Fiserv Inc Q1 FY2024 Earnings Call

Welcome to the Fiserv First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session begins following the presentation. As a reminder, today’s call is being recorded. At this time, I’d like to 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 the 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. As a reminder starting in the first quarter of this year Fiserv now reports two segments: Merchant Solutions and Financial Solutions to align with how we serve our clients. Please see our current reports on the Form 8-K filed on March 26, 2024 for an explanation of the new segments and a recast of 2022 and 2023 into the new segments. And with that I’ll turn the call over to Frank.

Thank you, Julie. And thank you all for joining us today to discuss our first quarter results and a strong start to the year. Fiserv delivered a strong first quarter with adjusted earnings per share of $1.88, up 19%, which reflects our continued revenue growth and operating margin expansion. Adjusted revenue growth was 7% and adjusted operating margin of 35.8% increased 180 basis points. We had organic revenue growth of 20% in the first quarter. This is consistent with our expectation of higher growth in the first half of 2024 toward our full-year outlook of 15% to 17% organic growth. This healthy top line growth coupled with Q1 stronger margin performance leads us to raise our adjusted earnings per share outlook to a range of $8.60 to $8.75, from the prior range of $8.55 to $8.70, which is 14% to 16% growth. We now expect adjusted operating margin to expand at least 125 basis points this year, compared to our prior outlook for at least 100 basis points of margin improvement. As you know, beginning this quarter, we realigned our business to best reflect how our clients engage with our solutions today. This client-centric model is now reported in two segments, with roughly half of our business in the Merchant Solutions segment and the other half in the Financial Solutions segment. Through this change, we retain our fundamental approach of providing business operating systems to run our clients’ key processes, while delivering a variety of value-added solutions for enhanced capability. Our business model combines the recurring revenue and high incremental margin of a scaled processing business with higher growth and higher margins, but still consistent cloud-based software and services offerings. Both our segments performed well and within our expectations. Merchant Solutions organic revenue grew 36% in Q1 and 13% on an adjusted basis. Financial Solutions revenue grew 5% organically and 2% on an adjusted basis. This performance reflects a solid macro environment, along with our ability to drive outperformance by adding new clients, retaining and growing with existing clients, and providing them more value-added solutions. At a macro level, consumer spending remains resilient. The Fiserv Small Business Index, based upon the spending activity at 2 million small merchants in the U.S., shows spending rose 3.4% in the first quarter, up from 2.5% in Q4. The early read on April is that growth is tracking slightly ahead of the Q1 average. The index also showed that roughly 60% of Q1 spend was on non-discretionary categories. The remaining spend went mostly to dining out, amusement, hotels, and short-term rentals. These metrics point to a resilient consumer in the U.S., while there are some signs of pressure on net interest income given high interest rates and potentially tighter lending. We have not seen this having an impact on our clients' IT spending for the essential services we provide. With that macro backdrop, there are a number of highlights for Fiserv’s business in Q1 and the remainder of the year. In Merchant Solutions, first quarter activity reinforced our progress toward achieving the targets we set in our November Investor Day, including to reach $12 billion in revenue in 2026 as we continue to expand adjusted operating margin. Let's discuss five of the drivers that support this outlook. First, Clover continues to lead the small business merchant SaaS market in growth and scale and remains on track to reach the expected $4.5 billion in revenue in 2026. Clover posted a second consecutive quarter of 30% revenue growth, supported by new merchant adds and a 20% penetration of value-added solutions. Second, we are launching multiple new Clover products this year. In the first quarter, we rolled out a larger kitchen display system and our ordering kiosks for the restaurant vertical. Around mid-year, we'll be rolling out a new Clover device called the Compact. In the second half of the year, we expect to begin offering additional software solutions for the professional services vertical. Third, our progress in international markets continues to differentiate Fiserv. Demand for Clover is strong in Germany and leads our building from our joint venture with Deutsche Bank. In the Netherlands, where we acquired the remaining portion of the joint venture from our bank partner last year, we are seeing pent-up demand for Clover. In Argentina, we are having success adding merchants to Clover as we prepare to launch it in Brazil and Mexico in the second half of the year. In Asia-Pacific, we continue to build on our high-end hospitality market leadership, signing the Grand Hyatt in Q1 to reach over 25 five-star properties in Singapore and Malaysia. We continue to ramp up distribution as we prepare for the Clover launch in the APAC region. We already have over 50 ISO and PayFac partners, and we onboarded more partners in Q1, including KPay, which added 20,000 merchants onto our platform. We continued to expect a full-featured Clover launch in Australia, Singapore, and Hong Kong in 2025. Fourth, our value-added solutions penetration continues to rise. In Q1, Clover VAS penetration reached 20% on growth in Clover SaaS, Clover Capital, and Rapid Deposit. In the enterprise business, we are seeing a newer VAS opportunity emerge with our SnapPay product, a B2B payments offering for mid-market merchants that integrates seamlessly with popular ERP solutions. After over 20% revenue growth in 2023, SnapPay is poised for continued strength this year. Covanta Energy signed up for SnapPay in Q1, and we had an additional government win with the State of Texas to digitize revenue collection activity. We also entered into our first major reseller agreement for SnapPay, opening the opportunity to reach even more mid-market clients. Fifth and finally, we continue to add new merchant relationships across the SMB and enterprise markets. Building on the success we saw in 2023, Clover Sport added over 20 new venues, putting thousands of new Clover devices in the market. Venues include stadiums that are home to teams in the MLB, NFL, and NCAA, as well as amphitheaters, golf courses, and large-scale festivals. In our enterprise business, we address a wide breadth of industries and a growing presence in new markets, such as social gaming, which is a $10 billion opportunity by volume and growing around 20%. We signed three more clients in this space in Q1 and now serve 13 social gaming merchants, including three of the top five. We are seeing good uptake of Commerce Hub, our single orchestration layer that allows enterprise clients to operate a unified omnichannel platform. In Q1, our Commerce Hub client count surpassed 200. These five are just some of the ways we plan to achieve the targets we've set for 2026. Turning to the Financial Solutions segment, demand for modernization and innovation is on full display. We posted four Finxact wins for new and traditional use cases in Q1. Although we do not expect the revenue contribution to be significant in 2024, this progress reinforces Finxact’s capability and flexibility as a cloud-based core banking and embedded finance platform. Let's take a deeper look at all four. First, Finxact will be the core platform for a new U.S.-based digital bank from Banco Inter Brazil, a current Fiserv client. Second, Finxact won a deal with a fintech program manager that helps businesses access the payments ecosystem. This client decided to upgrade to Finxact and consolidate volumes on the platform. Third, Finxact signed a current Fiserv SMB solutions aggregator client as they build embedded finance for their merchant clients. This opportunity ties deeper into Fiserv as we will be working with financial institution clients to find sponsors of these lending services. Fourth and finally, Finxact won a deal to become the core account processor for a major U.S. government agency as part of the client's much larger modernization plan, which will pull in other parts of our business. It's clear that Finxact is demonstrating its capability across the broader financial services landscape. And we're encouraged by its growing pipeline today and the bigger opportunity it can bring to Fiserv over time. Turning to credit issuing, we partnered with Robinhood as it launches its Gold Card program following the acquisition of X1, which is built on Fiserv Credit Processing. We also extended our relationship with Kuwait Finance House on the back of its acquisition of Ali United Bank and will be migrating that card portfolio onto our platform. These are two more examples of how financial institution M&A is presenting more opportunities and risk as our technology leadership grows clearer. Lastly, in Digital Payment Solutions, demand among our core account clients and other financial institutions remains strong. One of the fastest growing examples of this is Zelle, the largest peer-to-peer payment platform where we remain the leading third-party systems integrator and recorded 45% transaction growth in Q1. A second example that's still emerging is FedNow and RTP, where we signed more than 500 financial institutions to provide access to these real-time rails. And perhaps our biggest medium- to long-term opportunity is Cash Flow Central, our small business accounts payable and accounts receivable solution that we are currently marketing to banks as resellers. The product will be available this summer and we've already sold it to four large banks including U.S. Bank announced in February and this month Bolton Bank and Citizens Bank. You should also expect to see Cash Flow Central distributed through Clover later this year. The product is off to a great start and we are encouraged by what we are seeing. And now let me turn the call over to Bob to walk you through the financials in more detail.

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on slide four. First quarter performance demonstrated our ability to deliver top line growth and continue to drive margin expansion. First quarter total company adjusted revenue grew 7% to $4.5 billion and adjusted operating income grew 13% to $1.6 billion, resulting in adjusted operating margin of 35.8%, an increase of 180 basis points versus the prior year. As a reminder, our adjusted revenue was recast as part of our realigned segment reporting. And if you haven't already, I encourage you to review our 8-K filing from March 26 for historical comparisons. The recast numbers include a small change to our adjusted revenue in the prior years to account for all pass-through postage. In our prior reporting, we adjusted the postage pass-through revenue only from our output business, which represents the significant majority of our postage activity. We are now adjusting out the non-output pass-through postage revenue as well. The change slightly lowered our adjusted revenue for the recast prior periods and better aligns with our internal reporting. On an organic basis, revenue grew 20% in the quarter, with particular ongoing strength in Merchant Solutions organic revenue, which was up 36%, and steady growth of 5% in Financial Solutions organic revenue. First quarter adjusted earnings per share increased 19% to $1.88, compared to $1.58 in the prior year. Our adjusted earnings per share in Q1 grew well above the 14% to 16% growth level anticipated for the full year. Free cash flow for the quarter was $454 million. While this number is lower than normally seen in the quarter, it is in line with our expectations given the timing of payments for the green tax credit program. This timing is consistent with what we described during last quarter's earnings call, and we expect this cash flow headwind to become a tailwind in the second half of this year when we apply the credit to lower our second-half cash tax payments. We continue to expect to generate $4.5 billion in free cash flow for the year. Turning to performance by segment. Starting on slide five, organic revenue growth in the Merchant Solutions segment was 36% in the quarter. This includes a 15-point benefit from excess inflation and interest driven by above-average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 21%. On slide six, we've added a summary of the impact of excess Argentine inflation and interest on total Fiserv and Merchant Solutions revenue, and the offsetting headwind from currency devaluation, which impacts adjusted revenue. Adjusted revenue growth for Merchant Solutions was 13% in the quarter. It includes a 23 percentage point currency headwind largely from the Argentine peso and the impact of the devaluation in late December last year. Unlike in 2023, the currency headwind in Q1 2024 was much higher than the inflation and interest tailwind. If interest and inflation fall back to normal levels, which we expect to happen in the medium term, we anticipate the headwind from foreign currency exchange would ease as well. Moving to the business lines, small business organic revenue growth and adjusted revenue growth was 45% and 16% respectively. Small business volume growth was 8%. As I mentioned, over the last few quarters, revenue from the excess inflation and interest in Argentina is boosting organic growth, while the currency devaluation is a headwind to adjusted revenue. Clover revenue grew 30% in the first quarter and annualized payment volume growth was 19%. The spread between revenue and volume growth reflects a higher penetration of value-added solutions, continued channel mix shift, and some pricing. VAS penetration reached 20% in Q1, up from 19% in Q4, and on pace to meet our 27% target by 2026. The increase was driven by revenue from Clover Capital, Rapid Deposit, and our basic Clover SaaS plans. Clover Capital is our short-term working capital advance program. Rapid Deposit allows merchants to access money from daily card sales instantly for a fee. And while there are several standard Clover SaaS plans, the basic package includes virtual terminal, e-commerce products, developer tools, invoicing, and transaction reports. These are just some examples of the value-added solutions available with Clover. Enterprise organic and adjusted revenue growth was 29% and 6% respectively, driven by transactions growth of 12% and higher VAS penetration. As in small business, organic growth includes some transitory benefit from excess inflation and interest in Argentina, but was also impacted by the inclusion of three lower-growth products as part of the shift in our business segmentation to start this year. Finally, processing organic and adjusted revenue grew by 9% and 10%, respectively. As mentioned in the past, processing represents the back-end processing we do for our partners where they own the merchant relationship. The increase this quarter was driven by a termination fee from an existing client, who canceled a planned expansion into new geographies. This will not impact ongoing revenue in established geographies where our relationship with this client remains strong. Excluding periodic revenue, processing revenue declined 2% in the quarter. This business line has no revenue from Argentina. Overall, we continue to anticipate processing adjusted revenue to be roughly flat over the medium term. Adjusted operating income in the Merchant Solutions segment increased 30% to $769 million in the quarter with adjusted operating margin up 440 basis points to 34.1%. In accordance with GAAP, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in operating income, Merchant adjusted operating margins would have still expanded a very strong 390 basis points for the quarter. Turning to slide seven, on the Financial Solutions segment, organic revenue grew 5% in the quarter, which is in line with our full-year outlook of 5% to 7%. Looking at the business lines, digital payments, organic and adjusted revenue each grew by 5%. Digital transactions and number of clients continue to grow at a healthy clip at 45% and 20% respectively. And we continue to see strong demand from clients for FedNow and RTP integration. Issuing organic and adjusted revenue grew 8% and 3% respectively, driven by several factors, including the launch of Money Network cards to unemployment and disability benefit recipients under the California Employment Development Department Program. Banking organic and adjusted revenue declined 1% and 3%, respectively. Excluding periodic license and termination fee revenue, banking organic revenue grew 2%. First quarter adjusted operating income for the Financial Solutions segment was up 6% to $1.0 billion, and adjusted operating margin was up 160 basis points to 44.1%, driven by operating leverage from scaled revenue growth and cost efficiency. As we highlighted at our Investor Conference in November, the cross-Fiserv activity between our two segments is particularly powerful, because following the success of the Fiserv-First Data merger, we are the only single provider of merchant, bank IT, and payments functionality. Let me share three examples where we've had important cross-Fiserv wins in Q1. In our debit networks, STAR and Accel, we have five merchant wins in the quarter, including ConocoPhillips, a traditional merchant, along with a social media company and a PayFac, both of which will be able to benefit from more choice under Reg II. Traditional and online merchants are using our debit networks to efficiently route card transactions at the point of sale. These wins drive revenue in our digital payments business line and often go hand in hand with merchant acquiring wins and other value-added solution sales that only Fiserv offers. A second example can be found in open banking, where we provide our data solutions to facilitators such as Plaid and MasterCard Open Banking as a single API into the open banking data of our financial institution clients. In Q1, we signed a data access agreement with Visa Open Banking Solutions, acquired through Tink, as they entered the U.S. The data is typically used by clients of these organizations to verify bank accounts for payments and transfers, underwrite loans, and facilitate financial wellness and planning, and by merchants to facilitate pay-by-bank transactions, as just a few examples. Third, over the past year, we have announced a number of wins in the government sector, and we're excited about our continued momentum in this large vertical across our merchant and financial segments. Revenue from government clients recently surpassed $500 million. Now, let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $148 million in the quarter, largely in line with our expectations. The adjusted effective tax rate in the quarter was 18.2%. The Q1 tax rate is traditionally below the full-year rate, and we continue to expect the 2024 adjusted effective tax rate to be approximately 20% for the full year. Total debt outstanding was $24.4 billion on March 31. Our debt to adjusted EBITDA ratio slightly increased to 2.8 times within our targeted leverage range. And we have approximately 7% of our debt in variable rate instruments. During the quarter, we repurchased 10.2 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to $4.7 billion. We had 42 million shares remaining authorized for repurchase at the end of the quarter. Our long-standing capital allocation strategy will continue in 2024, defined by a strong balance sheet, share repurchases, and complementary and innovative acquisitions. As Frank said earlier, we continue to expect organic revenue growth of 15% to 17% for the full year. One quarter into the year, we are maintaining our 2024 organic revenue growth rate outlook. While the interest and inflation tailwind from Argentina eased faster than we expected, further moves in the balance of the year remain unclear, while our overall business remains strong. For the full year, we now expect adjusted operating margin expansion to be more than 125 basis points, up from our previous outlook of at least 100 basis points. This translates to adjusted earnings per share of $8.60 to $8.75, a $0.05 increase in our outlook at the midpoint, which is 14% to 16% growth over 2023. This performance for 2024 would represent our 39th consecutive year of double-digit adjusted EPS growth. With that, let me turn the call back to Frank for some closing remarks.

Thanks, Bob. Last week we published our fourth corporate social responsibility report. In it, we highlight the ways we execute on our four strategic pillars: empower people; advance communities and society; champion responsible business practices; and invest in sustainable systems. In summary, we believe that doing good is good for business. We are committed to diverse representation at all levels of the organization, including leadership positions. We continue to engage with communities where we live and work, including small businesses and minority depository institutions. We recognize the importance of strong governance as part of our overall strategy, and we continue to invest in sustainability. For the first time, our CSR report includes a greenhouse gas reduction goal. Later this year, we will be celebrating two important milestones for Fiserv. Our 40th year in business and our 5th year since merging with First Data. On these occasions, you naturally reflect on what it means to come of a certain age. For Fiserv, 40 years old means proven, resilient, and experienced to deliver on our commitments, and we've done just that. It also means scaled, savvy and well capitalized to sustain strong top- and bottom-line growth. We are doing that as well. But when you consider the significant change created by the merger, we're also a lot like a young five-year-old company. Five means a fresh foundation to support investment. We have used our cash to invest in products, services, and people and that's driving higher growth. Five also means a longer term opportunity ahead, fueled by innovation, and therefore we see continued strong further top- and bottom-line growth at Fiserv. The proven strength of 40 combined with the opportunistic growth of five puts Fiserv in a distinguished position to both lead and drive innovation. And that's exactly what we're doing. All of this is possible because of our over 40,000 employees. I would like to thank them for what they do for our clients, shareholders, and each other. Thank you for your time today. And now, operator, please open the line for questions.

Thank you. We would now like to open the phone lines for questions. Our first question comes from David Togut from Evercore ISI. Please go ahead.

Thank you. Good morning. Great to see Clover revenue growth sustained at 30% with accelerating payment volume growth and higher VAS attach rates. When you look at the picture for Clover for the year as a whole, can revenue growth sustain in this high-20s to low-30s range, you know, when you look at the Brazil market entry, Argentina expansion, and VAS growth opportunities?

Yes, hey, thanks David. You know, we've been focused on all of those for quite some time, and we treat unveiling new product, new initiatives, and new markets while continuing to draw on the embedded business we have generating new merchants. Our basic philosophy is increase the number of merchants we have, be able to deliver more products to merchants, and then go into the areas that we haven't been before. So we feel very, very good about what we laid out a couple of years ago and what we talked about in November. You can see the traction here, which is kind of above what the CAGR needed to be, but you should expect us to be all cylinders on Clover, as we have a bunch of other parts of the company also. Thank you.

Thank you. Our next question comes from Tien-Tsin Huang from JPMorgan. Please go ahead.

Thanks so much. Good morning. Just the increase here in the operating margin, how much of that 25 basis points is from favorable mix versus other surprises, maybe the term fee and processing, and the Argentine, of course, is always a factor there. Just curious on the increase, and then any call-outs for the second quarter or the second half with respect to the margin? Thanks.

Yes, Tien-Tsin, it’s Bob, good morning. I think overall the 25 basis points that you're describing—our full-year outlook moving from previously at least 100 basis points margin expansion to now more than 125—is really driven by continued volume leverage, strong growth in the overall company, as well as continued progress on productivity. The termination fee in the processing is relatively small in the grand scheme. Obviously, it matters a bit in the processing line for this quarter, but in terms of the overall company's margin improvement, it really is continued volume leverage and a focus on productivity.

Yes, and I’d just add, when we think about running this company, our investment in technology is really around new product development, improved service, and the ability to deliver the next dollar of revenue at a better incremental cost by investing in productivity. So that will be for the rest of our lives. AI and those types of items just allow us to do more of it. We're at the tip of that, but you know we can see our way very clearly this year.

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

Yes, hey guys, great job again. And maybe just on the Financial segment, digital slowed a bit this quarter. I think it was 5% or 7% to 8% the last few quarters. Wondering just about that and if Reg II, if you've kind of fully benefited from that or if that still has incremental room to benefit and accelerate growth in that part?

Yes, David, good morning. On Reg II, I'd say that there's still probably more opportunity ahead than what we've seen. It remains to truly be seen what that means. We're seeing good uptick in our network business, whether that's really driven by Reg II or just continued progress in our debit business, I think it's just more continued progress. In terms of a slowdown, I wouldn't read anything into it other than quarterly fluctuations and a tough comp against Q1 prior year.

Got it. Thanks. And if I can just do one more quick. SMB grew so fast 45%. Clover grew 30%. So non-Clover is actually growing faster, which I assume is just Argentina. But maybe how is non-Argentina, non-Clover doing, and is there room for that to keep growing well too?

Non-Argentina, non-Clover. I'll have to pull up my Venn diagrams here—tongue in cheek. Bottom line is we're seeing good growth across the entire SMB business. That small business certainly has good growth from Clover, and you saw the 30% growth in Clover. We continue to see real opportunity there. On the non-Clover side, there's certainly impact from Argentina. There's a small piece of Clover Argentina there, but the 30% growth is really heavily driven by United States growth. On the overall segments, you heard us talk in the prepared remarks about the Argentine impact on organic growth. We continue to see that easing later into the year. It was a bit lower than what we expected in the first quarter, i.e., inflation and interest eased a little bit faster than we anticipated. In our last earnings call, we indicated we expect about a 14% impact from Argentina for the full year in the merchant business. Q1 came in a little bit above that. We expect that to ease into the later part of the year. That certainly impacts the non-Clover business. But overall, non-Clover is growing quite well. And we continue to see opportunity. It's not just about adding Clover in small businesses. It's supporting them wherever they want to take merchant acquiring solutions. The other thing I would add, and it's an impact to the first quarter that we expect to ease into the balance of the year, is in Q1 we saw the benefit of a better-than-expected lift on the use of foreign-currency credit cards in Argentina. This is sometimes referred to as the 'dollar turista' program. The Argentine government has a program sponsored by the central bank to encourage foreign currency denominated credit cards. We saw that pick up in the first quarter. That is a program that the Argentine government has at their discretion to help the economy. Obviously, they're seeing the economy improve. So I would certainly not anticipate a 45% small business organic growth into the future. We're seeing some of that transitory impact this quarter.

Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead.

Great. Thank you for taking the question. Looking at the gap between the 19% volume growth and the 30% revenue growth for Clover, you hit it pretty well I think on the VAS adding about 900 basis points. It just implies that there's a small component there from direct mix hardware and pricing as you mentioned. I just wanted to see if you could provide some context on the path to the $4.5 billion, how we should think about those other contributors—direct hardware and pricing contributing? And maybe a different way to ask it is, should we expect the volume growth to stay in this sort of high-teens range, or should we expect slightly higher turnover of volume growth?

So, a number of elements to that question. First, in order to achieve the $4.5 billion goal that we set out for 2026, we need kind of a very high 20%—call it 28% total Clover revenue growth. As part of that goal, we've indicated we expect VAS to achieve 27% penetration from the current quarter Q1 at 20%. So certainly a big part of it is additional VAS. And we've talked about this in the past, the secret recipe to growing Clover to $4.5 billion is actually not so secret: get new merchants, sell more stuff to those merchants, and grow with those merchants, and that's exactly what we see. To your point, in the current quarter, there was a big part of the overall revenue lift. Certainly, the delta between revenue and volume was driven by VAS. We kind of gave the sequence in order of importance, and I think that will continue as we progress over the next couple of years as we march towards that $4.5 billion. VAS will be a big part of it. Pricing and hardware are also contributors but probably the third of the three important factors.

Next we'll go to the line of Jason Kupferberg from Bank of America Merrill Lynch. Please go ahead.

Good morning guys. I just had a two-part question on merchant. The first is just do you have the total segment volume and transaction growth for the quarter? Not sure if you're going to continue to provide that going forward? And then the second part is just on the April comments. Frank, I think you indicated actually a little bit of an uptick in April relative to Q1, which could be viewed as a bit of an upside surprise considering Easter timing and how that fell this year. So just curious which parts of merchant might have performed better so far in April versus Q1. Thank you.

Hey, Jason—if you're following the prepared remarks, we gave small business volume growth at 8% and enterprise transactions growth at 12%. Given the way we're reporting now for the Merchant Solutions segment and the three business lines, we felt that volume for small business is the driver of revenue, and transactions is the key metric for enterprise. Transaction activity in small business is not a revenue driver and volume for enterprise is not a revenue driver. So we thought providing the key metrics that really are driving the business was important.

And just to be clear, on the April read, it's an early indicator and not necessarily how the whole quarter will play, but we always feel committed to talk about what we see. It's a small increase and it's reflected across the vast amount of volume we see in the U.S. and around the world.

Thank you. Next we'll go to Dan Dolev from Mizuho. Please go ahead.

Hey, guys. Great results. I just have a quick question on PayEasy. Can you maybe give us some context on the conversion to Clover, timing and contribution, and are there any other conversions that we should be expecting? Thanks again.

Great question. The way we think about PayEasy is it was a processing system that we retired and then built out both Commerce Hub and brought some of that volume, which already existed, through Clover to future new merchants. That was a completed, multi-year migration project that we built out in a way that allowed us to build Commerce Hub, to deliver VAS into Commerce Hub and also have PayEasy operating within our SMB base. So I feel great about closing the books on that from a conversion standpoint. And we're seeing on the enterprise side—you heard us talk about 200 Commerce Hub users and a strategic platform for us going forward.

Next, we'll go to the line of Ramsey El-Assal from Barclays. Please go ahead.

Hi, thanks for taking my question this morning. I wanted to ask about M&A and what you're seeing out there. It feels like there's a little more opportunity, maybe urgency on the side of sellers in the fintech industry. What are you seeing and what's your appetite right now for doing a deal?

Well, I don't know about urgency on sellers' parts as much as valuation and understanding what real valuations are. We have a really great model, which we talked about—our ability to generate cash flow, invest in our business, and the ability to deploy capital. I think we've done a very good job in the assets we've acquired, integrated, and grown. Our appetite to acquire properties is always high. We're always looking. On the other hand, we want to be very clear that it fits within our strategy, that it aligns with our structure and the ability to distribute the product to our vast client base both on the merchant side and on the FI side. We're always engaged and thinking through it, and we're highly selective to make sure we're using our shareholders' dollars as appropriately as possible. I think we've got a pretty good track record so far.

Ramsey, to carry the analogy one step further: our appetite is strong, but we're not hungry. We're seeing a lot of activity, but we're making sure that what we see is of good value and brings value to our shareholders before we strike.

Next, we'll go to the line of Christopher Kennedy from William Blair. Please go ahead.

Good morning. Thanks for taking the question. So we have good targets for the value-added solutions for Clover. Is there a way to think about the opportunity for some of the other operating systems such as Carat, DNA, Finxact, or Optum?

I think we have not articulated specific numeric goals around them, but they're clearly embedded in our guidance and how we think about growth rates. Across the board—fraud integration products like Advanced Defense, Cash Flow Central, and other solutions—those are all opportunities. Over time we may provide more clarity around some of them, but we've been selling value-added services to our clients for a long time. At the macro level in the enterprise, you can think about selling a core and then generating value from debit, credit, digital and other services that hang off the core. The same is true in our merchant business. When you look at how we report, many of those value-added services are already included in our economics and business line reporting.

Next we'll go to Jamie Friedman from Susquehanna. Please go ahead.

Hi. Good morning. I appreciate the incremental disclosures. The segmentation is really helpful. I wanted to ask about government. Frank, I thought you said it's a $500 million category. Is that correct? And does that roll into the Financial Solutions segment? If possible, could you unpack where in there it sits—like is it issuing specifically? And generally, how are you going to market with government?

Sure. We called out that revenue from government clients recently surpassed $500 million. The government vertical transcends both segments—merchant and financial—so we have dedicated coverage for government that can sell any of our products from state and local to federal. On any given opportunity, it could be merchant acquiring, Finxact, issuing, payments, or other Fiserv solutions. We have a dedicated client sales force for government because the opportunities often span multiple parts of our organization. We’re excited about the momentum and the wins we've had in this large vertical.

And our final question will come from James Faucette from Morgan Stanley. Please go ahead.

Great. Thank you very much. I'm wondering if you can help us understand not only where you're seeing success with Clover in the market competitively, but how you're thinking about continuing to improve its positioning in the market. It seems like value-added services is a key part of that, but are there other things or aspects we should be thinking about and love to get your sense of what your win rates, if you have any idea of that, versus other competitors in the market? Thank you very much.

Clover covers the whole SMB market and expands into venues and other large use cases. It's a horizontal platform with vertical expertise layered on. Our growth comes from new business acquisition, increasing product penetration with those merchants, and expanding distribution channels like ISVs and PayFac partners. We continue to add software and devices, deepen restaurant and professional services offerings, and expand internationally. As for win rates, we see strong momentum and competitive positioning because of the breadth of our offering, the platform approach, and distribution. We have more than 1,000 software engineers across the world operating on it and we're continuing to roll it out globally. That’s great. Thank you. I’d like to thank everyone for their attention today. Please reach out to our IR team with any further questions, and have a great day. Thank you.

Thank you all for participating in the Fiserv First Quarter 2024 earnings conference call. That concludes today's call. Please disconnect at this time and have a great rest of your day.