Welcome to the Fiserv Third Quarter 2022 Quarter Earnings Conference Call. Operator Instructions. As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Chariell, Senior Vice President of Investor Relations at Fiserv.

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now over to Frank.

Thank you, Julie. Before I begin, let me again welcome Julie to the team. As we announced last quarter, she moved to a new role as the Head of Strategy. Julie joins us from Bloomberg, where she was a senior equity analyst covering the fintech and payment space and has extensive experience as a sell-side analyst and investment product manager. Welcome to your first Fiserv earnings call, Julie. Turning to the results. Overall, I am very pleased with yet another quarter of double-digit growth in both organic revenue and adjusted EPS. We continue to demonstrate the strength of our client base, depth of our partnerships and resilience of our businesses. Consumers activated more cards, continued to spend and were issued new credit. Merchants opened up new businesses, offered better experiences and took advantage of more value-added services. Financial institutions upgraded their systems and invested in new products to better compete and capture efficiencies. In the early days of the fourth quarter, we are seeing the same trends continue. We grew adjusted revenue 8% with organic revenue up 11%, at the top end of our full year 2022 guidance range. Adjusted operating margin of 35.2% was up 100 basis points year-over-year, expanded 170 basis points sequentially and was consistent with our internal modeling. Adjusted EPS of $1.63 included a $0.08 foreign exchange headwind versus last year, which is $0.03 more than we anticipated 90 days ago. As we look forward, pressure remained from inflation, a still tight global market and geopolitical uncertainty. But as a global and diverse business, we are well prepared to capitalize in any market environment. Based on continued momentum, strong execution and near-term visibility, we are raising our revenue guidance to the high end of the range for this year to 11% organic and raising our adjusted EPS to $6.48 to $6.55. Clearly, we're executing well beyond our legacy as a mid-single-digit top line grower. Based on the actions we've taken and the investments we've made, I remain confident that we can achieve faster growth in the high single-digit range or better over the coming years while maintaining our track record of double-digit adjusted EPS growth. When we brought together Fiserv and First Data in July 2019, we envisioned an industry-leading combination with a complete set of strong payments and fintech capabilities that were highly complementary. As we've combined these great companies, we're sometimes asked how being a diversified company that serves merchants and financial institutions, large and small, across all payment types is the winning strategy. We believe we're already demonstrating this through market share gains, faster growth and expanding margins, and the third quarter is another proof point of the power of this team and our set of assets and capabilities. Third quarter highlights the continuing momentum in our Payments and Network segment with organic revenue growth of 11% and adjusted operating margin expanding 190 basis points to 45.9%. Our issuer solutions business, which includes credit processing for large issuers and card and statement services, was particularly strong. Issuer solutions won contracts, with 3 of the top 25 North American credit card issuers within the last 2 years, a testament to our single platform that delivers a full suite of digital capabilities. We can trace our success here directly to the investment we've made in the business over the last few years. These include a robust set of APIs; AI-based fraud management; cardholder experience technology, being the Ondot acquisition; integrated end-to-end output solutions plus ongoing cloud enablement of our technology stack. Since we began combining Fiserv and First Data, we made a decision to pursue the opportunity in the government vertical with its large TAM and multiple use cases that span merchant, issuer and output services. We began investing in the solutions, people and infrastructure, and the strategy is now playing out. This month, we began issuing roughly 10 million prepaid cards for the State of California under its middle class tax credit program. Since announcing this win last quarter, we were awarded another contract with the California State Controller for cards supporting various disbursement needs. We work with 5 other states to disburse and process their unemployment benefit cards. The pipeline remains large, and this vertical is traditionally quite resilient through the economic cycle. Investing in innovation is a constant across our business, and nowhere are the benefits more evident than in our Merchant Acceptance business. We had another strong quarter for merchant, growing organic revenue 14%, once again outpacing our medium-term guidance of 9% to 12%. At Clover, we rolled out several new products to enhance the merchant experience and customer authorization. This quarter, we'll be piloting an expanded retail vertical offering with additional horizontal value-added services, including an integration with accounting and business software. Our vertical solutions are resonating. In September, Clover Sport signed an agreement with Caesars Superdome and the Smoothie King Center in New Orleans, adding to its base of over 250 professional- and college-level sports venues. Clover will streamline purchasing at concession stands, premium bars and clubs with digital, contactless and self-service purchasing. We will also provide third-party integration to related services and real-time data insights. Carat, our enterprise omnichannel operating system, launched new money flows and continued to lead the market in payout choice and flexibility. We launched more instances of our multi-purse wallet, a white-label solution that holds multiple sources of value, including loyalty and prepaid. And we're proud to share that in July, Fiserv was named Merchant Acquirer of the Year by the Merchant Payments Ecosystem Awards in recognition of the highly successful debut of Carat as an omnichannel commerce operating system. As I mentioned earlier this year, data is an emerging business for us, and it spans both merchant and financial institution clients. We're excited to announce our new data-as-a-service offering in September, partnering with Snowflake. Fiserv will enable customers to access their payments data in near real time to better inform business decisions. By leveraging Snowflake Secure Data Sharing, customers can now seamlessly and securely access and integrate their data, driving deeper timely insights. A large energy company is just one type of client already in pilot. Financial institutions are excited by our data-as-a-service offering as well. Carter Bank, a $4 billion Mid-Atlantic community bank, is in an open data pilot with us to consolidate and connect all data across the enterprise. Many banks tell us they spend too much time trying to source, provision and integrate data. Fiserv and Snowflake will make it easier for Carter to use the data across their Fiserv and non-Fiserv systems to fully understand their customers down to the branch level. Fintech performance was lower than normal this quarter at 1% organic revenue growth but generated 4% growth year-to-date, and is on track to meet our organic growth guidance of 4% to 6%. This is a consistent business, but timing of product additions, new business implementations and professional services revenue can vary from quarter-to-quarter. Some of this revenue anticipated for September slipped into the fourth quarter, and we have good line of sight to full year revenue in the medium-term guidance range. We remain encouraged by our visibility here after signing 14 core wins in the quarter, with 9 being competitive takeaways spread across large banks, new banks, fintechs, community banks and credit unions. Earlier this year, Webster Bank acquired Fiserv client Sterling Bank to create a $65 billion Northeast regional. In the quarter, Webster chose Fiserv as its core account processing platform with multiple surround spanning our fintech and payments offering. We've talked about the strategic importance of Finxact, a leading cloud banking core today, with 11 clients already in production. After just 6 months under our umbrella, Finxact is attracting strong interest from both new and existing Fiserv clients. With 2 large new client wins in the quarter, Finxact will become the cloud-based core platform for 2 more emerging online banks. And just yesterday, we entered into a new agreement with Zenus to power this global digital bank's first-to-market solution, running Finxact on the Microsoft Azure Cloud. Looking forward, there's plenty of uncertainty around what 2023 will bring. We're currently in the planning phase but have already taken steps to ensure we are prepared for a softer macroeconomic environment. We are fortunate to have a well-diversified business with high recurring revenue and a strong balance sheet. Bob will talk more about these factors shortly, but I want to share with you what I am seeing and hearing from clients and where I see opportunity for Fiserv in the coming quarters. The Payments segment has successfully capitalized on industry trends that are enabling strong growth. I call out 4 major trends that are responsible not only for the strong growth we are seeing now but a robust pipeline for the coming year. First, cardholders continue to expect better payment experiences, and more issuers look to our platforms to meet this demand. Issuers are also investing in more modern technology solutions such as better digital, broad and loyalty capabilities, all of which offer us attractive cross-sell opportunities. Second, the addressable market is growing. Segments such as health care, education and government are increasingly looking for new credit processing and disbursement solutions. Nontraditional start-ups and fintechs have also been actively entering the card issuing and lending space. Third, demand for plastic solution remains high as issuers compete heavily for new volume. Finally, the card payments environment has remained active even as we see continued growth in noncard payments, including Zelle and real-time payments. Two regulation-led opportunities exist. First, the Fed announced that its real-time network, FedNow, would go live in mid-2023. Fiserv has been part of the FedNow pilot, and we believe that we are well positioned to participate in the rising adoption of real-time payments. We enable financial institutions and, eventually, billers and merchants to integrate with a variety of real-time services and networks through our single connection. Second, earlier this month, the Federal Reserve finalized a clarification to Reg II that the dual network requirement for debit applies for all transaction types, including card-not-present. Fiserv believes this will promote market competition, which will ultimately benefit consumers, merchants, issuers and the industry at large. Our debit networks, STAR and Accel, support card-not-present transactions, but many factors will influence our ultimate opportunity, so we will wait to see how issuers implement this rule once it takes effect in July. In Merchant Acceptance, the uncertain macro environment has merchants, large and small, looking to optimize the value in their operations. In some cases, this has increased their desire for a single full-service provider over fragmented specialists. And that suits us well given our breadth and scale. Their focus on areas like payment optimization, lower-cost payment methods and fraud is presenting more value-added service opportunities as well. In fact, we've won a few deals to enable Pay by Bank, which lowers the cost of acceptance for merchants, is an easy way for consumers to earn rewards. One of our large petro merchants, Sunoco, with 5,500 locations, was just one such win in the third quarter. With the e-commerce penetration returning to a more normal growth trend, card-present solutions are in focus as the more complex problem to solve for integrated omnichannel solutions. Our marquee base of large merchant customers is looking to us here. This includes leading petro and grocery merchants who are more insulated from economic slowdowns due to the nondiscretionary nature of their businesses. In our Fintech business, banks are managing through the macro uncertainty with a focus on serving existing customers and improving operational efficiency, two areas where we provide a number of important products and services that offer a way to grow accounts and enter new markets in a cost-effective manner. Finxact, our new cloud-native modern banking platform, is being recognized as the best way to conceptualize, create and launch new banking products. And our pipeline is particularly active with pioneering digital banks and big issuers entering the banking market via embedded finance. A leading example is our partnership with One Finance, supporting their growth initiatives in retail. We can offer them faster time to market with greater flexibility and scalability plus the largest product portfolio available. Now let me pass the discussion to Bob for more detail on our financial results.

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I will cover additional detail on total company and segment performance, starting with our financial metrics and trends on Slide 4. Third quarter results showed continued strength and the benefit of our broad portfolio. Total company organic revenue growth was 11% in the quarter with continued momentum in Merchant Acceptance, a nice step-up in growth in our Payments and Network segment and stable performance in the Fintech segment, considering the impact of some timing of revenue quarter-to-quarter. Year-to-date, total company organic revenue grew 11%, led by the Merchant Acceptance segment, which grew 17%. Third quarter total company adjusted revenue grew 8% to $4.3 billion, and adjusted operating income grew 11% to $1.5 billion, resulting in an adjusted operating margin of 35.2%, an increase of 100 basis points versus the prior year. As Frank mentioned, margins improved sequentially 170 basis points from the second quarter on 1% higher revenue and 2% lower expenses. For the first 9 months of the year, adjusted revenue grew 9% to $12.4 billion, and adjusted operating income increased 10% to $4.2 billion, resulting in an adjusted operating margin of 33.6%, 40 basis points ahead of the prior year period. The adjusted operating margin for the quarter was impacted by several factors, including, first, investments related to new acquisitions, including BentoBox and Finxact; second, the significant strengthening of the U.S. dollar, particularly in September; and third, the net impact of inflation on our revenue, offset by costs for both labor and material. As we've previously said, we expect significant adjusted operating margin expansion in the fourth quarter. We have 4 factors driving this improvement. First, the benefits of the final ramp-down of prior integration expenses and resulting productivity benefits. Second, in the latter part of the third quarter, we began taking some cost actions to tighten spending in light of the continued uncertain macroeconomic conditions across the globe. Third, as part of our ongoing strategic review, we divested our Korea business and 2 small low-margin nonstrategic units. Finally, we anticipate healthy operating leverage and easier inflation comparisons in the fourth quarter. These factors should deliver our full year guidance for at least 100 basis point improvement and sets us up well for 2023. Third quarter adjusted earnings per share increased 11% to $1.63 compared to $1.47 in the prior year. Unfavorable foreign exchange impacted adjusted EPS by $0.08 per share year-over-year or 5 points of growth headwind relative to the exchange rates a year ago. Year-to-date through September 30, adjusted earnings per share increased 14% to $4.59. Free cash flow came in at $849 million for the quarter and $2.1 billion for the first 9 months of the year. Free cash flow conversion was 81% of adjusted net income this quarter, well ahead of prior year and first half levels. Like the fourth quarter of 2021, we expect a significant ramp in free cash flow and free cash flow conversion in the last quarter of the year. Free cash flow conversion of 71% year-to-date reflects a combination of: first, continued organic investment in software and application development to drive higher growth across the business; second, greater working capital investment in both accounts receivable and inventory, driven by accelerated revenue growth; and third, higher capital expenditures associated with the newly acquired capabilities to drive innovation and integration. As we close out the year, the sustained strength in our business gives us confidence to raise our full year organic revenue growth outlook to 11%, the top end of our previous guidance range of 9% to 11%. With this higher organic revenue growth outlook and execution on cost actions that support continued adjusted operating margin expansion, we are raising our full year adjusted EPS guidance range to a new range of $6.48 to $6.55, representing growth of 16% to 17% over 2021, at the high end of our original 15% to 17% guide. This includes significant strengthening of the U.S. dollar, which leads to an additional $0.06 of unfavorable foreign exchange impact in the third and fourth quarters relative to our expectations just 90 days ago. While we anticipate greater than 100% conversion of free cash flow in the fourth quarter, we continue to anticipate strong revenue growth as indicated by another increase in our organic revenue outlook. We have real investment opportunities to sustainably grow our top line faster than market and faster than our history of mid-single-digit growth. Therefore, we now expect full year free cash flow conversion to be approximately 85%. Now looking to our segment results, starting on Slide 5. Organic revenue growth in the Merchant Acceptance segment was a healthy 14% in the quarter and 17% year-to-date. Adjusted revenue growth in the quarter was 9% and 14% for the first 9 months, well ahead of the medium-term segment guidance of 9% to 12%. Merchant volume and transactions grew 10% and 5%, respectively, excluding the loss of a processing client mid last year. Activity was consistent in North America with some deceleration in Europe. We see new opportunity with the launch of our Deutsche Bank joint venture in the quarter. Turning to our merchant operating systems, Clover and Carat. We continue to see gains across key metrics, including net new merchant adds, value-added services penetration and partner relationships. Clover revenue grew 19%, coming off our toughest comparison against last year when the post-COVID return to normal was in full swing. Payment volume growth was 21%. Software and services penetration reached 15% of total revenue, an increase of over 260 basis points from last year and up 30 basis points sequentially, with strength in assets like Clover Capital. Clover Connect for ISVs built on its momentum with very strong revenue growth in the quarter as we continue to execute on our vertical strategies, adding 37 ISV partners. We won key clients away from competition such as SalonUltimate software, a comprehensive solution for salons and spas. Another PayFac win in the quarter was Tempus, which expands our presence in the health care vertical. We focused on our integration of BentoBox and rounded out our restaurant offering with the acquisition of NexTable for reservations, providing an opportunity to expand ARPU beyond the average increase of 2 to 3x, which we see for merchants using BentoBox and Clover. Carat also had a strong quarter with revenue growing at 18%. We continue to drive accelerated growth in new money flows with third quarter digital transactions up 67% year-over-year and online EBT transactions up 27%. We delivered on our new innovations and signed agreements with Sunoco to launch Pay by Bank and with Subway's digital acquiring business in Puerto Rico via our connected commerce ecosystem, among others. We also continue to show we're a provider of choice for fintechs, this time with peer lenders and others for digital disbursements and card-not-present acquiring. Adjusted operating income in Acceptance segment increased 11% to $610 million in the quarter, and adjusted operating margin was up 20 basis points to 32.4%. The improvement was led by operating leverage and cost management more than offsetting the impact of acquisitions and divestitures as well as FX. Year-to-date, adjusted operating income improved 14% to $1.7 billion, and adjusted operating margin grew 20 basis points to 30.8%. Turning to Slide 6. On the Payments and Network segment, organic revenue grew 11% in the quarter, above the high end of the 5% to 8% medium-term guidance range. This growth was enabled by a variety of drivers across our business lines. Our North American credit active accounts on file grew 19% versus third quarter of last year. This growth was driven by both new business onboarding and a favorable credit environment. Our international issuing business grew strong double digits, driven by macroeconomic improvement as well as the onboarding of new clients. And our debit business continues to post solid growth, driven by new client wins on our debit networks, STAR and Accel. We are pleased with several wins among fintechs in the quarter as well, including one with Papaya for eBill distribution. Papaya is an app provider that brings billers and consumers together for a better bill pay experience. Year-to-date organic revenue grew 8%, and we expect the momentum in this segment to continue through the rest of the year, resulting in full year organic revenue growth at or above the top end of our medium-term outlook range of 5% to 8%. Adjusted operating income for the segment was up 14% to $744 million, and adjusted operating margin was up 190 basis points to 45.9%, driven by strong operating leverage. Year-to-date, adjusted operating income was up 9% to $2 billion, and adjusted operating margin was up 70 basis points versus last year at 44.1%. Moving to Slide 7. In the Financial Technology segment, we posted 1% organic revenue growth for the quarter and 4% year-to-date, within our 4% to 6% medium-term guidance range. The nonrecurring portions of this business, including new product implementation work and professional services, was impacted by the timing of contracts in September. But we retain good line of sight to this revenue being booked in the fourth quarter. Meanwhile, customer momentum continues, and we had 14 core wins in the quarter, including 9 competitive takeaways. Adjusted operating income was down 5% in the quarter to $261 million and up 3% to $817 million year-to-date. Adjusted operating margin in the segment decreased 190 basis points to 34.1% in the quarter, driven by investment in Finxact and timing of periodic revenue. Year-to-date, the segment's adjusted operating margin declined 50 basis points to 34.8%. The adjusted corporate operating loss was $109 million in the quarter, a slight improvement from the first half run rate and $356 million year-to-date. The adjusted effective tax rate in the quarter was 20.9% and was 19.8% year-to-date. We expect the full year 2022 adjusted effective tax rate to be approximately 20%. Total debt outstanding was $21.4 billion on September 30. The debt to adjusted EBITDA ratio dropped another 0.1 turn to 2.9x, reaching our target leverage of being below 3x, which we set when we announced our merger. During the quarter, we stepped up our share repurchases, buying back $750 million worth of our stock. We had 24.5 million shares remaining authorized for repurchase at the end of the quarter. Additionally, we've repurchased a little more than $250 million so far in October. We are fully committed to our long-standing capital allocation strategy, which includes investing in our business organically, maintaining a strong balance sheet, repurchasing shares and pursuing high-value and innovative acquisitions. We've included Slide 8 in the presentation to reflect this greater investment while strengthening our balance sheet and returning cash to our shareholders. With that, let me turn the call back to Frank.

Thanks, Bob. Let me wrap up with an update about progress on ESG and our people platform. Since the release of our most recent CSR report in the second quarter, we have seen positive momentum in our ESG ratings at MSCI, Refinitiv and S&P CSA and significant increases in our ISS quality scores. We have submitted our CDP survey for the second year. These improvements are attributable to our improved ESG programming, framework alignment and our 2021 CSR report. As we look out to what is best described as an uncertain year ahead, Fiserv is well positioned for the long haul. We've made the investments in product, people and infrastructure that will allow us to continue as an industry leader, driving better top line growth and productivity. We've talked about some of the product innovation and TAM expansion that we've achieved. So let me take a minute to discuss our people. We're grateful for our dedicated workforce, especially our essential workers who are present throughout the pandemic. We recognize their commitment both through compensation and career advancement while supporting them by upgrading and expanding our infrastructure. This made it particularly gratifying when we were ranked #6 of the top 250 largest U.S. public companies on the American Opportunity Index earlier this month. The index measures how well these companies foster economic mobility based on real-world outcomes for employees, particularly those without a college degree. This index is one indicator that shows we are well positioned to compete for talent. Our hybrid workforce strategy is greatly enhanced by world-class facilities and colocated workforces. We began consolidating around large modern hubs and closed over 70 facilities in the past 2 years. This morning, we announced our new location for our global headquarters in Downtown Milwaukee. Last month, we opened the largest fintech hub on the East Coast, our innovation center in Berkeley Heights, New Jersey, where we anticipate LEED Platinum certification. This followed a major upgrade of both our production and office facilities in Omaha, Nebraska. We are opening new and expanded facilities in Dublin, Ireland and Sao Paulo, Brazil and are working towards LEED certification in these facilities after achieving LEED Gold status in New York. While this spending will ease in 2023, we are already reaping the rewards through lower operating expenses and increased productivity. I will close by thanking our more than 40,000 hardworking Fiserv associates around the world for working relentlessly to serve our clients and you, our shareholders. With that, operator, please open the line for questions.

Operator Instructions. Our first question will come from Lisa Ellis from MoffettNathanson.

First one, just, Bob, it's for you on free cash flow. Can you just elaborate a bit on what changed, I guess, relative to 90 days ago that caused you to bring down the free cash flow outlook for the year? And maybe just more broadly, looking forward, how are you thinking about what more of a sustainable level of free cash flow conversion is for Fiserv, realizing that there were some unusual items in this year, in 2022?

Yes. Lisa, thank you. So I guess a couple of things. One, in terms of the adjustment in our outlook for the full year, I think I would point to a couple of things. One is we continue to see good opportunities to invest for future growth. Obviously, we're seeing an impact in the current year from an 11% growth rate that puts pressure on working capital. As you grow the top line, you have more receivables, but we're also carrying more inventory. One of the things that has persisted longer than we had anticipated just 90 days ago is the supply chain issues/problems in China around getting point-of-sale devices, et cetera. And we continue to ensure that we have availability of product and can support our client base with having a product, point-of-sale product. COVID shutdowns in China are actually going on right now, and so protecting ourselves there. We also have some new geographies and new clients that are bringing on Clover and other point-of-sale devices. So we continue to invest in that. You see our capital spending around new product development, software cap. We continue to see good opportunities, so we're driving for sustainable, very high single, perhaps even low double-digit growth investments around the acquisitions of Finxact, Ondot, BentoBox. We've made the decision to keep investing and therefore revised our free cash flow. In terms of long-term sustainability, I'm not prepared to give guidance for 2023. But we've certainly seen in the last 2 years, '21 and '22, a pretty significant step function change in our growth rate, 11% last year, which granted is against the COVID adjusted prior year. But 11% this year, bending that curve, so to speak, from companies that were mid-single digits and perhaps generously mid-single digits pre merger, now double digits. You're going to see something less than 100% free cash flow going forward, I think.

Okay. Okay. All right. And then my follow-up, Frank, for you. In your prepared remarks commenting in regards to Carat, you highlighted that many merchants find that the in-store, the card-present component of acquiring or omnichannel acquiring is often the more complicated part. Can you just elaborate on this? I think this is a question we get often just sort of related to how to think about omnichannel acquiring and the tricky aspects of executing that for merchants that might currently use different acquirers in-store and online.

Yes. Thanks. I think we always had a very strong in-store presence. And we were always a large processor for e-commerce transactions. And then we geared into the front end of the business and began building out that omnichannel presence. What we see is that our ability to bring, in fact, a single integration point, single reporting structure, connected hardware, connected systems as companies evolve and want many times an easier instance, we are an excellent provider of it. And when we look at Carat long term, you see us also talking about other features in there where we allow a multi-purse wallet that puts more product in there. It could be loyalty. It could be prepaid. It could be rebates. So how we bring all that capability in a single connection, ultimately even allowing larger players. And ultimately, we think it will drop to mid-market, this capability, the ability for their consumers to build greater loyalty through this single connection and this omnichannel presence. So we're pretty excited. We've built it out. The use cases are there. We feel the winning is occurring and the volume is falling through the system. So it's been strategic. We came from a different place than others. We came with a great physical presence and a great processing capability. And then building omnichannel front end of Carat is resonating well with our clients. So think about it along with integrated value-added services and embedded finance, and all of that ultimately was using a much larger value prop, that pure omnichannel. I hope that's helpful.

Next, we'll go to the line of David Togut from Evercore ISI.

Bob, could you dig into your commentary around the bridge to 2022 margins, particularly your actions to tighten spending in the third quarter? Can you bracket for us what the annualized cost savings from these actions might be?

Sure, David. A couple of things from a margin standpoint. If you recall, going back to our first quarter earnings call, which we reiterated in the second quarter, we expected since the beginning of the year that our margin would accelerate into the second half. That acceleration was largely driven by carryover integration spending that we used to back in 2021 as merger and integration spending. Our company policy is that you adjust that through the end of last year, and any projects that are continuing no longer get adjusted out of our earnings, so we had some cost flow into the P&L at the beginning of the year because we knew those projects were going to finish up in the first half or first nine months of the year. That integration investment would taper off through the year and, in particular, be mostly out by the end of the third quarter, so you see improvement in investment or lower spending on those projects. Plus you get the benefit of the projects being done, meaning they generate a return and productivity, so you get a double benefit in the second half. As those projects have largely been completed at the end of the third quarter, we’ll see that come down in Q4 and realize the productivity. The second piece of margin growth is basic productivity, meaning non-merger-related operational excellence rolling through the business. Some of that is basic productivity work such as Six Sigma and leaning out spending. Some is the fact that we’ve reopened our offices and our associate base is returning, increasing collaboration. Frank talked about location work we’ve done in creating large hubs like the Berkeley Heights facility in North Central New Jersey that is now open, driving collaboration and productivity. I guess the final two things that will drive margin in the fourth quarter are scale and the benefit from divestitures. As you know, an incremental dollar of revenue comes through at higher than company-average margin given the fixed-cost nature of the business, so we expect good operating leverage from revenue growth and scale. And we completed three small divestitures at the end of the third quarter, so you’ll see the benefit in the fourth. Q3 over Q2 we expanded margins 170 basis points, and if you do the math we expect a big expansion in Q4. Looking back over the last five or six quarters, we’ve had 300, 400, even 500 basis point margin improvements in a number of quarters, so I feel good about our ability to generate at least 100 basis points for the full year.

Just a quick follow-up on the Clover revenue growth, which stepped down a little bit to 19% but still well above market growth. What's the path to get back on the 5-year growth plan of 27% that you laid out at the March Merchant Acceptance deep dive?

Sure, David. I guess the fastest thing to think about or the largest thing to think about is the 19% number that we showed in our prepared remarks and in the slides. That's a reported number. Obviously, FX had a pretty significant impact in the entire company, actually in all companies in the third quarter. If you were to currency adjust that number, you'll probably pick up 3 points, maybe even 4 points of growth. Plus, as you recall, in the first quarter of this year, we divested a small joint venture that we had. It was a minority equity interest actually technically, generated about $175 million of cash. So on an organic basis, that Clover growth is actually more in line with the 25% that we've talked about as part of our long-range expectation of growing Clover to at least $3.5 billion.

Yes, I would add there. We talked about $3.5 billion in 2025. We talked about a 9% to 12% for the segment. We're in normal compares, we're at 14% right now for the segment. I also think what we're doing on value-added services and they don't keep inching up and moving up and just saw it's a key driver here. We continue to grow the merchant base, grow the LTV, grow the ARPU, and we feel highly confident in exactly what we said in March, and I think it's playing out right now exactly as planned. Our sequential growth has been very high and I think so. If you look at it ex what Bob talked about and just look at the business case and the driving of it, our confidence level is as high as it was in March, and we're seeing it play out, and the value-added services will continue to grow quarter-by-quarter.

Next, we'll go to the line of Darrin Peller from Wolfe Research.

If we break down the merchant growth rate again, 14% is obviously somewhat industry-leading growth. And you had the volume growth, I think it was 10%. If you could just remind us, are the components all the same as to what's really driving that outperformance on overall growth? And the spread between revenue and volume, if that's something that you see sustainable and what's driving that? Obviously, Clover and Carat continue to do well. But how is international? How is the SMB versus enterprise? And Frank, just any patterns you're seeing change, if any, in the consumer behavior would be great.

Yes. We like to say we don't really talk about yields; we talk about revenue. You've heard us consistently beat that drum, and we choose to beat it when we're on the right side of that curve. I think we've maintained that approach even as others walk away from commitment. The investments you see us making—net investments across sales, infrastructure, and product development—are really driving the number. You've heard us announce partnerships across the board, including more today as we discussed Deutsche. On the ISV side, I think the business mix we described at the start of the pandemic—tremendously balanced, best distribution in the industry, and excellent geographic reach—is still playing out. That mix is what's driving our growth and volume. We did not have a great quarter in Europe, but the strength of our business—from the largest retailers to the pizza store in Brooklyn—shows through in the model. The work in Clover and the development of value-added services is also contributing to growth, not just in those services but across our total product set and our ability to deliver it. We have an industry-leading franchise; Clover, which has supported it from the start, has proved its merit and you're seeing the results. Our franchises in Brazil and Argentina continue to win and grow, as does our U.S. franchise. Value-added services, omnichannel expansion in verticals like restaurants, and international growth were our story at the beginning of the pandemic, and they remain our story now. We're in margin discussions and fully confident about where we're headed. I would also note that Merchant achieved its largest margin ever this quarter, which is a testament to the leadership in that business and the outcomes they're delivering.

Okay. Just a quick follow-up on the Payments segment. There's been very strong growth — the accounts and issuer side were strong in credit cards and from the new wins. Could you comment on what's happening in other parts of the business, such as bill payments or the network? Which aspects of that growth are sustainable, and after you anniversary the new wins, is there more to come?

I mean we had talked about this. The wins, the onboarding of the wins, they're growing. I'd like to frequently go back to Investor Day where we talked about this incredible pipeline, which at the time felt like it was a once in a lifetime event, meaning you win 3 of the top 25 issuers. And that part was a onetime event. But that pipeline is the same size and shape as it was back in 2020. And the building out of health care and government verticals, investment in education, all bode very well for performing at the higher end of that guidance range as we go forward here. I'm not giving guidance for anything other than what we're talking about in '22. But the pipeline is very strong. And you hear us talking about the California win. But the reality is we've had multiple government wins with our ability to distribute payments in a card-based fashion and having probably the best capability in the industry around that.

Next, we'll go to the line of Dave Koning from Baird.

And a couple of things. I guess my first question, kind of a follow-up on David Togut's question. It looks like your sequential EBIT dollars of growth, the way you're guiding is $150 million plus. Your revenue is about $50 million, give or take. So let's say that all goes to EBIT, that's $100 million of extra, right, of extra kind of that cost control. Is that a fair way to think about it? And you kind of said that's sustainable. I mean is that $400 million of run rate cost savings? Because I mean that would be a huge benefit into next year as well. Are we looking at that right?

Yes. David, I'd be a little careful. I have to run through all of your math. I have some broad assumptions on the sequential growth or the growth year-over-year in fourth quarter. Ultimately, the simple or straight answer is, look, we see some good cost improvement third quarter to fourth quarter. As I talked about earlier, the ramp-down of these integration projects as well as the benefit of the projects driving productivity into the organization now that we've got integration largely behind us, maintaining the productivity model that you've seen from this company for a lot of years. And certainly, incremental revenue drops to the bottom line. The growth in Payments certainly helps. Obviously, that's our highest-margin business, and continuing to see good growth in SMB also helps. So we feel good about the quote, to use a 4-letter word mix, in the fourth quarter. We see good opportunity or a good line of sight towards cost reduction/productivity, divesting a couple of these small nonstrategic units that are low margin and getting that scale really helps into the fourth quarter.

Got you. And just a quick follow-up. In the Fintech segment, I know Q3 was clearly weak. Is there a way to give kind of a more normalized growth number ex the implementations? And then also, Q4 has been higher than Q2. Every year going back since, I think, '08 was maybe the last time Q4 was below Q2. Is it fair just to think that if everything is kind of normalized that, that pattern would continue?

No. Obviously, we put up a 7% Q2 number. I would not anticipate us being north of 7% in fourth quarter. We do feel good about the growth of the Fintech segment. If you look over the last several years, there's variation quarter-to-quarter. Some of that is the periodic revenue or license and term fees. We have the additional impact in third quarter of this year for these nonrecurring one-timer type. I hate to use to as one-timer because they're regular. As contracts renew, we get short-term or immediate-term revenue, and some of that's already slipped into fourth quarter, i.e., we started to see some of that rebounds. We feel good about, number one, we're already in the 4% to 6% range, and we'll close the year out that way.

Yes. I'll just say I thought you had asked about our new Milwaukee headquarters.

Yes, nice. Yes, great.

Next, we'll go to the line of Tien-Tsin Huang from JPMorgan.

Good revenue here. I just wanted to ask on the buybacks here. You're at your target leverage, as you've called out, and you stepped up your buybacks. It looks like, what, 80% of free cash flow is getting allocated to buybacks year-to-date. So just wanted to check your appetite on buying back stock here. It sounds like October was in line with the third quarter run rate. Appetite to buy back stock versus acquisitions?

Tien-Tsin, I guess, first, yes, obviously, we've been buying back shares. We are always in the market. Every once in a while there's some ebbs and flows, and we were strong in the third quarter and certainly strong so far in the fourth quarter. I feel good about our ability to continue to buy back shares. It's a balanced capital deployment approach that we've always had and continue to have around investing in organic growth. If you look at that new slide, we added a significant increase in CapEx, which is obviously putting pressure on free cash flow. But we did that while also paying down some debt and delevering down to our targeted leverage rate, which gives us lots of flexibility to ultimately do both M&A and share purchase. I see it, obviously, as a bit of a trade-off. If I spend $1 in M&A, I don't have that dollar available for share repurchase. But we have good capacity to do both. We look at acquisitions through the lens of a share repurchase. We're certainly interested in continuing to add to our portfolio. As I've said in the past, I don't wake up in the morning saying, "Geez, I really need to go get x capability given the breadth of our existing portfolio." There are lots of things that we can add, whether it's NexTable that we did recently or it's BentoBox or Finxact. We did all of that while also buying back a lot of shares.

Yes. No, I think I'd just say that we have an appetite. You see our appetite across the segments. We are highly selective, Bento, Finxact. And then we come back and invest heavily, Ondot, in those as we had done on Clover. So we feel good about our balanced approach. I think you can see that, obviously, we invest in the business organically or invest in the business inorganically. And then we feel good about buying back of stock and returning that to shareholders too. You should imagine that we're going to have that continued balance mentality. And obviously, we like to integrate companies and grow them.

Good. My quick follow-up, if you don't mind. You mentioned STAR and Accel supporting card-not-present transactions. I know I've asked about this before, and I understand you want to wait to see how issuers implement the new rule in July. But regarding the readiness of STAR and Accel, will a lot of investment still be required to address that? And how aggressive will Fiserv be in pursuing it?

I'd say readiness is high. I think we made a comment that they are designed to be dual network capable. And our ability to execute, we think, is very high. Obviously, we always felt that this would create more competition, and we like that. Obviously, we weren't competing for those transactions before. And you should expect us to behave like we do in every other business line, which is try to grow at the best possible rate. So I think we're in the planning stage. Obviously, it is up to issuers. But we think that this was a very good outcome, and we continue to expect ourselves to participate as we would given our size and scale and the nature of the business we have.

Our last question will come from Jason Kupferberg from Bank of America.

Just wanted to go back to Bob, your answer to Lisa's question in the Q&A. The free cash flow conversion, I think you said likely to remain below 100% going forward. But I'm just trying to think about this in the context of the Analyst Day in 2020. I think the target there was 105% plus, and that was with a 7% to 9% revenue growth rate. So just wanted to kind of calibrate this. I mean if revenue growth moves back to the high single-digit range from the current low double-digit run rate, does that mean that free cash flow conversion goes back north of 100%? Or have some other things changed in the business around CapEx or other factors that we should just be thinking about?

Yes. First, I'll have to go back and check the transcript. I don't think I said it was likely. I said we expect to see the business growing at this level. I try not to give guidance or an outlook or change what we've said previously. Obviously, in today's world the view of 2023, 2024, 2025 and 2026 is a bit cloudy, and we'll continue to evaluate. Part of that depends on our investment opportunities to be at the top end of that range or perhaps even accelerate. When we did our earnings and investor call back in December of 2020, we hadn't yet closed the Finxact transaction. We've talked about how that acquisition may give us an opportunity to bend the curve again on the Fintech segment, which is currently growing at a 4% to 6% rate, above what we've traditionally achieved. As Finxact continues to grow, we'll see opportunity there. Building out Clover and growing our merchant business could reach the high end of the 9% to 12% range; the March 2022 investor conference discussed potentially better growth in that segment. So there are lots of opportunities for us, and we'll make sure we make good investment decisions to grow the top and bottom line and generate solid returns for our shareholders.

And just a quick follow-up. Just given all the momentum in the Payments segment, do you feel more bullish on your ability to be near the higher end of the 5% to 8% target range there, not just for this year but beyond this year?

Look, I think we've seen some very nice progress in the growth this year. We're getting some great feedback from our clients. The $120 million worth of wins that we talked about back in December of '20 now all implemented and growing, many of them actually outperforming that $120 million worth of ACV. We have a continued strong backlog. Building out that government vertical that we've talked about, certainly an opportunity. Again, we're not prepared to give an outlook or guidance for 2023, but we feel quite good about how that segment is performing right now.

Thank you for your attention today. Please feel free to reach out to our IR team with any questions, and have a great day. Thanks a lot, guys and girls, ladies.

Thank you all for participating in the Fiserv Third Quarter 2022 Earnings Conference Call. That concludes today's call. Please disconnect at this time, and have a great rest of your day.