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

Next session here, and to keep everybody on schedule, we are very excited to have Bob Hau from Fiserv here, Chief Financial Officer, who many of you know. So Bob, thanks for being here.

Thanks for having me. Appreciate it.

We've got a lot of stuff we want to kind of hit on with you because there's always a lot of stuff going on at Fiserv and tends to be good stuff. So we like those -- we take those conversations.

I wanted to start kind of big picture on some of the data that you guys tend to put out monthly. You've got your Small Business Index, and you've got your SpendTrend report. And if we look at what you guys have shown since the beginning of the year, at least through February, pretty healthy numbers. I would say, overall, I mean, seasonally adjusted. It seems like there's stability is kind of the trend. At the same time, there's been a lot of fresh debates in recent weeks about the macro and the tariff uncertainty and some airlines are cutting guidance, right, and all kinds of moving parts. So just anything you can share in terms of what you guys are seeing more recently on the merchant side of the business, volumes, transaction growth?

Yes. So you pointed to the -- I guess, the one key one I would reference is the Fiserv Small Business Index, which is an index we've been publishing for a little more than a year now that tracks the health of the U.S. small businesses. And this is a wide swath of data that we use. So it's not a survey, it's actual data that we have available to us through our variety of merchant channels looking at debit card, credit card, cash spending, et cetera. And we saw good growth in January, up about just under 5% year-over-year. And then January to February, month-over-month was essentially flat. But February over February last year was up about 2%, slow. So on a year-over-year basis, had slowed a bit, but still generally in line with our expectations. Certainly, a lot of news these days, but a lot of news, not necessarily a lot of movement. Some of the airlines that you talked about were guiding to a lower outlook versus actually saying it's lower today sort of thing. And some of the retailers a little bit of a mix. So right now, I think the -- if you watch your local news channel or your favorite business news channel, lots and lots of conversations about tariffs on, tariffs off at the end of the day right now. There's an increase in tariffs to the China. And I think aluminum tariff in place, other than that, everything has been kind of stayed. But that's causing some uncertainty in the market, and the market doesn't like uncertainty. And so -- but so far, I would say consumer continues to spend at maybe a slightly lower pace than certainly what we saw in January.

Okay. Okay. All right. Yes, definitely a lot of noise and sometimes we got to separate the noise from the facts. So that's all helpful.

Yes. And the one thing I would point to is, for our business, in particular, given the breadth of reach that we have, obviously, both in the U.S. but globally. We like to say we touch nearly 100% of all U.S. households. We have a broad reach but also a broad distribution, meaning roughly half of our merchant acquiring business is discretionary spending. The other half is non-discretionary spending. And so there's some inherent balance within the company. And we think over the last 40 years of our existence, we've shown a pretty good resilience and the ability to deliver in any economic environment.

Yes. Including a pandemic. Yes.

That's right. Last year was our 39th consecutive year of double-digit EPS growth. That's a lot of really good cycles and a lot of pretty tough cycles.

For sure, for sure. So maybe just remind us about some of the other considerations for Q1? I mean there's leap day, of course, everyone has to kind of grow over. There's some Argentina dynamics for Fiserv. Just if you want to put a finer point on any of that just as people start to firm up their first quarter numbers?

Yes, it's actually something we pointed out when we gave original guidance for the year back in early February during our fourth quarter earnings call, we gave a full year guide for top line growth of 10% to 12% organic growth. Operating margins expanding 125 basis -- at least to 125 basis points and earnings per share growing 15% to 17%. But that we would expect to see that organic growth ramp through the course of the year. And there's really a number of key factors that are playing there. First and foremost, as you pointed out, Argentina. In 2024, we saw transitory benefit of extraordinary inflation and interest rates in Argentina for the year at about 11%. And that waned throughout the course of the year, it started out much higher. First quarter last year was a 22% benefit. That eased so that when we closed out the year fourth quarter, I think it was about 6%. That's to the merchant organic growth line. And so that eased pretty considerably. And by the time we closed out fourth quarter, both inflation and interest had returned to more normal levels such that we won't see the transitory benefit of that in 2025. So very tough comparison in Q1, levels off or eases through the balance of the year such that we finished the year at 11%, which is why you see the growth for the full year at that 10% to 12% organic. Second thing is there's a number of new products, new contracts, new clients coming on board throughout the year, things like CashFlow Central that will go live in second quarter and ramp through the year. A number of large issuing contracts going live with Target and Verizon, the two largest ones that we talked pretty regularly about Target actually went live earlier this week or the week...

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And Verizon will go live very late third quarter, early fourth quarter. Then you have things like the ADP partnership continuing to ramp, rolling out Clover in three new geographies in Brazil, Australia and Mexico. Brazil, we are live, formal official launch and now selling. Australia, we did that official launch party in early December and now selling that in 2025. The launch party in Australia is at the end of this month, and Mexico will follow behind. So that ramps over the course of the year. So we feel quite good about the visibility into those programs, they're either launched or launching very quickly, and we'll see growth accelerate through the year.

Just one follow-up on the tariffs. I mean anything indirect we need to think about? I mean, I don't know how much of your merchant business is in places like Canada or Mexico or anything in terms of point-of-sale devices? Do you source any of those from China or anything like that?

Yes. So I would say no direct impact for all practical purposes. Yes, we have business in Mexico. We have it in Canada and everywhere else around the globe. But it's not a tariff import/export dynamic. It's what happens to the local economy.

Yes, exactly. Yes.

So the indirect aspect, whether it's one of the many foreign countries that may or may not be impact -- may or may not be impacted. But also, of course, what happens to the U.S. At the end of the day, very modest inflation is good for our company because higher volumes mean higher revenue but it's got to be modest. When you see extraordinary inflation, you see the secondary impact to the consumer.

Yes. Yes, that's what I think we're all watching and hoping...

Yes. Exactly right. Correct.

So okay, great. So Mike Lyons, CEO elect. He's got some big shoes to fill but pretty exciting for your company. He's been on the job, I don't know, 1.5 months or so, I think. I mean are there any parts of the strategy you think you might tweak a little bit? I mean certainly, his initial comments suggest there's not going to be any major wholesale changes coming, which makes sense. But any tweaks maybe we should be able to look for -- lookout for?

I think this is -- if I remember correctly, this is about week 8 for him right now. And one of the things I've heard him say multiple times, both internally and externally with our own employee base, but also with clients, don't expect the big unveil, is the term he uses. He came to the company, first of all, knowing the company quite well. He's been a client of Fiserv for more than a decade. He likes to say at PNC, where he was President prior to joining us, he use 92 Fiserv products. So he knows the company quite well. And he believes in the product, he believes in the company, he believes in the capability and where we've been and where we're headed. So no big change in direction. Obviously, Mike is not Frank. Nobody is Frank. He'll put his own touches on the market -- or excuse me, on the business. It's been an incredibly easy/smooth transition. I think I said to some folks last week. He started on -- we announced him on a Thursday. He started Monday on morning and his first day on the job was an all-day management committee meeting, which we do once a month. So he jumped right in and was engaged right upfront. And I think it was something like 10 days into his tenure Frank declared transition over. We're now running the company together. And quite honestly, you've seen this physically take place inside the office where on day 1, the two of them were inseparable. On day 2, inseparable. Day 5, day 7, day 10. And now to this point, there's a little bit of a divide and conquer and that transition has been quite smooth, and having the two of them around for 8 weeks now has allowed for what has been quite a smooth transition. And ultimately officially turn the keys over and we'll move on.

Sounds good. Sounds good. I mean Fiserv, obviously, has a number of attractive businesses, but most people certainly consider Clover to be your crown jewel. I mean it's approaching, I think, 15% of total company revenue. It's growing almost 30% still, obviously, at scale. Would like to get your current assessment of Clover's competitive environment? Any changes maybe you've seen or evolution there, particularly at least starting in the U.S. when we think about the three main verticals that Clover is really focused in?

Yes. So obviously, Clover is a big product. It's one of what I would consider several crown jewels of the company. One of the unique characteristics or benefits of Fiserv is and we have lots and lots of products. And even within a product like Clover, there's lots of elements of Clover. And to your point, we guided back in actually March of 2022 for the first time. We indicated we expect to get to $3.5 billion in revenue by the end of 2025. We updated that in our November of '23 Investor Day to reaffirm the $3.5 billion for this year and add a 2026 goal of $4.5 billion essentially a 29% CAGR from March of 2022 to now really the end of '26, and we're right on track for doing that, 29% growth in 2024. We also provided an outlook for value-added services, part of the key growth elements of the Clover solution with an expectation that value-added service penetration would hit 25% this year and 27% next year. We're right on track. We added 3 points last year. It went from 19% to 22%. And we got to add another 3 points this year, and then we get to ease in only 2 points after that. But of course, that's off a much bigger number.

Exactly.

And so we feel quite good about the track record and our ability to deliver on that. Some of the keys to that growth is those three new international verticals, building out additional value-added services. We continue to implement and deliver new software solutions. We launched five new hardware products last year. So we continue to invest in that product and bring new capabilities to market, and have a very broad distribution channel that continues to grow. We've seen a pretty significant renewal of interest in the FI channel, selling merchant services, signing up a number of new banks that was one of the early synergies of the Fiserv First Data merger. We did quite well, signing up hundreds of new financial institutions. And over the last 6 or 9 months, we've seen some really significant acceleration of that really around the solution that we launched last year, we referred to as the small business integrated suite of software, something that small businesses around the country, around the globe will benefit from and something that we're seeing our financial institution partners seeing as quite valuable in order for them to not only generate revenue through revenue-sharing agreements, but also deepen their relationship with an important client base of theirs, their own small businesses.

Right, right, right. Yes. And I want to come back to dive into some of these incremental drivers that get you to those 2025 and 2026 stories. But before I forget, I actually want to come back to the ADP, Clover relationship. I know you highlighted that briefly. I mean, it really does seem like a very natural cross-sell opportunity between the two customer bases. But tell us a little bit more about the rollout plans, anything you can share on the economics of the relationship. And whether or not it's exclusive, and do you think it starts to move the needle a little bit this year on revenue?

Yes. So the partnership you were referring to, we launched late last year, and where we are essentially selling each other's solutions to small businesses. ADP obviously has an extensive network of existing clients and new clients where they are selling payroll and human resources solutions, which we obviously don't have. And offering those types of capabilities to our small businesses, again, deepens our relationship with our small businesses, it expands the offering that we can bring to a small business and vice versa. They don't have a merchant acquiring or Clover solution. And so we're now essentially selling each other's products to each other's clients on a referral basis. And we're quite excited over the partnership. We think it's a very natural link the two companies get along quite well, and we're encouraged on early signs, but it's early signs. Is it going to move the needle? It depends on how fine a needle you want to look at. At the end of the day, we're going to do $20 billion, $21 billion of revenue this year, with roughly half of that, call it, $10 billion in merchant acquiring. ADP is helping with that, no doubt about it and vice versa. So we're excited about the partnership.

Yes. No, it does sound super interesting. So let's come back to some of these incremental sources of growth for Clover. And I want to talk about the VAS piece. I guess when we think about VAS today, we think of Clover Capital as being the biggest piece of that, and correct me if I'm wrong. So I'm just curious how you guys are thinking about underwriting and credit there. And with the macro becoming a little shakier? Do you think anything different about it?

Yes. So Clover Capital is not the largest, but it's one of the largest value-added services, most definitely. And I would say it's a different sort of -- it's not a loan. And we have very, very good visibility. It's essentially in advance against receivables, and we have very good visibility into the merchant acquirers cash flow.

You got the hand in the cash flow, basically, right?

Exactly. And, in fact, are in the payment flow. So if you look at our financial disclosures, continue to see good growth in Clover Capital and any reserves or losses are remaining quite steady. So I feel very good about our ability to continue to offer that and generate good margins and good returns.

Have you guys seen any different kind of loan sizes in Clover Capital? Or is there -- what is the average loan size?

No, it's relatively small, both in terms of dollars and in terms of term or length. And so I would say, I don't think we've seen any change in dynamic there one way or another. And I don't think we've seen any big shift in demand, certainly something that we'll watch for. But so far, relatively stable and steady.

Okay. So let's turn to some of those newer geographies. Brazil, Mexico, Australia, and I know, again, some of this is pretty nascent. But just if you're looking out whatever, 12, 18, 24 months, is there a view in terms of which of those geographies can actually drive the most incremental revenue? And maybe just talk a little bit about distribution strategy in the respective regions?

Yes. I think -- so a couple of keys there. One is from a distribution strategy, very similar to what we have globally today, a variety of different distributions, direct channel through partnerships, through bank partnerships. Important to note that as we expand Clover into these new geographies, the three, Brazil, Australia and Mexico. They're not new geographies for us. They are new geographies for Clover.

Sure. Right, right.

We have merchant acquiring capability in all three of those today. We're well known in the market, well known through the distribution channels and have good local presence. One of the things that Fiserv has done for 5 years post-merger is we are organized, and we don't have an international division. We have really four regions: North America/the U.S., Latin America, EMEA, and Asia Pac. And each of those regions are run by local leaders that report directly to Frank/Mike.

Yes.

And so that local presence really makes a big difference. And the fact that we are expanding Clover into local markets for us. We're not entering the market, we're not familiar with it. It's not a market that is new to us by any stretch of the imagination. So we feel quite good about our ability to make good headway and grow nicely. I would anticipate this year all three of those regions ramping and continuing to add to that is one of the many ways we'll achieve the $3.5 billion of revenue for 2025. I would anticipate and this is somewhat size of market as well as pacing or timing. We're first to launch in Brazil next is Australia and then Mexico. And I think you'll see that in terms of growth trajectory.

Okay. Yes. Makes sense. Makes sense. So the back book also comes up sometimes as a Clover driver and I think originally, at the Investor Day, you guys had said that back book maybe contributes 10%. And I think that's more or less been your experience since the time of the Investor Day. As we look out at your 2026 target, does that 10% get a little bit bigger?

Yes. So the 10% you were referring to is a number actually we've been seeing for several years. I can tell you for the last 5 years that I've been associated with the merchant side of our business. That's been the case. And what that is, is roughly 10% of the Clover growth is driven by back book conversion, or said another way, 90% of new Clover revenue growth is from clients that are new to Fiserv from a merchant acquiring standpoint. And that's been very consistent for the last 5 years. I would expect that to kind of hang in there for this year. That's what we're seeing right now, and I expect to see the balance of this year. What we said during Investor Day back in November is as we hit 2026, 2027, '28, we'd expect that to modify a little bit. It's not something that we don't need that to go to 50% to get to the $4.5 billion. But at some point in time, it would make sense to more proactively address that back book in November of '23, '26 look like a time that we probably want to do that.

Yes. Yes. No, that would certainly make sense. All right. So we're going to move on to Financial Solutions. And I wanted to talk about pipeline on the issuer processing side of the business because you've had a number of big wins. You touched on a couple of them briefly like Verizon and Target, there was Desjardins. So what's the state of play right now in the pipeline, now that you landed some big contracts?

Yes. So still good pipeline, good growth. And one of the areas, in particular, we see real opportunities internationally. This is a global business for us, and we see some real opportunities. Obviously, Desjardins up in Canada, the largest credit union consortium up in Canada. I mentioned Target is now live. Verizon will go late third quarter, early fourth quarter, we actually expect Desjardins to be in 2026. In December of 2020, one of -- we were in an investor conference. One of the key messages we delivered there was we had, and I think this number is right. It was many years ago now, $120 million worth of new issuer wins in the previous 12 months that we expected to go live. Then in November of '23, which was our next Investor Day. We recapped that $120 million. First, they were all live. And secondly, it turned out to be more than $120 million, i.e., natural growth of those products, of those clients. And then announced another $125 million or so of new wins as of November '23, that would go live, and that's the Target and the Desjardins and whatnot you see now going live, I know we continue to see good pipeline and good level of interest. We got a terrific product. We continue to invest in that product, bringing more capabilities to that, and we're quite encouraged about the growth that we're seeing from that group of wins we had back in November of '23, starting to go live as well as new wins that we're seeing. And part of that, of course, is they're now the hot term embedded finance, which we've been participating in for a number of years. We just didn't use to call it embedded finance. And in that November '23 Investor Day, one of the examples we used is Walmart. Didn't realize that was embedded finance. We just thought we were providing additional services to a very large client of ours. Today, that's embedded finance. And of course, at the end of kind of the second half of last year, we announced the DoorDash win, a large embedded finance win that is now live. I think we announced that in early fourth quarter, it's live and at "full ramp" still growth opportunity, but we've converted the Dashers, as they call their drivers, and we've now got a few million accounts open on that system, and we'll continue to see growth in that space as DoorDash grows as well as as they look to add additional capabilities to their program.

Yes, I'm glad you brought up DoorDash because I was going to get there, but maybe for people who are a little less familiar with the relationship, maybe just say a few words about how it actually works in practice and kind of the benefit to the Dashers.

Yes. Yes. So if you're not familiar with DoorDash every time a delivery takes place, their drivers are paid instantaneously. And so if a driver is making 10 deliveries, they're getting 10 paychecks that day. If they're making 20 deliveries, they're getting 20 paychecks that day. And obviously, they are not checks. And we are the processor for those payments. We provide the program management. We provide the debit processing and Finxact is the ledger that they're running that system on.

Great. Great. And then I want to come back to CashFlow Central, then the small business bundle. It would be helpful, I think, if you just kind of go through some of the key aspects of those products and the rollout time lines. I know the CashFlow Central is kind of part of the bundle.

It's right.

But just unpack that for us a bit.

Yes. So the small business integrated suite that you're referring to is a set of products that we are bringing to market that enable a small business to better operate their small business. And it's a variety of different solutions. It obviously starts with Clover at its heart from an operating system standpoint. It adds CashFlow Central, which will go live in the second quarter, which is an AP/AR solution that enables a small business to better manage their cash flow that we all know is the heart and soul of the success of a small business. We have Experience Digital or XD, which is our digital banking software. So you can access that small business integrated suite through XD, through your digital banking solution. Therefore, financial institutions are a key part of the distribution channel for the small business integrated suite. It's things like ADP or SpendTrack, which is a credit card control and reporting system, a lot of different capabilities that come in an integrated suite that you can either access through XD, again, your digital banking solution or through the Clover dashboard, depending on how you want to access all of that capability. A lot of that is in place today, and deepening the integration of that capability and some of that, like CashFlow Central will go live later this year.

How many banks are signed up so far?

So from a CashFlow Central standpoint, by the end of last year, end of 2024, we had 39 financial institutions.

All right.

And of course, continue to sign up new ones this quarter and have a tremendous pipeline.

Okay. So we'll look forward to hearing more about those. I wanted to spend a couple of minutes on the core banking business, which obviously, post the merger with First Data, became a smaller piece of overall Fiserv, but it's been a very long-term business for you guys. How would you assess the competitive landscape there? I mean I think of Fiserv as playing across various aspects of that market. So just how you've seen that evolve and how you feel about Fiserv's overall positioning?

Yes. First and foremost, I feel great about where we stand in that overall market. Core banking is one of the three business lines within our Financial Solutions segment. As you may or may not recall, Fiserv has got two segment reports. One is the Merchant Solutions, the other is Financial Solutions, roughly 50% of the revenue in each of those two. And in the Financial Solutions segment, there are three business lines that roughly represent 1/3 of the revenue of that segment, call it, $9 billion, $9.5 billion of revenue last year. Banking is where we see our core as well as digital banking XD, for example, reported in. And overall, the Financial Solutions segment has seen good accelerated organic growth. We did 6% last year. We had guided the segment to be 5% to 7%. We did 6%. Guidance or outlook for 2025 is that segment will grow at 6% to 8%. And in banking, in particular, we indicated that would be below that average, that 6% for the last year and 6% to 8% this year, given the nature of that segment. You don't have lots of banks changing cores on a regular basis. Over the last several years, that growth rate is up pretty meaningfully from what used to be "mid-single digits," but we battle to get to 3% or 4%.

Right, right.

So now to be at 6% is an accelerated growth. XD is a tremendous digital banking solution. DNA, Finxact are two very strong core account processing systems. And we have a variety of different solutions depending on the bank and the credit union and what works for your bank or credit union. Over the last several years, you've seen our solution kind of grow. We're now participating in much larger banks. If you had talked to me 7, 8 years ago, I would have told you kind of the heart of our offering was in a bank size or credit union size of, call it, $5 billion to $10 billion, typically, that's moved up quite meaningfully. DNA and Finxact in particular, we have now multiple banks well in excess of $100 billion in assets.

Wow. Okay.

The other thing that's changed quite meaningfully is 10 years ago, the secret sauce to Fiserv was sell a core, and then add surrounds to it. Today, we can start those relationships with the financial institution in a lot of different ways. It might be selling debit processing or it might be selling digital banking or whatnot, and then add the core where 10 years ago as you had to lead the core first.

Lead the core -- yes. Right.

And now we can lead with a lot of different solutions. And of course, having both that Financial Solutions and that Merchant Solutions capability and being able to go to a bank and talk about a small business integrated suite, which allows them to sell a solution to what really is a pretty important element of their customer base and deepen their relationships with their clients as well as generate revenue through our revenue sharing agreements is quite meaningful.

If we think about -- you mentioned the guidance for Financial Solutions this year. So it is calling for a little bit of acceleration. I think it's a little bit back half loaded. I think there are some genuine drivers for that, but just hone in on kind of the points of visibility that you have into that acceleration?

Yes. So this is generally -- well, overall Fiserv but in particular, on the Financial Solutions, a pretty high recurring revenue business. And what drives that growth rate into the -- as it accelerates into the second half of the year is things like CashFlow Central launching, some of the new issuer programs going live. We continue to see good growth in both the digital payments and digital banking solutions, the other two large business lines within that segment. We've got a great debit business. We've got a great credit issuing business. Debit is both debit processing as well as STAR and Accel, the essentially the third largest debit network in the United States, continue to see growth in that space. So we're quite enthused over our ability to accelerate revenue again into 2025. We essentially hit the bottom end of that range last year. And given the things like CashFlow Central and new implementations on Experience Digital, our digital banking solution, the new issuer wins and whatnot, we feel quite good about the visibility into delivering on that.

Right. Basically, you're talking about 1 point, right, at the mid -- the 1 point of acceleration...

That's right.

Okay. And you're going to have Target for 3 quarters and Verizon for what...

Fourth quarter. And you got DoorDash for a full year instead of just a quarter, and even in the fourth quarter, it was ramping. And so...

Right. The pieces are all there. Yes. Okay. Okay. Good. That's good color. I wanted to touch on the Pay by Bank initiative at Walmart, where you guys are obviously an important part of that. And I wanted to get a sense of just is that moving into production? Just curious on timing there. And when you guys talk to other large merchants that obviously, you have deep relationships with, are you getting the sense that there's interest from others as well? Other bank?

Yes, I definitely would say there's some real interest. Obviously, the pilot that we did with Walmart last year garnered some interest with Walmart, but also with other large clients of ours. It's still early stages on how that plays out. But we are in -- have been and continue to be and expect to be into the future offering a variety of different payment solutions for our clients and enable them to pay and get paid in whatever form they want to get paid and Pay by Bank is yet another solution, we're bringing to the market.

Yes. Okay. So it sounds like one to watch, but it's still early days.

Yes, yes.

Let's talk about operating margins. You guys are calling for at least 125 bps of expansion. I think in both segment as well as, obviously, total company. And you guys have really done a fantastic job on margins, probably even more so since the merger. And I wanted to hear about kind of the levers that you have to drive incremental margin expansion and all this ongoing efficiency because, again, margins are up hundreds of basis points since the merger.

Yes. So since merger margins are up just under 1,000 basis points. And as you said, our outlook and guidance for this year is at least 125 basis points this year, and we expect both of our segments to contribute towards that growth. This is really something that is the heart and soul of Fiserv. It's also what I sometimes refer to as the natural cycle of the company. As we accelerate growth, this will be 2025 with a 10% to 12% outlook would be our fifth consecutive year of double-digit organic revenue growth. We like to talk about 39 consecutive years of double-digit earnings growth. But we're now looking at -- we did 4 years, this will be the fifth year of double-digit top line. That organic growth of the company falls through at better than company average margin. It's a very scaled business. And so it's a virtuous cycle of growth. Our investments in the company last year, the year before, the year before, drive that 10% to 12% growth this year. That 10% to 12% growth comes through a better than company average better than the 39% margin, and therefore, allows us to take some of that, reinvest into more growth for next year and the following years we'll see margin expand. And it's something that we've been doing for a lot of years since before the merger but obviously accelerated meaningfully as the growth of the company accelerated pretty meaningfully. And when we started making those investments and started talking about high single-digit, low double-digit organic growth. I think a lot of people were looking at saying, okay, you're going to make the investments where you're going to actually deliver the growth? And we've absolutely done that.

Right, how can you do the both. That's right. Yes.

That's right. And you've seen a pretty significant increase in our CapEx. In 2020, we spent about $900 million in CapEx. The last 3 years, I think we've averaged $1.5 billion. We're just over $1.5 billion last year. That brings the long list of new products that are now going into market, CashFlow Central, new -- five new pieces of hardware in Clover, new software for our vertical -- our focused verticals around retail, restaurants and services in Clover. Number of new products that are coming in the market drive that growth and allow us to continue to expand margin.

Yes, it's a nice...

Something we see growing for a number of years. This won't be the last.

Yes. Yes. I know it's a great flywheel, right?

Yes.

And I guess, is mix helping with ongoing margin expansion, too? I mean if I think about, for example, the outsized growth in Clover?

Yes. I think mix within the business lines, mixed within the products, and even within the products. So one of the key elements of growth of Clover is that deeper value-added services penetration.

Exactly.

And that software sale, obviously, is a much higher margin than selling a basic terminal or processing solution, payment processing, and therefore, that allows that margin expansion most definitely. There's reasons for the investments we're making and where we're making them, that's better margins.

Is there still a focus on outright cost takeout too? Or do you feel like you've realized most of that?

I think depending on how deep you want to look, yes. But ultimately, it's growing at better than company margins. And so an incremental dollar of revenue or 5% revenue growth doesn't bring 5% cost growth.

Right. Right.

So you'll see our expenses will grow in 2025. '24 was above '23, '25 will be above '24, but at well less than the growth rate of the top line. Now in individual specific areas, there's cost management or cost takeout. But generally, our costs are growing just at a much slower rate than revenue is.

The economies of scale are a beautiful thing, right?

Yes.

I wanted to talk about free cash flow. This has also been a pretty bright spot of the story. I think you're guiding to $5.5 billion for this year. I think that would put you pretty close to the 100% conversion target. And that's actually better than I think 90% is what you talked about at the Investor Day, right, that you were aiming for in '25 and '26. So it looks like you're actually outperforming a little bit. And just curious what's driven the outperformance? Is it just the margins coming in better or other factors?

Yes. I think margins coming in better as part of it. I think there's also -- and we talked a little bit about this in fourth quarter when we provided the full year 2024 results, we did $5.2 billion last year, which was above what we had guided and above what people had expected. And that really was driven by a pretty meaningful project around working capital management. And that's both accounts payable and accounts receivable, better managing both the cash in and the cash out in a systemic way. It wasn't...

Right. It's blocking and tackling.

Exactly right. But it wasn't Oh, geez, I got a big receivable, let's make 5 phone calls and beg for the money. It really was changing the way the cycle of how we generate invoices, where those go out, how we follow up and managing terms and managing communication, a lot more electronic delivery of invoices, better predictability of accounts payable that enables you to get different terms, where if a vendor knows they're going to get paid in 60 days, they're willing to take a 60-day payment, where if they were at 45 and you paid them sometimes in 30 days, sometimes in 55 days, that visibility where they actually can see that the payment has been approved, that sort of a thing, a wide variety of pretty significant working capital projects, again, both on the AR and AP side, paid off in a bigger way in fourth quarter than we had anticipated. And it is a sustainable systemic change that we expect to continue into the future.

Optimization, right...

Yes. Absolutely, right.

Like you said, the payables and receivables.

Absolutely right.

Yes, good old-fashioned working capital management, which is great. Let's talk about M&A. I mean, obviously, you guys buy back a lot of stock pretty much every year, but there is some balance in your capital deployment strategy, and you've not been shy about doing deals historically. If I think about just since First Data, obviously, I mean, there obviously have been smaller transactions. But now with kind of the changing of the guard, CEO, do you expect anything to materially change there? Or maybe just any characterization of the current M&A pipeline that you'd want to share?

Yes. I wouldn't point to a changing of the guard that will drive a change of outcome. We've always been quite interested in acquisitions and done dozens of them over the last several years. To your point, the last couple of years, they've been typically smaller in nature. And really what's driven that is not an appetite but a value. We have always been very much a value driver. If we see an opportunity to acquire a company or a capability that is value accretive for our shareholders, we'll absolutely address that. And I would tell you, we have a very active M&A group that looks at dozens and dozens and dozens of properties, both in terms of our own random interest on companies that aren't necessarily available, but we'd love to find a way to do something with, but also ones that are in a process. And at the end of the day, as I've been known to say I'm a willing buyer at a specific price. The challenge is finding a willing seller at that same price. And for a while, we thought we were seeing valuation expectations improve and ease, but we haven't gotten to the point where we're doing lots of deals. Now we actually did close -- we announced two at the end of last year and closed them this year. So we got a couple of first quarter deals done, relatively small. I think a combined, call it, $300 million, give or take.

Okay.

So not a significant amount of capital being deployed. But we continue to look. And if we see a nice opportunity, we're more than happy to do that. We have the strength of the balance sheet. We've got a great balance sheet, great cash flow. So we're absolutely willing, but it's got to be value accretive to the company.

Yes. But with your organic growth, you can afford to be disciplined.

Exactly.

Say a lot. All right. Great. We've got to leave it there. We're out of time. Thanks so much. Really appreciate it.

Appreciate it, Jason. Thank you.

Take care.

Thanks, everyone.