment by '25.

And the penetration of value-added services continues to increase. I mean I think you hit 16% in Q4, with the metric you had given, so maybe you can just spend a minute talking about some of the specific offerings that are driving that. And are there kind of medium-term targets as to where that 16% goes?

Yes, most definitely. And in fact, as you might suspect, when we laid out that path to 2025, we didn't have a model that says 2020 is X and 2025 is Y. We have it by year; and broken out whether it's growth in the distribution channel, whether it's growth of more services, et cetera. And from a value-added service standpoint, I'm moving that up to 25% by 2025, hitting the 16% in the fourth quarter of last year, again in line with our expectations -- obviously that was year 1. [ We have 1 year ] of the multiyear behind us. It's a combination of continuing to add more services as well as deepen the integration of those services. As you know, when we first started building out Clover, one of the elements to the growth of that business is the out market. I mean finding a number of services, a wide variety of services, to our small business merchants to help them operate in their business. As you know, many of these small businesses just want to sell. If I'm a pizza shop, I want to make pizza and sell pizza. I don't want to be bogged down with the hassle of absolutely operating my business. And so when we can provide the capability to make that as simple and straightforward and seamless as possible, we think that's a value-added service that we can bring. We continue to build out the integration of those solutions, making it easier to operate in the Clover market and the Clover solution. BentoBox is one of those examples that we'll provide as we build out that integration into Clover, provide a nice build-out. We're focused on 3 specific verticals with restaurant, retail and services. We're seeing good growth and penetration in that, as well as horizontal -- excuse me, horizontal services not just to those 3 verticals but across the entire merchant base. And we'll build out more capability further in the integration to make it easier to operate and drive that operating system solution for those small businesses.

Okay, well, let's switch over to the Payments segment for a minute; really good year last year, 9% growth, above the 5% to 8% medium-term range. And I think you expect to be in the upper half of that 5% to 8% in 2023, but there's a bunch of, I'll call them, subsegments within the reportable segment of Payments, so maybe just spend a second talking about what's fueling the outsized growth. And then conversely, are there pieces of the Payments segment that have room for improvement?

Yes, so let me back up a minute by trying to describe the Payments segment. To your point, there are a few pieces into this, broadly 3 pieces. We have our "issuer" business, which is largely tied to large credit issuers. And that's roughly 1/3, a little bit more than 1/3, of the business. As you know, back in December of 2020, where we have -- held our full-company Investor Day, we talked about $120 million worth of BINs that year that we thought were going to provide significant growth opportunity. That was a heck of a sales year, very strong growth in sales for us that would then provide growth in revenue over the next several years. Fast forward today, that $120 million, which included 3 top 25 issuers, 3 very large issuers, are all -- excuse me, are now all implemented. Back in December of '20, we would have described that as a bit of a 100-year flood, unusual in volume, unusual in rate of win for a single year. Today, not only is that $120 million all implemented. It's actually providing more growth. It's been $120 million, i.e., our estimate, for both of those individual issuers. It's been a bit stronger than we had anticipated and we're seeing that in our 2022 growth rates and our 2023 growth rates. Additionally, we continue to win more. That 100-year flood -- just like in our homes, that 100-year flood seems to come more regularly than every 100 years these days. And today, we've got a tremendous backlog of wins in the last 12 or 24 months and continue to have a great pipeline. You heard us announce 2 large wins in fourth quarter alone with Target and Desjardins. Those will implement in '24 and beyond and provide continued growth in that business. And we'll continue to have a good pipeline, so our credit business continues to be a strong element of growth for that overall Payments and Network segment. The second big business is what we referred to as our card business. Really it's large debit -- excuse me. It's debit issuing in our network business. It's been a good growth opportunity for us. It is been -- excuse me. It's about 1/3 of the business, just about the same size as our issuer business; and continues to be a great business. We saw a good growth in that during the pandemic as you saw a shift from credit to debit. In the last, call it, 6 months or so, there's been a shift more towards credit, a reversion to norm, so to speak, but we still see good growth opportunities as we build out our relationship with our financial institutions. If you had talked to me 4 or 5 years ago, I would have talked about our bank and credit union relationships, starting with the core account processing business and then adding new products and solutions, growing their share of wallet with those financial institutions. Today, we actually enter our relationships with those financial institutions, new logos, in a variety of different ways. One of them is our debit business, so we may sell debit solutions to a "non-Fiserv" core client and then sell core given the capability that we have in that merchant business. So there's been good growth in that and we expect that to continue. And then the third piece, also about 1/3 but a little bit smaller than the first 2, is our "digital payments and others" segment. This is where we have bill pay, our biller business. This is where we have our digital payments, Zelle transfer capability, that sort of a thing, person-to-person payments; and very good growth in the transfer business and the digital movement of money, so to speak, whether it's TransferNow solution where people are moving money from account to account or whether it's the person-to-person payment. As you may know, we are the world's leading provider of Zelle services outside of the owner banks, outside of those that actually own Early Warning. And that continues to be a good growth opportunity for us. A significant number of financial institutions already implement it. And seeing good growth from same-store sales, so to speak, but also still have a good pipeline of community financial institutions looking to join that network, and we'll continue to see growth there.

Okay, okay. And then Fintech, solid mid-single-digit grower. I mean, are you expecting any hiccups, if you will, just in terms of sales cycles, pipeline conversion in light of what's happening in the banking world? Or any sort of recent conversations that you've had with customers there?

I can tell you I certainly don't expect that both in terms of the conversations we're having today as well as the history. One of the questions we frequently get is around banks spending in the technology world and some folks believing that, that is going to slow. I'm yet to find anybody that's actually got any tangible evidence that says that's going to happen or that, that has happened. In our space, we continue to see investment. Our products and solutions help clients, help financial institutions both grow their business, i.e., providing more solutions for their client base, but also helps them operate more effectively, efficiently. And so in times of investment for growth, we have a solution for that. In times of investment for operating performance, we have solutions for that, so we tend to see that mid-single-digit growth on a regular basis. Yes, there might be some ebbs and flows in large economic -- obviously, in the great financial crisis in '08, '09, we saw a slowdown in that space, but largely, over a period of time, we continue to see good growth and good investments. What we're hearing today is no change. We have not seen a lengthening of the sales cycle. We still have a very robust pipeline. Frank has been talking over the last couple of days, a couple of weeks with our client base, as he does every day. In fact, he's not here today on this call because he's on a plane and on the way to see clients. Last week, he was in client offices on Thursday and Friday as things were unfolding. And he was with a number of -- he -- I think he saw 3 clients in the Midwest in Thursday and 1 on Friday, plus 1 on the mid-Atlantic states on Friday. And those clients, yes, they had the TV on and they were clearly paying attention to what was going on, but they're business as usual. They continue to focus on the long term. They continue to have conversations with us. Our sales cycle has continued to be good. Our implementation cycle, our implementation backlog continues. And at this time, we fully expect to see that 4% to 6% growth in 2023, just like we did in '22.

Okay. No, that's really good color, definitely reassuring. Hopefully, it stays that way. Just talk about margins for a sec. You're calling for a little bit more margin expansion in '23 than in '22. Maybe just briefly, puts and takes on last year versus this year. And any commentary just on quarterly margin cadence that people should be keeping in mind?

Yes. I think, first off, as you know, our guidance for this year calls for at least 125 basis points, which is in line with our medium-term guide that we gave a couple of years ago.

Yes.

I mean, as I said earlier, when we achieve that this year, we'll have grown 530 basis points over the last 3 years, slightly ahead of that outlook of 500 basis points, so I feel very good about margin expansion. I feel very good about our growth prospects. There's a number of key drivers of that: first and foremost, obviously, growing the top line 7% to 9%, with merchant at 9% to 12% and likely at the top end of that 9% to 12%, with the Fintech business growing at 4% to 6% and our Payments Network growing at 5% to 8% and again probably at the top end of that 5% to 8% this year, all three of those providing good margin expansion, all three of them contributing to the total company margin expansion. The magic of Fiserv is what I love to refer to as a virtuous cycle of margin: good growth, naturally falls through at "better than company average" margin, gives us the opportunity to reinvest back into the company for organic growth while still expanding margins and perpetuate good top line growth. In 2023, we'll continue that long-term trend; as I said, 530 basis points over 3 years, 700 basis points over the last 5 years. In '23, some of the drivers in particular in addition to that top line growth is a continued focus on operational effectiveness, as we refer to it. The last couple of years have very been focused on integration of the 2 merged companies. That is behind us. You saw that take place in 2022, in particular with finishing up the tail end of the integration activity and some margin improvement really back-half weighted because we were finishing up the investments in some of those projects; and as well as the benefit of now, those projects being done and the investment behind us, you now see the productivity of those projects materializing. One of the examples. And this is just one of dozens and dozens of examples, so don't latch onto this particularly, but it's an example. We implemented SAP as a single instance of an MRP system for about 85% of the company in March -- excuse me, April 1 of last year. So we maintained a lot of that investment really through the third quarter of last year to make sure that the solution was actually operating as effectively as we expected, getting all of the bugs out. You've put in a new system like that. You've got some tweaks once you go live. That's largely behind us. The investment is now completed and we're now seeing the benefit of some of that productivity. That gives much better visibility into our operating performance. That then allows us some operational effectiveness. We're better able to give information to our internal clients, our businesses to help drive efficiency, but of course, the finance organization is running more effectively of giving that single instances. And again, dozens and dozens of examples like that. And we're now focusing -- or excuse me, moving our focus from that integration spending back to a long legacy, both Fiserv and First Data, to operate the company as effectively as possible. And so we'll continue to wring out costs as we grow that incremental dollar of revenue falling through at a "higher than company average" growth rate, allowing us to reinvest for continued growth. And that helps drive that virtuous cycle of 120, 125, 500 basis points over a 3-year.

All right. And all these initiatives add up clearly...

Yes. And the last point you asked on a standpoint of margin by quarter: I expect all 4 quarters to provide good margin growth. Obviously there are some ebbs and flows on a year-over-year compare basis, but we'll see good growth. And as you grow the business, we'll see that expand in -- through the balance of [indiscernible].

Okay. Free cash flow: $3.8 billion is the guidance for this year. I think that would give you a roughly similar conversion ratio as what you saw in 2022. I know it's a bit below where Fiserv was historically, but then again the revenue growth has been a lot stronger, so just any callouts to be aware of in the free cash flow for this year? Anything onetime-ish in nature? And how would you encourage us just to think about sort of a more maybe normalized zip code for free cash flow conversion over time?

Yes, we haven't really given a kind of a long-term or even a medium-term guide on free cash flow. Obviously, last year, we did about 85% conversion. This year, we're focusing everybody on the dollar magnitude, $3.8 billion, but to your point, the math is about that same zip code, so to speak; and feel good about our ability to deliver that. We'll continue to invest for growth. Capital spending will be roughly in line with what we did in 2022. From an overall standpoint, we feel good about our ability to deliver that while still investing for growth. Obviously that is a slower conversion rate or a smaller conversion rate but accelerating cash flow dollars than what we've seen over the last several years. But you've also seen a much, much faster growth. And this is a company that grew mid-single digits over a lot of years. And as you know, following us for a period of time, that mid-single digits maybe sometimes was a bit generous in term. It might have been more like 3% growth. And to see a much faster, the last 2 years, 11% growth, 7% to 9% this year, certainly calls for an increased investment. You've seen that in our CapEx spending. You also see it in a higher use of working capital. The -- our receivables days haven't grown per se, but obviously we've got more working capital to support our [ higher growth ] business. And we think that high-80s percent for this year is about right and feel good about our ability to deliver that. No significant onetimers, so to speak. There obviously quarterly fluctuation in that. As you've heard from a lot of companies in the U.S., we're all dealing with the change in software amortization, that expiring last year. And so there's a cash tax payment. It doesn't impact the effective tax rate in the P&L but does impact the timing of cash flow. And we'll have a payment in the first quarter, but that is fully factored in our full year outlook in the [indiscernible].

Okay. Well, that's terrific. Thank you for all the commentary and insights, Bob. Always a pleasure having you. Thank you, everyone who connected to the session. Our next session will be at 9:00 a.m. with Shift4. So thanks again, everybody. Take care.

Thanks, Jason. Good talking to you.

Okay. You too. Bye-bye.