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

My name is John Davis. I'm the payments and fintech analyst here at Ray J. We're excited to have Frank Bisignano, current Chairman and CEO of Fiserv and future Head of Social Security Administration. So first off, Frank, big congrats. I'm sure everyone listening and everyone in the room. I couldn't think of a better person to run that, my kids and future generations, thank you for your service.

Thank you.

So Frank, just to kick off here. Stock is up 50%. Numbers have been great all year. What's going right in '24? And what are you focused on heading to '25, especially as you potentially move on?

I think I'd like to remind everybody the largest job class in a company is software engineer. So I was down in Brazil, Tuesday and Wednesday, so go figure relative to stuff. And we rolled out -- we launched Clover. And I think that's an example. We did actually go see the administration there because there have been an issue around SMBs, and this fits perfectly with what they want to happen. I think we have tremendous receptivity. So what's gone right is our ability to continue to roll out product, to continue to bring out software, continue to innovate. You back Clover up and then you look at CashFlow Central, which we continue to invest in, build out, but it's about how do you bring a product set that's a software integration to clients. I think look at -- if you look at what's happened, we continue to drive top line and margin and OI growth through really a great client base. I mean we have a fabulous client base. And I think when I think about the company, the construction of the company is unparalleled. Like let's think about it. You got Clover on the front end. You got the third largest debit network. You have the largest BillPay business. You're the largest provider of Zelle. You have this global franchise. We went ahead and acquired Finxact and you watch Finxact coming into things like we did in embedded finance with DoorDash. Our bank partnerships are super large. Our ability to continue to serve banks and grow banks and partner with banks, both in merchant and in processing everything from their DDA systems to digital. So I think it's the construction of the company. And I like to say the company is 40 years old. I had unbelievable day yesterday, not that anybody is going to really care about this. But we have a -- I'm the fourth CEO, right? And so I have a little room that is attributed to the first 3 CEOs, George Dalton, Les Muma and Jeff Yabuki. And Muma was in New York. And I always -- by the way, he's down -- he's from your neighborhood. He's from Belleair. Do you know where Belleair is? He lives in Belleair. And he came up. He wanted to come see me. So I just had him up and walked in the room and he got tears in his eyes. So what we constructed -- and he said it, we show them on the wall, all the transaction volumes, think about us with the FSBI, our ability. And I think when you think about the future company, too, you think like, we're a great data company that allows us to ultimately be an AI company for our client base. So I always say, like for our small and medium-sized businesses for our community banks, we're going to be their data engine and their AI engine. And when we think about how we forecast the future, none of that's thought about yet, but we've built all the foundation. So I'd say the construction of the company. When you buy a house, you like to say, hey, this has good bones, right? If you look at the First Data, it has more than good bones. It has a great body. It's in good shape and knows how to play every day and now [indiscernible] off.

Yes. So if I go back a little bit in history to the First Data, merger back in 2019. Obviously, you saw a lot of strategic value at that point. But would just love to be your perspective, 5 years later, what's gone better? What are you strategic value did you underestimate maybe what wasn't there? Clearly, it's been a very successful merger. But just curious kind of get a post mortem 5 years in.

Well, 5 years in, we're still getting synergistic value. We cut off synergies at year 3. But as in we cut off working on synergies, it was just for accounting and move forward. So I'd say, first of all, our ability to integrate was good. What really went bad was a pandemic. Building a culture during a pandemic is difficult. And I think today, we're in a different place than we were then. We have constructed facilities. We've moved people. We've got the company working, and we're going to continue to work. We built a culture of in-office. That's the type of company we are. And I say that because all my clients have their employees in their office. And their office may be Walmart, their office maybe McDonald's, Dunkin' Donuts. So -- and sometimes people don't like me making that comparison. But yes, the #1 job type is software engineer, but ultimately, we deliver it. So I think it took a while during the pandemic to get a cadence. You're not going to get a cadence on a new company without spending time together. But we got it right. We got it right. I think our ability to build product and distribute product, I think we have the best distribution system in the world. And I think Clover played very well. Our banking franchise is fabulous. I think it's never -- it's going to see the best growth it's ever seen over time here. I think it's a great business. I think the combo of the assets made a 100% sense. And so -- and I think we're allowed to continue to do stuff like we did, go down to Brazil and roll out Clover. We'll go to Mexico and roll out Clover. So our geography, our capability, I'd never encourage doing a merger and having a pandemic. It's not a growth engine. It's not a culture engine. And it's good to be back in the office and being able to see clients every day. I mean we're only -- clients are great.

I think before we get into the merchant business, I just want to touch a little bit on what you're seeing from a macro perspective? The health of the U.S. consumer. I think Bob said last week in Arizona that maybe November was a tick down from October, but still tracking to what you thought. I mean just curious what you're seeing real time?

Well, we're here in the middle of Manhattan. Our office is at the foot of Manhattan. And what I was seeing all the way up here was really crowded streets with a lot of people in it. So I like to say you have instinct, you have [indiscernible], too. I could see it. But every day, if you come up to our office, you can watch by second the transactions, right? And I like to say throughout veins goes 40% of the merchant. And what Bob said is correct. October ticked better than November. But right this minute, you see a strong, healthy season. And I said that to [ Joy ] before we took the journey up, which had some traffic. But more importantly, the foot traffic was off the charts. I guess the Board will have equals exactly what's going on in the streets in Manhattan right now. So I think the consumer is out, and it's going to be a strong -- has been a strong holiday season so far.

Just curious what you're seeing from kind of a brick-and-mortar versus e-comm. If you go back, holiday sales or, I guess, the big 5, what they call the -- what used to be Black Friday...

Well, now we call it a holiday season. It went from Black Friday, Cyber Monday, and we really start -- when we track for ourselves, the season, we kind of talk about Wednesday through Tuesday, and that was a good uptick from last year. So I'm always guarded on this holiday spending because I feel like it goes all the way to the 24th. And I've watched -- as you're saying, I watched over time, it iterate. I remember when I first got the First Data, it was the Friday after Thanksgiving. And most people -- that's a day that most people stay home, and I said, at home, why I go to work. This is going to be the busiest day of the year for us. And everybody at my house don't know what I'm talking about really, but except they're buying stuff, too. But they struggle to coordinate what their dad does sometimes. But I think now it's elongated. And -- but I think in this tranche, if you back tested it, it looks like a good holiday season. But I'd just say it goes to the 24th, and sometimes I feel like it starts on Halloween. It really does.

No, just to go back to the merchant business here. So you laid out 12% to 15% organic growth at the Investor Day. Obviously, Clover is a big piece of that, clearly taking share. The industry is probably growing high single digits. So if we just double click on Clover, it's still growing close to 30%. You've laid out a target for $4.5 billion of revenue in '26, which implies kind of high 20s growth from here, mid-teens to high teens volume growth. Just talk a little bit about the sustainability of that growth. What gives you confidence? You mentioned Brazil and Mexico, international rollout. You still haven't really done much with the back book. But just help talk a little bit about the success of Clover, and what's driving that a sustained high level of growth into '25 and '26?

Yes. I have a smile on my face because I have an objective here to change of an accurate a little bit. Back book was never my term. It's my client base, right? What am I going to do with my client base? And generally, I'm in my client base trying to sell more product and innovate with them. So -- and so -- here's the way I think about it because really, we're asking -- looks like you can get from here to there, but tell us how you're going to get from here to there. We have this fabulous distribution systems and acquiring -- we're in the sport of acquiring new merchants and selling more products. I don't have really fancy strategies, get more clients and bring more product. And we've been very successful at that. So you look at [ pen rate ] going up. And if you think about, call it, circa approximately 1,000 financial institutions and then you see us do something like ADP, right? That's a great partnership. I love Maria Black, the CEO there. We said we should be able to do something together. We put our teams together, and we came out with us distributing their product and them distributing our product and so [indiscernible], I think. So you could think about those type of partnerships, then you think of plus or minus 1,000 financial institutions. And I think in all of those, our [ pen ] rate in that installed base that they have can go up. Said differently, if I look at a lot of partnerships, I think we could double the amount of clients in those partnerships that we have. Then secondarily, I think, we're going to continue to create more partnerships because the reality is Clover is darn good. Clover -- financial institutions and partners like Clover have ability to put more software. You will get us putting CashFlow Central on Clover. You look at us having payroll through ADP on Clover. Those are all additive in a big way, and then you go outside the U.S. and you also bring it to your other distribution partners. I was down Brazil, right? I mean, think about [ Cashi ]. Cashi can't love it enough. And so that's a pretty big engine to deliver in Brazil. So -- and I don't really look at 2 new products that we put into Clover this year, if you think about it is CashFlow Central and Payroll. What -- I believe CashFlow Central is an industry-leading solution. Now we're going to deliver it in an integrated fashion with our financial institutions. And I feel really, really good about being in business with ADP to deliver their Payroll product. So those weren't -- they're not in our numbers today. They're not on a performance rate, and then you think about what we could do. And yes, we will go into our client base at some level. But the amount of TAM that's not in our client base today is large. So that's why I'm always focused on like, yes, when clients want to have Clover in the full suite, we'll be sure to give it to them. But I think there's plenty of market share to go out there in terms of SMBs. And so I think the thing about those things, thinking about what we've done and then think about 13,000 software engineers, over 1,000 technologists on Clover, our ability to continue to still innovate and deliver is pretty high.

Yes. And you touched a little bit on it, but VAS penetration has ticked up nicely to 21%. You've got targets out there for 25% next year and 27% in '26. What's been the key -- what are the key products? I'm just curious also, as we think about cohorts of customers, are your newer customers adopting more software today? Or is it the older customers?

Well, it's interesting. If you think about -- the thing I think about the client base, right? I guess, I like to use that phrase, client base because we're going to go back into our client base and bring Payroll. We're going to go back into the client base and bring CashFlow Central. So those will also be drivers of growth on pen rate in the current client base, not just the new sale base, newly acquired clients. And then you look at the stack itself is highly acquired. And then Clover Capital plays a leg in there. It's different in retail than it might be in services. So depending on what your product set. Remember, we have a deep belief that we're going to come out. When I say deep belief, we are going to come out with a restaurant -- a new restaurant capability, and that will have very good capability in terms of also growing ARPU and growing pen rate.

Yes. And if I go back even further in history and you're talking about this earlier, whether North America business the first day was going to grow 2% or 3% and to see where we are today, how has the competitive landscape changed the last decade or so? And why have you been so successful? Is it Clover? Is it integrated payments? Like just curious to get your thoughts of you were the big 800-pound gorilla with a great distribution, didn't have a great product, so you got Clover. That seems like you changed the game, but curious how you see the competitive landscape today?

Maybe I'd define that starting point here different. We were the legacy incumbent that was a shared donor. And I have a very simple philosophy. When we stop being a shared donor, that would be really good. And I have a second simple philosophy because all I need is more things to sell to my current client base, [indiscernible] Clover. Now take all those thoughts and then say, look, legacy incumbents that can innovate have a strategic advantage, scale, yes, right? So like I don't find -- I've worked on legacy incumbents my whole life. I think one of the great legacy incumbents of all times is JPMorgan. I think another great -- in my day, another great legacy incumbent was Citigroup, where we built a lot of scale and a lot of capability and tons of distribution. So we now are in a position, where we're a legacy incumbent, forecasting almost $5 billion of free cash flow. And so legacy incumbent that reinvest in its business -- you watched us take a cash flow conversion rate down, nothing dramatic, but that was about a legacy incumbent investing in its business to drive growth. Now you got to have the capability. You have to have the product, you have to have the execution ability. You need to make sure the product is one that is desired. And we've been really particular about the things we do. So your question was about the competitive landscape. I don't know that it's changed, gotten better, gotten worse. I used to say, hey, I want to -- we're going to be heavyweight ballot in the SMB market. I won't mention which company, but everybody knew. We were a couple of years behind. I love competition. If you like sports, you want competition, you don't want to come on and have a rout, it gets boring. So there's great competitors. Our philosophy is we're going to disrupt ourselves continually. CashFlow Central, and you hear me talking about it, obviously, it's a big deal and banks are loving it, and we think. But if you really think about it, it's -- we're changing what we do for SMBs, going to move them off our BillPay system, which has one set of economics and a different model and move them to an [ ARAP ] solution that allows them to innovate the bank. So in theory, or in practice, we're disrupting some portion of our BillPay business. At First Data, we had the FD 130 and then had a series -- and people are like, no, we make a lot of money on it. You're going to -- and I used to always think like how am I going to capture market share? Should I give this away and then reap it on the back end, and then we're broken almost, so I couldn't give anything away. So we did the old fashion way, door-to-door. But where I'm really going with all of that is the competitions in so many places. It's different in Brazil than it is in Poland and in the U.S., we had got it all of it, but we got the ability to invest. We're smart about it. We're good technologists. We know how to build product. We know how to partner. And ultimately, I think you see it in the current results of the future guide and why we feel so darn good about the future of this company.

Absolutely. And I can talk...

That okay answer?

More than okay. If we think about the ex Clover merchant business, right, we can talk all day about Clover. And maybe actually before we wrap on Clover, you're a baseball fan, what inning do you think Clover is in?

I mean, if you take -- if you ask about size and scale, the second. If you think about industry leadership, it's probably a little further. But it's a young product, right? When we bought it, it had 3 patents and 7 engineers right? And that was in '13. So you go, wow, 11 years old, but in a technology life cycle and a founder-led company, we kept that founder here for 7 years, and then it was big enough for him to say this is too big. But there's just so much more we could do, and there's so many more integrations. So that has a lot of life as long as we continue investing in the product, which we're really good at, investing and getting outcomes.

And maybe just touch for a minute on the ex Clover merchant business. You talk a little bit about the success you're having in enterprise kind of other initiatives that are driving pretty healthy growth outside of Clover?

Yes. Well, I mean, I think, look at ultimately, we built Commerce Hub, and we have an orchestration layer and you see us winning now in the enterprise, and we'll call it omni-commerce because a lot of our clients have it going both ways. But we got the solution that we believe can serve omni-commerce better than anybody else in the industry because we're a fabulous in-store, but we're also fabulous at now the ability to give them an orchestration layer deliver more vast into that too and be able to help them grow. So I'd say that there. I'd also say we have an unbelievable ISV business, that was the byproduct of 2 acquisitions when we got a couple of dollars back in the day. And BluePay and CardConnect, which one was in e-comm, one was -- had an ISV. We brought it together. We used the technology of that to grow our agent business in a different way. And many of those are not necessarily Clover, but they are these technical integrations. Now we do see a world where Clover shows up there, too. But right now, that would sit in the non, as you describe it, non-Clover business. So I think our product set is strong. I think our technical integrations are good. I think we look at everybody we compete with and feel like yes, there's people ahead of us and things, but our ability to invest and our ability to have technical expertise and our client base's desire for us to win, all put together make us a long-term winner, I believe.

And then maybe shifting over to Financial Solutions for a minute there. You've also -- you've guided to an acceleration in revenue growth next year to 6% to 8% and kind of that should continue into '26. You had some big wins with Target and Verizon. But just talk a little bit about the confidence level in that acceleration, what the real drivers are?

Well, I think the real drivers are, one, this idea that we have a backlog that takes a while to onboard and I frequently say, when we did 2020 Investor Day, I'll get this a hair wrong because that was a long time ago, and I've now moved to the Investor Day we did in '23. But I thought the backlog we had in our issuing business, I think I call it a once in a lifetime event. But maybe I'm like one of those weather man who say, it's a 100-day storm, but -- a 100-year storm, but it happens every year. We were able to do more today in the backlog we have in the issuing business than we had back then, and we thought that was pretty outstanding. And I would make a point, yesterday, I sat with a review of one of those Bread, one of those large, it was ADS that we converted. And like that partnership is so darn good that all we're talking about is what more business we can do together, right? And I have a lot of respect to the CEO there, and we have a great relationship. So my macro point is you should count on that. We believe in card growth in our debit business. I think that's the key, and you should see that occur. I also think that we think we can -- you look at what we did in embedded finance, that's an element of that. Finxact sits there. And when you think about what we did with Finxact, I mean, one is completely -- that's Walmart JV that they've created for fintech, I mean, that whole organization runs on it. So I think we have a future path for everybody. Our current solutions are super strong. We win -- CashFlow Central sits in there. That's going to play big. And next year, that starts coming online. It won't be a big number, but a couple of years out, it will be. You put all those components together, we see the acceleration.

Yes. And if we just think about the balance sheet. It's in great shape. Generate north of $5 billion of free cash flow next year. How do you think about capital allocation? Are you seeing kind of a falling in the M&A market, maybe some more reasonable expectations? Obviously, you've been a big buyer of your own stock. Just talk a little bit about the push and pull there? And what potentially would be attractive from an M&A perspective?

Well, I think I feel good about our asset base. Like I say, I love the construction of the company. We have the capability to put products -- I don't know it's a bad phrase, but through distribution system and put them on steroids. So things that will make sense to come in that we could distribute that are naturally synergistic, digital capability is fairly logical for us. I frequently say, I may get this wrong, but I think we probably bought back $4.7 billion of stock last year, right? And we bought the stock through the course of this year, and you know how much we bought over time. Well, there's large parts to me that feel like, geez, I wish I had done something that drove top line growth and made a different -- difference than buy back our stock, which kind of worked out fabulously. I think, I hope you feel that way. But there's nothing that traded that I wish I had done, so I kind of give myself the sanity test of, okay, you've been judicious, you've been a good steward of capital, you definitely look at everything possible. I mean we haven't -- I mean we sure look at a lot of stuff and there's nothing that traded that -- I kicked the dog over, don't report me in ASPCA, I love my dog. I've never touched my dog other than pet it. But I'm just concerned about things I say. But -- so I think we're always active, we're interested. I believe we're great acquirers and integrators, too. So if you live the life I've lived, you like buying things and integrating them. So I'm sure we'll do something. But if not, the alternatives play pretty well.

Frank, as this maybe one of your last couple of firesides as you kind of move on...

Who knows, who knows...

I'd love just to get your perspective. What do you want to leave investors with as you kind of potentially move on? You talked about the construction of the company, the assets. But maybe just a minute on what you want us in the room to think about how we should think about Fiserv over the next couple of years as you transition on?

Well, I grew up around great athletes. I have one uncle, who was middle weight champion of the world and another uncle who is in the Hall of Fame. And they always taught me, make hard plays look easy. Like diving catch, sometimes as you're out of position. It wasn't that it was quite as good as it looked. And as my sister wrote me a note the other day like, you never take the easy way out for some reason, when it was announced. And so I go back, and I said this earlier today as someone, if you go back and look at Citigroup in Investor Day, on a business that was losing money when I took it over back late to early 2000s, which at that time, we called the Global Transaction Services business that was created. It became their marquee business. And the people who ran it all succeeded me. And I'm not announcing a successor here. But I think, really, I believe in all the talent in the company tremendously deeply. I don't believe whether somebody came from the outside or the inside, they're going to come and try to do something diametrically oppose. There's a lot of talent, whether you go through the whole lineup and the plans are strong. So I mean, I don't -- one thing I'd say, and I'd say from the heart, I wasn't looking for the job, and I didn't want to leave. I don't want to leave, but I think I am leaving for the right reason. And like many of you have heard, my father served 45 years for this country and he was Customs and DEA. And my grandfather came from Italy and joined the Army in World War I, and then he went back and got his family because that's how we got his citizenship. So when asked to serve, I always felt, if I was ever asked, I would have to do it. And I created a great military set of programs that I always felt were fabulous. But whenever in general and whether it was great late [indiscernible], who ran the Army, said, the things you're doing here are fabulous. I said, but thank you, and I go, well, I have one regret, I didn't serve. And I never thought this is what it would mean serving. And so I feel like I'm going to leave the place in great shape. It wasn't the timing that we ever thought of. On the other hand, everybody likes to write, I'm a fixer, I'm really a builder. And whoever succeeds me will build. There won't be left with anything to fix. And I think we're in great shape and the bench is strong. We've had a fabulous, fabulous -- I've had a fabulous 11 years as a public company CEO in 2 institutions. I'd like to remind people, I'm a 2-time public company CEO. I'm a 2-time public company CAO. I'm a 2-time public company Chairman. And I am a 2-time public company Chief Operating Officer. So I have tried to import that on all my players. We got unbelievable Senior Vice President. So we've got great management committee members. So I just want to look back at it and have it do better than what we're doing right now. And I think it's 100% possible. It is not a one player team. Sometimes a head coach can go, and you got the best offense and somebody is not going to really -- nobody is going to come in here and dismantle stuff. They're going to keep building and the machines there. We got a great Board. We got a great Board. So I don't know. I'm in the rearview mirror, I want it to be really, really kind. And there's nothing more important in the world to me than get this right. I didn't -- I'm 65 years old. I started my career on Wall Street. My first summer internship was at Bear Stearns. And there I was then Bear Stearns. God bless Ace Greenberg, he came over and said, hey, and we talked about my internship at 55 Water Street. I worked on the floor of the New York Stock Exchange, and I did the largest IPO of 2015 and all the stock exchanges said, there's nobody ever actually corked on the floor and did an IPO. So -- shoot, this has got to work really good or else that dog might get kicked, but ain't gonna happen. This is going to work out perfect. I got my commitment, and I'm going to make sure that it's darn right. So I feel good about it. I feel good about it. Hopefully, you're rooting for me because I'm working for you. I work for you in this job. I'm going to work for you in that job.

We'll have to wrap it there.

Does that cover it.

Thanks.