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

Thank you so much, Frank, for being here.

My pleasure.

Those of you that don't know me, I'm Mizuho's payments and IT services analyst, mostly payments, don't worry. And my pleasure today to host my friend, Frank Bisignano, Chairman of the Board, President and CEO of Fiserv. Frank has joined Fiserv in 2019 through the acquisition of First Data, where he was the Chairman and the CEO. And at Fiserv, he initially led the company's day-to-day operations as President and COO before assuming the role of CEO in July 2020. It's been nothing but a huge success, became Chairman of the Board in 2022. It's been our -- consistent topic on our side. Literally, the one deal -- so-called deal stock that actually thrived and it's all credit to you. So thank you again, Frank, for joining us this morning.

Thanks for having me.

So yes, maybe let's just start with some questions for you. We're here in mid-June. What do you think the consumer looks like today? Like what's your view of the macro environment and the health of the U.S. consumer versus, say, a couple of months ago?

Yes. We're fortunate to produce the Fiserv Small Business Index and we've watched that monthly as we produce it fundamentally 2 business days at the end the month. You saw where April was. You saw -- during the middle of May, I answered a question like this, and I said the consumers a hair slower, and people thought I was trying to tell them something and what I was telling them is they're still robust, but April was very strong, May was a hair slower. And then you saw the numbers we produced from 5-something, 4-something, still good. One of the things I like to remind people is spending categories change, spending categories change. So if restaurants are feeling a downtick, grocers are feeling an uptick, and we're big in both of them. If travel is a hair off, generally petro is a hair up and we're well indexed on all of that. So I think the diversity of our portfolio allows us to fundamentally get the desired outcome because of our client base. That's why you frequently hear, and you say, I think we got the best client franchise around, and that's what we work on a heck of lot, acquisition in all the verticals that we operate.

Thank you. So good news, I guess. And let's maybe shift gears quickly to Clover. I mean this has been a masterstroke on your end. Nobody really believed that we've been -- I've been covering First Data for a long time. I remember in 2016, people were kind of making fun of it. Today, it's kind of considered -- it's considered literally the best-in-cost share gainer. U.S. point of sale, you see it everywhere. I saw it in Europe. By the way, I was in Europe a couple of weeks ago. I saw it everywhere in Germany, et cetera. What gives you the confidence that Clover's growth is sustainable? It's been amazing. And particularly in the context of achieving your medium-term target of north of $4.5 billion of Clover revenue by 2026?

Yes. I thought about your introduction a little bit, Dan. And when you first -- I'm allowed to say anything here?

Yes, yes.

I won't curse, I swear.

The best part.

I hope. Sometimes it happens. I remember he was covering us. And I think there was a little bit -- I can't remember where it was, and -- but, yes, yes. And I teased Dan, because when he introduced themselves today as the senior analyst, U.S. technology payments and technology. When he was at Nomura. Nomura had a different system, I guess, I'm sure I'm in trouble now. But they put their analysts in alphabetical order and Dan had payments and pesticides. Is that correct?

Correct.

And I was like -- he sometimes got me confused, right? I would be like Dan, you're always saying how bad we are. We're just not a pesticide company. And it's the truth. And so people follow mine and Dan's relationship today sometimes and think like, well, Dan was one of the hardest critics of our company, and he actually, in my opinion, made us better. He made us better. And one day, I got tired of what Dan would write. And I'm like, "Well, you get him up here, get a bunch of investors here and let's go do it." Now at that point in time, probably early on, I'd have this saying like Clover is going to be in a heavyweight bout. I have a love of sports, and I have an uncle who was Middleweight Champ of the World. So I'd talk about boxing and then I could cover a bunch of other sports and people in my family, but let's stay on boxing, I mean, like, it's going to be a heavyweight bout, and everybody knew who I meant we were going to be in a heavyweight bout -- a guy and a company I have tremendous respect for. But I did get laughed out of stadiums, right? Like how is that going to happen? And in the beginning, it really happened through great distribution, right? Good product, great distribution. That great distribution still exists. We still have great -- we build a lot more distribution. We have way more distribution than we had back then. And we have much better product. And then I think, remember, Clover when we bought it was 7 engineers and 3 patents. So we got it wrong a whole bunch early on and I kind of like saying that. I wanted to like saying it. I didn't like it when it was going on, right? Clearly, I didn't like it because as we were struggling and what it was, I thought it was going to be an iPhone for small businesses. And I found out pretty early on like small businesses are uninterested and while they're making pizza to try to figure out kind of what to look at and then we started changing our mentality and then we built a great horizontal -- we brought in more software. We realized employee management mattered a lot. So we'd have tools for it. We'd be a great distributor. So when I get asked this question, right, like this famous question, what makes you so confident? Well, I was confident when we were broke and homeless and I had 3 patents and 7 people. So thousands of engineers working on a company with 13,000 software engineers alone, obviously, not all dedicated to it and increased distribution capability through the Fiserv merger. And I love saying banks are great distribution partners, and this is a great product for banks. It actually helped banks compete in multiple level and so if you look at what we said, first when we did Merchant Day and we talked about $3.5 billion and then we came back and upped it to where we are today. And then you look at the growth of it, 29%, 30%, 28.5%, so definitely in the range with way more distribution. I love telling people now if you can relate to this, it's super early innings with super early innings. We're geographically not everywhere we want to be, where we're not -- where we want to be in every vertical and we're not where we want to be in the amount of distribution we have and the amount of penetration of the distribution. But the product is proven. So it's just a matter of continue doing what we're doing. So I had blind confidence early on. I have full visibility to my confidence today, out confidence -- the whole team's confidence.

I remember that breakfast, very vividly. Basically, every hedge fund sent a delegate to your office. And I think the stock was up 5%. [ Everybody ] came out so confident out of that breakfast in terms of -- then we were -- we -- this literally changed my perception of Fiserv. So it was a good move. I did this pest control a little bit. The bugs, talking about multiples, don't read the journal and you don't have to...

It's definitely -- it's a high-volume business, though, right? It's a high volume -- I was like -- I couldn't help that joke, though and I liked him. So you have is payments and pesticides. I'm like, "Oh, Nomura does it by the alphabet." Tech and taxis. We'll they're out of business.

We did -- yes, this is it. Yes, we did everything at Nomura, but in uniform rental and whatever, right? So this was -- it's definitely much more focused now and we made our choice to stick with payments. So yes, maybe just to talk...

How many of the people sitting here knew, he covered pesticides, too? That's my job, to give you information, you probably don't care that much about.

Well, Sean does because Sean and I worked together. And so does Ryan. Right, Ryan?

Yes, two people.

Two people, pest control and day schools, what else did we cover?

I may be creating a huge problem for you. Because if people now have a problem at home. They're going to call you to ask who they should call.

No, we've had some fun covering those names in [indiscernible] and we covered like every dysfunctional company.

I'm little scared being here.

No, no, no. Now we cover my -- this is -- it's you know you have it good when you worked at a different Japanese bank and now we're working at a very good one. So you know you have it very good now. So maybe just really quick, you mentioned distribution, Frank. This is obviously one of the biggest trends of Fiserv. I mean you've got epic distribution capabilities. Maybe I don't think the audience appreciates like what makes the distribution so effective. And how big of an advantage it is when you're competing with good quality products like Toast, but just they lack the distribution that you have.

Yes. I think, first of all, I think distribution isn't always completely understood and I mean you love having manufacturing and distribution. Somebody would -- thought me really, really, really a long time ago like distribution is king. Ultimately, it's the endpoint where you're going to get your clients from and then having distribution partners. And I think banks are fabulous distribution partners and specifically on this product because we're bringing them revenue, right? That's how it works. We're bringing them revenue with 100% margin. And that's an unusual position for a provider, so to speak. We actually have another product coming to market that will do the same thing in CashFlow Central, which we can talk about later. But -- so I think that's one set of distribution partners. We always had this tremendous individual entrepreneur sales force that would be writing, serving -- writing contracts, serving clients who ultimately were doing it in our name. And that agent sales for us are entrepreneurs that are out there. When we bought CardConnect, we bought the best set of tools that would serve that network and also brought a whole bunch of tools that allowed us to begin getting in the ISV. If you remember back in the day, we did not have an ISV business. We were significantly disadvantaged. And we made a choice to not decide who is going to be the winners and losers in the ISV space, but to say we would power them all, and we'd rather serve every liquor store or other type, veterinarian, as opposed to pick which one is the right one. And so we've just kept increasing distribution. We also have a very strong retail ISO business, which are distributors. They're fundamentally our exclusive partners and obviously, we have this processing business, which you've seen us break it out like, I like to say, hopefully, we finally got this right that instead of me just talking about it and explaining to you, "Well, we have an ISO business, and we have processing. So when you want to know about volume versus revenue, you got to look at us differently." I think our breakout on the -- in the segment now and the new way we did it, hopefully, depicts where growth is occurring, but their processing business many times is able to distribute other products of ours, too. And when you got all of that and then you want to lay software on top of it. I think it's why I feel so confident. If I look at the promise of the merger, it really, really, really did work. I like to say all the time, none of people -- I think, people like Dan, would call them deal stocks. And I always thought they were...

It's a nice way of...

Yes. Well, my only point is they weren't -- there was nothing similar about them, right? I think the construction of this company is unparalleled. And that's where you really got to step back because we'll sit here and talk about the component parts, Clover, or Brazil or STAR and Accel. But when you got to say the integration of this company is what makes it, to me, the unique asset. You get Clover way on the front. You have a debit network that's very powerful, right? You have an issuing business that in the retail private label space and in general is really a powerhouse. And you've seen us win a lot of that business over time. Yesterday, I addressed like our top 25 clients who were all in, in that space, and there's future growth there. You got an international franchise. And then you have this set of banking systems that we're innovating in and actually believe we're fighting better than the company ever did. And they all hang together. They're not disparate. And so I really like the construction of the company. I want you to like and understand it that it's not a bunch of disparate assets that happen to sit under one roof, it's an integrated firm. We go to market integrated, whether it's to a merchant or to a financial institution. And so the amount that we can still penetrate, the amount of TAM we can penetrate within our own 4 walls allows us to continue to have the growth algo that we have on the top line.

And yes, and it works. And it's...

So far. Our job to keep it working.

And no, it's been amazing. And maybe just the last one on this topic quickly on -- you've been -- you mentioned recently that you want to get into new verticals. Like what are the most interesting verticals outside of restaurants that you can think of for Clover?

Yes. I mean it's an interesting, I think, because if you walk into our office, and the first thing you'll see is a screen that shows how America is spending money on our rails, right? And that will be 40% of the U.S. volume. And the #1 category is restaurants, the #2 category is gasoline, #3 category is grocery. And so we already have a dominant restaurant business. We want to go further north on that restaurant stack, right? That's really where the passion is, how do we bring more. And when I say north, whoever the best restaurant you could think of, we want to have all the tools and capabilities to serve them. Dropping down underneath that, I feel like we win head-to-head and can beat anybody any day in that space. Then you say, look at -- retail has a lot of elements to it. You can bring a lot more software to retail. Retail is pretty big, pretty dominant. We already have a lot of value-added services that we do bring to grocer and petro. It's kind of where one part of the company grew up. So you say, "Hey, we should continue to invest in that retail." And then you'd say services. Services probably was underserved by us. And of course, it's a word. So we should give a better definition of what we mean by it. Everywhere from lawn care to a plumber to all people who traverse your household and would like to get paid and haven't always had the capability and so I think those 3. And when we look, part of that decision making is off of our book of business, where we can see the traffic, where we know we could bring software, and we know we can grow that TAM with our current client base and then have better skills to acquire more clients.

So more to come from a vertical. Maybe one more question and we'll open to Q&A because I think we started, the clock was still standing.

It's okay. I wouldn't worried about it. I'm trying to -- sitting at this cabaret well enough that I get invited back to a main event. I'm not always the undercard.

For me you're #1. So don't worry.

Right this minute. Tell the next guy or girl.

Always, always. Like the -- if I think about -- like the main -- one of the main pushbacks have been Argentina. It's about 6% of Merchant, I think. And there has been some, I would say, there's -- if investors are picking on something, they're picking on Argentina inflation. Maybe we can -- you can shed some light on like where we are in terms of that what is -- how important that business is for Fiserv? And how does inflation play into the growth there because that's what where the payers are seeing...

Any time I get asked a question, I give a way longer answer than the question because I think framing and understanding as opposed to just transacting allows people to have a forward vision towards outcomes. Argentina was a single-acquirer market at the time we were doing the merger. And we had a point of view about Argentina, we had a point of view about Brazil. We head countries that we believe we're either in and can do more. Brazil was Brazil. I think the Brazil story like really, really matters, it's almost like the Clover story, already penetrated market with a high payment volume market that we were not in. And actually, no U.S. company had ever succeeded in Brazil. And we went down there. And when we raised the $3.5 billion when, I like to say, we were poor, homeless and destitute. We talked about Clover. We talked about Brazil, things we would build out and succeed at. And in that same way, we already had this Argentinian business, but we were a single acquirer of Mastercard and Visa was the dominant acquirer. If you look really deep and really hard, you'd find out that we went to Argentina, and we got the payment rules changed, right? We run this global franchise with 3 regions, with 3 region heads who all report directly into me. And we think about countries from capital allocation to human resource allocation, to where we're putting technology. And we said if we could get the payment rules changed, we would bring Clover into that market. And you can follow -- I don't think too many people here get up in the morning and read the Argentinian newspapers. But if you looked at the Argentina newspapers and go back to the merger, and I remember saying to Jeff Yabuki one day like, "What are you doing? Where are you going?" I said, "I'm going to Argentina." He's like, "You're going to Argentina? What you're going to do there?" I said that "We're going to try that become a dual acquiring market, and then we're going to deploy Clover." By the way, the people in Sunnyvale were like, "What are we doing? Why are we going to Argentina? Why are we going to Argentina?" I'm like, "Well, there's a lot of payment volume. We actually have the lower market share capability. But if we get this changing coming with Clover, we can win." And that happened, that happened. And then whether right or wrong, my career took me through Citigroup and JPMorgan in the greatest eras of both companies. One of them is still having its greatest era. But if you go check the league tables during my days from Salomon Smith Barney to Citigroup, we were like #1 in every category, and we had big global businesses. So there's nothing odd to me about inflation, about currency. Now, can you manage it? Do you understand it, right? And when you call it all back, and if you went through everything we've said through this journey, we've actually performed exactly as we had forecasted. And if you rip it all out and you say, what's the Merchant business, it's an 11% to 14% grower if you take out all of the extra stuff going on in Argentina. I just think we have good local management. We have good regional management. We understand the markets we operate in, and this is going to happen. Now the question is what your underlying business is doing. And I think our underline business is doing exactly what we told you it'd do.

So the presence and the share gains in Argentina are more important than transitory...

Yes, we're in the back -- I kind of feel like we've been talking about this for a while, I think we have. And I think we've said what was going to happen. We've managed it. We can't -- I can't forecast what the finance minister is going to do, and I can't forecast -- we lived through a governmental change there and which -- in these countries, they're pretty dramatic. It's probably dramatic in the U.S., too. But as a whole another problem, we're not going to talk about today. Oh, my god. But like I mean when I do -- we won't go there.

Let's go there, let's go there, it's interesting.

Well, no, it's what people ask me about when I'm outside the U.S. what -- they asked me about the U.S. So we don't really want to talk about that. I just think the fact that matter is call it all back, look at it, slice and dice it any way you want, we're 11% to 14% grower and we're performing at that level. And by the way, on the EPS line, because of -- on the other side of it is FX, it's fundamentally been neutral, if not down a tick in a quarter or two.

Yes. Obviously, a hedge fund darling that Argentina inflation, I would say, like our conversations with [ locals ] and the investors, they see through that. So you kind of know what people are playing for it. Maybe just really quickly -- a question for Frank, from the audience, if anyone has anything?

How about them Yankees? I should be saying how about the Mets because they have a bunch of Clover in their stadium, but..

Where is the -- maybe a question -- maybe last question on my end, if there's nothing for Frank. Just on capital allocation, like whereas -- you've made the partnership with Melio from Israel, B2B corporate payments is a big focus. Like where does -- where do you see Fiserv in 2 to 3 years in terms of the big focus now that you've basically won retail and merchants. So it's very clear...

Yes. I mean, first of all, I never get up thinking I want anything. We're competing every day and I'm generally difficult on my team and -- about all we can do better. I see so much opportunity. So I just want to clear that up. And I think I've lived on a platform or complementing my competitors as opposed to saying anything other than that. And I think technology is a great equalizer. I mean you saw it happen in companies all the time. So I think our strength is 13,000 software engineers and half the company being technologists. But relative to capital allocation, because of distribution and because of our geographic presence, we've liked the things we've done that then we can run through our distribution networks and Melio would equal that while we the exclusive partner, and it will run on Clover, and it will duly advised because they understand our distribution capability. You look at what we did with Ondot, which is one of the things I'm super proud of, but nobody really pays attention to, and that's kind of fine. But we bought a card control capability, digital card control capability, put it on top of all of our cards, but then integrate it for our banking platforms into mobile banking to actually be able to give a best-in-class experience, which ultimately gets to like what's our purpose. Our purpose is to help our clients grow their business and serve their clients. The output is what we get paid, right? Our purpose isn't to collect fees, it's to drive our clients' revenue, and that could be in the largest retailers in America or the best banks around -- or all the banks around. And so that's how I think about it, right? I feel like we got all the assets we need inside the company. But I would say, last year, I'd like to say the following and last year is a long time ago right now, I think we bought back $4.7 billion of stock, and I would probably say that wasn't my plan. I would have thought we acquired a few assets along the way. Having said that, there was nothing that got sold last year that I wished we had done. So although I'm upset that we didn't deploy more to growthier assets that can give us more growth inside the place. On the other hand, I say to myself, I'm not kicking the dog -- don't report me to the ASPCA, I did play with my dog this morning. I'm not kicking the dog because we didn't buy something we should have. So I expect us to be paying attention to anything and everything in all the spaces we operate and our adjacencies.

Good. Well, Frank, thank you.

Thanks for having me.

Yes, of course.

Thanks. Back to -- where's the music? Back to the music.

Play the music.