Earnings Call Transcript - FISV Q1 2022

Operator, Operator

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

Shub Mukherjee, Senior Vice President, Investor Relations

Thank you, and good morning. With me on the call today are Frank Bisignano, our 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 in 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. And now over to Frank.

Frank Bisignano, President and Chief Executive Officer

Thank you, Shub, and thank you all for listening in as we share our results for the quarter and highlight the progress against our growth agenda. As you know, we serve as the operating system for commerce and money movement across our client base of banks, credit unions, fintechs and businesses ranging from SMBs to mid-market to large enterprises. We help our clients grow by extending our platform to capture new services and new money flows. Our relentless pursuit of innovation for our clients has placed us on the list of the world's Most Innovative Companies by Fast Company for the second consecutive year. We've entered 2022 with strong momentum. We delivered 11% total company organic revenue growth in the first quarter. We expanded adjusted operating margin by 60 basis points to 32%. We also achieved 20% adjusted EPS growth to $1.40. We attained $40 million of actioned revenue synergies in the quarter, reaching $520 million since the merger, 87% of the increased commitment of $600 million for the 5-year period following the merger, and now expect to hit that goal by the end of this year. As we shared with you on our year-end 2021 earnings call, we concluded our cost synergy program, having actioned the promised $1.2 billion of synergies since the closing of the merger. As we invested to accelerate growth, free cash flow came in at $603 million. The outperformance on the top and bottom line versus our full year guidance ranges puts us in a good position to meet or exceed our full year outlook. As we evaluate the year ahead, we believe it is prudent to leave our 2022 guidance unchanged, given the uncertain macroeconomic backdrop with high inflation, rising interest rates and geopolitical issues looming. Accordingly, we are maintaining our 2022 outlook for organic revenue growth of 7% to 9% and adjusted earnings per share in a range of $6.40 to $6.55, representing growth of 15% to 17% for 2022. Now turning to our business strategy. Fiserv solutions are geared towards merchants and financial institutions, including fintechs. Starting with merchants, we are transforming from selling merchants individual point solutions to offering operating systems, Clover for small- to medium-sized merchants and Carat for large enterprises. This operating systems approach expands the size of our total addressable market and makes us more valuable to our customers. We grow and create value in 3 ways. First, attracting more merchants to our operating systems; second, expanding the relationship we have with our merchants by encouraging adoption of more software and services modules; and third, benefiting from the organic growth of our existing customer base. Turning to our financial institution clients. We remain steadfast in our commitment to continuously innovate for our clients and broaden our total addressable market. In early April, we closed the acquisition of Finxact, a leading developer of cloud-native banking solutions. We have already seen a tremendous amount of interest in the platform from existing and new clients. We believe this acquisition will augment our ability to enrich and accelerate the delivery of digital solutions to existing clients as well as broaden our client base to include large financial institutions and fintechs through banking as a service and embedded finance opportunities. We advanced our strategic focus on data and analytics. This quarter, we announced partnerships with Equifax, Finicity and MX, which will utilize our vast and highly valuable real-time data to create insights to strengthen and create new offerings across fraud, risk and marketing. While early in the journey, we expect data and analytics to be a new growth driver for us. Next, diving deeper into our performance in the quarter by business segment. Let me start with Merchant Acceptance. We posted a very strong organic revenue growth of 20% year-over-year. Global merchant volume and transactions grew 11% and 8%, respectively. Our global active merchant accounts grew 6% year-over-year in the first quarter, continuing a positive trend since the start of 2021. Results were strong across all regions. North America was led by strength in SMBs, particularly within the restaurant vertical as well as strength in enterprise verticals such as travel and petro. Spending across EMEA was strong in the quarter as restrictions were lifted in the U.K. and The Netherlands in early January, followed by Ireland, Poland and Germany later in the quarter. Travel was particularly strong, followed by restaurants and hospitality. Our merchant business in LatAm was also very strong in the quarter. We've made significant progress in onboarding merchants through an exclusive merchant acquiring mandate from Caixa in Brazil with 140,000 merchants currently onboarded. In just 1 year since signing the agreement, we are also expanding our presence rapidly in Mexico and Colombia. Spending trends in APAC were very strong as key markets such as India and Australia continue to resume normalcy, fueling discretionary spend in verticals such as travel, retail and restaurant. In addition to the cyclical rebound, the region has continued to win and implement new business. Moving to our merchant operating systems. Clover and Carat continue to gain significant traction with clients. Clover's global revenue grew 39% in the quarter, driven by volume growth of 39% as well as close to 200 basis points of sequential growth in software and services penetration of revenue to 15%. We continue to make progress on our vertical focus. Starting with restaurants. The integration of BentoBox into Clover is well underway, and the early proof points in both lead conversion rate and ARPU are all very positive. Within the services and retail verticals we are offering merchants leading solutions to address key business functions through a combination of pre-installed apps and tailored vertical SaaS offerings. Carat, the omni-commerce operating system for enterprise clients, grew revenue 20%. We saw broad-based growth across verticals, including travel, government, technology and quick-serve restaurants. In the quarter, we had some impressive wins across omni and e-com acquiring, including a card-not-present acquiring mandate for the leading fantasy sports player, DraftKings; an extension of our long-standing omnichannel partnership with Chick-fil-A; a mandate for fast food brand Jersey Mike's Subs. Within new payment flows, Carat's leadership and digital payouts continues with the doubling of disbursement volume processed in the quarter. During the quarter, we extended our contract with Coinbase to support their launch of an NFT marketplace. We are making rapid inroads into the high-growth markets such as payment facilitators and platforms. The November acquisition of NetPay gives us a differentiated solution in the market, including fully managed onboarding, risk and funding services to support these high-growth platform businesses. We have seen rapid growth in this end market with new clients signing nearly doubling transactions in the past year. Finally, before closing out the merchant segment, an update on the progress of our point-of-sale lending offering. Our strategy all along has been to leverage our position as the operating platform for businesses, small, medium and large, to offer a range of buy now, pay later options. We are simplifying the merchant experience through an integration into the Carat operating system for large enterprises and enabling BNPL app downloads through the Clover app market for small and midsized businesses. By enabling our clients to easily connect to BNPL providers of their choice, we are making it possible for them to offer their customers in-demand payment options in an easy-to-manage cost-effective way. Moving to Payments and Network segment. Organic revenue grew 5% in the quarter. This growth was enabled by a variety of drivers for cross-sell business lines. Our North American credit active accounts on file grew 10% versus Q1 of last year. This growth was driven by new business onboarding and our favorable credit environment. We fully ramped Genesis Financial onto our platform in the quarter, which along with the onboarding of Atlanticus last year, marked the onboarding of 2 of the 3 major credit processing mandates we announced in 2020. We had solid growth in our debit networks, STAR and Accel; and debit processing businesses, driven by new wins despite the stimulus-induced tough growth comparisons in the year ago. We've seen impressive growth in engagement metrics across our FIs, driven by market-leading digital solutions like CardHub, SpendTrack, our loyalty platform and our AI-based fraud system. These surrounds not only greatly enhance the competitiveness of our credit and debit card processing offering but also serve to drive more cards into our debit network and more opportunities for Fiserv to offer risk and fraud, digital banking and account processing solutions, demonstrating an attractive flywheel effect. We continue to see growth in digital payments driven by Zelle, which posted transaction growth of a strong 40% in the quarter. Finally, while we still see softness in our bill payments business, sequential growth rates continue to improve as we create new use cases like bill pay for fintechs, including crypto digital wallets; and enter long-term renewals with large clients, notably U.S. Bank and Regions Bank. Additionally, this summer, we will launch a revamped bill pay interface to elevate the customer experience. Looking ahead, our sales and product pipeline gives us confidence in our ability to grow the payments segment in the 5% to 8% medium-term organic revenue range. Our client wins in the quarter support this momentum. We signed a long-term renewal with a highly valued client, Synchrony, spanning across issuer processing, bank services and merchant acquiring, reinforcing our commitment to providing best-in-class solutions to our clients. We continue to win credit processing mandates globally. In the first quarter, we signed a new installment loan provider, Flexiti Financial, in Canada. The debit wins in the quarter included a processing win extending our relationship with KeyBanc; and an integrated debit processing, network and digital surround solutions win with Heritage Federal Credit Union, a $900 million asset size client. These wins showcase the breadth and reach of our debit processing capabilities, spanning from smaller credit unions to some of the nation's largest financial institutions. We also continue to show the power of our enterprise offering and our competitive advantage when working with fintechs. This quarter, we signed an enterprise agreement with a new digital financial services company across bank services, credit and debit processing and output services. We will also fully onboard Bread Financial, previously known as Alliance Data, for card processing in the second quarter of this year. The tailwinds from our large-grade implementations, recent debit wins like KeyBanc this quarter, Chime and Great Southern over the last couple of quarters and the investments in our digital surround solutions gives us confidence of continued growth in Payments and Network segment. Moving to the Financial Technology segment. We posted strong organic revenue growth of 6% in the quarter. We had 12 core wins in the quarter, including 4 competitive takeaways. Sales of digital surround solutions continue to grow at a healthy clip, driven by the increased digital focus of our financial institution clients and the success of Abiliti, our modern online and mobile banking platform. Sales to existing clients help us deepen the penetration of our fully integrated digital surrounds, such as CardHub, Zelle and SpendTrack, thereby creating stickier clients. The competitive landscape continues to evolve quickly, and we believe that our fintech strategy combined with Finxact's modern core capabilities positions us uniquely to offer a full stack of offerings aimed at expanding the addressable market for embedded finance and banking as a service. The linchpin of our fintech strategy is our open finance initiative. In the third quarter of 2021, we launched our new developer portal called the Developer Studio, a platform for exposing our microservice APIs for the developer community with the goal of becoming the destination of choice for the embedded finance ecosystem, including card issuing and processing, merchant and core banking integrations. Our banking as a service capability enables financial institutions to expose modern fintech solutions to their client base to increase engagement and relevance while extending their reach into new market segments. Our banking as a service capability is also a turnkey solution for fintechs and merchants wanting to offer banking and payment services. We believe we are best positioned to power the ongoing revolution in banking as a service and embedded finance due to our footprint of community financial institutions and breadth of banking and payment capabilities. Now let me pass the discussion to Bob for more detail on our financial results.

Robert Hau, Chief Financial Officer

Thank you, Frank, and good morning, everyone. I'll cover some additional operating detail on our 3 segments. If you are following along on our slides, I'm starting with our financial metrics and trends on Slide 4. As Frank said, we started off the year strong. Total company organic revenue was up 11% in the quarter with growth across all segments, led by the Merchant Acceptance segment, which grew 20%. Total company adjusted revenue grew 10% to over $3.9 billion. Our adjusted operating income was up 12% to $1.2 billion, and adjusted operating margin expanded 60 basis points to 32%, in line with our expectations. As a reminder, we delivered 360 basis points of margin expansion in the year-ago quarter, resulting in 420 basis points of expansion over the last 2 years. We reaffirm our outlook to deliver at least 150 basis points of adjusted margin expansion for the year. First quarter adjusted earnings per share increased 20% to $1.40. Free cash flow was $603 million for the quarter, resulting in a conversion rate of 65%, driven by a combination of: first, increased capital expenditures in the areas of technology and integration of newly acquired capabilities; second, increased working capital investment, driven by revenue growth, including growth in anticipation revenue in Latin America; third, increased hardware inventory to minimize any potential disruption to our clients given the supply constraints; and finally, timing factors impacting cash from one quarter to the next. We reaffirm our outlook to achieve 95% to 100% free cash flow conversion for the full year. Now looking to our segment results, starting on Slide 5. Organic revenue growth in the Merchant Acceptance segment was a very strong 20% in the quarter. Adjusted revenue growth was 18% year-over-year. Global merchant volume and transactions grew 11% and 8%, respectively. Excluding the loss of a processing client mid last year, global merchant volume and transactions grew 15% and 10% in the quarter, respectively. Clover, our operating system for small and medium-sized businesses, continues to build on the strength of its product offering to attract and retain more merchants and expand relationships with them. In the quarter, Clover posted a strong 39% revenue growth, and quarterly GPV was $49 billion or $197 billion on an annualized basis, 39%. Our ISV volume in the quarter through Clover Connect grew 51% year-over-year. We signed 44 ISVs this quarter. Carat, our omni-commerce operating system for enterprise clients, grew revenue 20% in the first quarter. Adjusted operating income in the acceptance segment increased 21% to $470 million, and adjusted operating margin was up 70 basis points to 28.4% as we balanced efficiency gains with continued investment for growth. In the quarter, we completed the sale of certain merchant contracts from an Alliance joint venture that we disclosed last year. As we shared with you on the fourth quarter 2021 earnings call, the impact of this sale is estimated to be under 50 basis points of total company adjusted revenue. It is fully contemplated in our full year 2022 outlook. Turning to Slide 6. The Payments and Network segment posted organic revenue growth of 5% in the quarter, within our guided range of 5% to 8% for the year. As expected, our credit issuer solutions business saw strong growth, driven by the growth in credit active accounts on file as well as the impact of new clients coming onboard. Our debit processing and network businesses continued to perform well, driven by the compelling value proposition of our digital surrounds even as debit transaction growth decelerated to 3% year-over-year against a very difficult year-ago comparison. Consumer demand for account-to-account and P2P offerings continued with all transactions up 40%, and the number of clients live on Zelle was up 57% in the quarter. The offsets in the quarter were the prepaid business, which faced very tough stimulus-driven year-ago comps and bill pay. Adjusted operating income for the segment was up 7% to $625 million, and adjusted operating margin was up 110 basis points to 42.5% in the quarter. Turning to Slide 7. The Financial Technology segment organic revenue grew 6% in the first quarter, including 100 basis points from periodic revenue. Adjusted operating income was up 12% in the quarter to $275 million, resulting in adjusted operating margin expansion of 200 basis points to 35.4%. The adjusted corporate operating loss was $122 million in the quarter, in line with the average of the last 4 quarters. The adjusted effective tax rate for the quarter was 17.3%, 10 basis points higher than last year. The 2022 adjusted effective tax rate should continue at the same quarterly pacing as last year and is expected to be approximately 21% for the full year. Additionally, we returned $500 million to shareholders through share repurchases this quarter. We have more than 37 million shares of repurchase authorization remaining. Total debt outstanding was $21 billion on March 31, and the debt-to-adjusted EBITDA ratio decreased to 3.0x as we approach our target leverage level. Turning to a new slide, Slide 8. We highlight our balance sheet performance and capital allocation results over time. We've made meaningful strides to lower our debt to adjusted EBITDA ratio by over 0.5 turn from Q1 last year and a full turn since the merger. Over the last 2 years, we've generated $7 billion of free cash flow and have allocated $4.9 billion towards a combination of M&A and share repurchases, representing 5% of shares outstanding. Additionally, we have deployed $2.1 billion over that time towards debt repayment and integrations, both of which are expected to significantly decline as we completed the integration of the First Data and Fiserv merger at the end of last year and approach our goal of under 3x debt to adjusted EBITDA leverage. This will allow us to allocate even more capital to value-creating acquisitions and share repurchase. Finally, turning to Slide 9. Although we outperformed on adjusted revenue and EPS for the first quarter, we feel it's prudent to keep our 2022 outlook unchanged. Given that it is still early in the year and the macroeconomic backdrop remains uncertain. With that, let me turn the call back to Frank.

Frank Bisignano, President and Chief Executive Officer

Thanks, Bob. I am very proud of the results we've accomplished this quarter. As diversity and inclusion continues to be at the top of our CSR agenda, we are focused on ensuring alignment and investment into our employee and community engagement strategies. In the first quarter, in addition to the Fast Company most innovative recognition I mentioned earlier, Fiserv was named as a 2022 Great Place to Work in Argentina, Uruguay, Colombia and Mexico. For the second consecutive year, Fiserv has been designated by VETS Indexes as a 5-star employer. In addition, our Nenagh technology center in Ireland has been recognized as a Great Place to Work for the fourth consecutive year. Fiserv has activated several initiatives in response to Russia's invasion of Ukraine, including financial grants for our associates, direct donations to local not-for-profit organizations and other humanitarian programs for civilians displaced in the region. We've also activated a matching donation campaign in support of American Red Cross efforts. A quick note that our 2021 CSR report will be finalized and published in the coming weeks. As I close, I would like to thank all 40,000-plus hardworking associates around the world for working relentlessly to service our clients and you, our shareholders. With that, operator, please open the line for questions.

Operator, Operator

Our first question will come from the line of Tien-Tsin Huang from JPMorgan.

Tien-Tsin Huang, Analyst (JPMorgan)

I had a couple of questions. The first one is on the acceptance segment, which was obviously very strong. It looks like volume growth matched Visa's but revenue growth exceeded that. What's driving the higher revenue spread to volume in this quarter? And what should we expect here going forward as we go through the balance of the year? I also have a quick follow-up, if you don't mind.

Robert Hau, Chief Financial Officer

Yes, Tien-Tsin. I think, as we saw in previous quarters, there are a number of differences between our volumes and Visa's volumes, including the international and cross-border mix and so on. So as you said, we're in line from a volume standpoint and we had good revenue growth overall. As we've discussed, yield is a metric that ebbs and flows quarter to quarter. The last couple of quarters the math was a little weaker, and this quarter it's quite strong. There's a lot of variation in there, which is why we're more focused on revenue growth and margin expansion and a bit less on yield because of that quarterly variation. We're clearly very pleased with the performance of our merchant segment, with very strong growth continuing in Clover, good growth in Carat, and across the board. Having 20% organic revenue growth for the segment in the quarter is a great start to the year.

Tien-Tsin Huang, Analyst (JPMorgan)

Yes. So let me ask my quick follow-up, if you don't mind, just on the free cash conversion. I heard the CapEx and opportunistically buying some terminals here, but you're keeping the full year at 95% to 100% the same. So what's the outlook for some of the moving pieces here to drive that confidence in getting to that 95% to 100% for the full year?

Frank Bisignano, President and Chief Executive Officer

I think it's Frank. First of all, it was way more than physical terminals. It included component parts as well, and we thought it was very prudent and smart to buy ahead into the supply chain given the volume opportunities we have across the board that drive growth. So that would clearly be in the one-time inventory category. As we reiterate our confidence on margin, we see the ability to grow and expand margins as part of the confidence story going forward. These are ebbs and flows quarter to quarter and depend on the timing of capital. I think about it in those terms. We feel great about the growth, we feel good about our ability to expand margins, and we feel good about the ability of what we bought ahead to actually thrive, grow, and not require that expenditure going forward.

Operator, Operator

Our next question comes from Lisa Ellis from MoffettNathanson.

Lisa Dejong Ellis, Analyst (MoffettNathanson)

I'll take payments and networks, I guess, which came in at the lower end of your long-term outlook of 5% to 8% there. I know there's a lot of moving pieces within payments and networks. You highlighted, I think, both some lapping effects of stimulus hitting the prepaid business and the debit business but then also the bill payment business, which has been a bit of a struggle coming out of the pandemic. Can you just parse those apart a little bit, meaning what was sort of onetime versus lapping issues related to stimulus in the quarter versus where we might see more of a protracted drag as we go throughout the year? And then I have a quick follow-up as well.

Robert Hau, Chief Financial Officer

Sure, Lisa. So within the payments segment, stimulus certainly created a tough compare to Q1 of last year with our prepaid business. And as we saw really late '20 and into '21, a consumer shift of credit to debit, which we think was stimulus-driven, we're now starting to see that kind of revert back to mean or to norm with more move to credit than it is debit. Of course, as you know, we get paid on a per transaction basis on the debit side, but on a credit processing side in the payments segment, we're paid on gross active accounts. And so now we're seeing a nice lift in the number of accounts, but the transaction shift from debit to credit doesn't manifest itself in revenue directly. So good growth in our credit business this quarter versus Q1, still had growth in debit but not as high as we had all of last year. Debit Q1 of last year was quite weak and came back throughout the year. And then in the bill pay and biller side, we've actually seen an improvement of the headwind. So it's still an issue for us. And we talked to a couple of things that we see, things beginning to improve over probably the last 2 quarters. The rate of growth decline has improved quite a bit. And as we go live with a number of new clients, particularly in the fintech space, and as we launch the new user interface this summer, we see continued opportunity to improve both in the bill pay/biller business but also in payments overall. And of course, as we now have implemented 2 of the big 3 credit issuers, with the third one going live here late second quarter, you'll see accelerating growth from the credit issuer side of the business.

Lisa Dejong Ellis, Analyst (MoffettNathanson)

Got it. Okay. A quick follow-up, maybe for Frank, on the new, I guess, highlight around advanced data and analytics with these partnerships with Equifax and Finicity, et cetera. Can you give a little bit of color or examples of the types of offerings there? And is this kind of a new revenue stream, or is it more of a win-rate and stickiness dynamic in the bank base? Just elaborate a bit.

Frank Bisignano, President and Chief Executive Officer

No, it's a new revenue stream. We've always believed that we had a data advantage. And we did some things organizationally, maybe you remember, at the top of the house where we've dedicated talent against it, and it is manifesting itself. We have a pretty good road map to capabilities to offer to our clients and then to jointly offer with partners and combining capabilities. That is why we believe when we come into the latter part of this year and then going into next year, a completely new revenue stream with high margins in those capabilities in providing real-time data, in providing decisioning data, and that's what we have right now. We do see the opportunity, as we said, in marketing and other information. We yet haven't proved out that proof of concept yet, but the others have been proved. And we expect to be in market at the latter quarter of this year.

Operator, Operator

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

Darrin Peller, Analyst (Wolfe Research)

First, on the growth side, on the top line, I want to touch on both, starting with the fintech segment. When we look at growth, mid-single digits appear to be holding up. With the Finxact acquisition and what it could enable, I'd like to hear more about how that will add to the business given the pipelines you’re seeing. Also, with CPI-based price escalators potentially built in, to what extent do you expect to push those through this year, and will that contribute as well?

Frank Bisignano, President and Chief Executive Officer

I'd point to the fintech team and their intense focus on serving the client — that focus on growth is showing up. We expected to reach these levels, and when we laid out the plan in December 2020, the team's action plans, product innovation and the way we combined the parts of the company where we have a strategic advantage have brought us to where we are today. Our digital assets perform extremely well. I mentioned those areas earlier. Having a strong digital lens is a strategic advantage. You also saw moves like bringing Ondot into Mobiliti, which is a one-of-a-kind offering. When all of that comes together in the client's office, it produces the results we are seeing. Looking beyond today, Finxact is very strategic. As we have said, it expands our total addressable market. Over the long run, a combination of our assets plus Finxact will allow us to enter markets we hadn't planned to before. Overall, we feel great about the team's work. The Finxact acquisition closed just over 20 days ago and is progressing very well. We have clear line of sight on integrating the team and delivering what we expect over the next few years. That is how we view our current business, our digital offerings and our future digital capabilities as we expand the addressable market in this segment.

Robert Hau, Chief Financial Officer

And Darrin, in terms of CPI, we do get it, particularly in our core account processing business. A typical contract allows for annual CPI changes; those are very typically annual items. At the end of the year, we calculate the CPI index and apply it to the next year's billing. Contracts vary. Some have caps, some have full CPI, and it varies across the board. But that is fully baked into our guidance. You're seeing it in the Q1 results, and because it's an annual bill, that's locked for the year.

Darrin Peller, Analyst (Wolfe Research)

I have one quick follow-up. That's helpful. But Frank, from an M&A standpoint, given what you just said and that leverage is now below 3, opportunistic buybacks make a lot of sense. At the same time, valuations are coming in across the market. Could you revisit your preference for capital allocation going forward and what types of assets you would target?

Frank Bisignano, President and Chief Executive Officer

Yes. I think we've demonstrated a pretty balanced approach to our capital allocation, both if you look at what we did with Finxact or if you look what we've done with BentoBox or Ondot. And you'd find all of them really leaning into helping our clients grow their business with their clients in a digital framework. So I put that out there because it is largely about addressing new markets, new opportunities and how, in fact, we help our clients grow their business, which, in fact, would become the beneficiary also. And you should expect that mindset around future acquisitions, which is just another form of investing for growth. You just saw and Bob talked through that 29% over the last 24 months of our capital allocation went into merchant integration expense and debt paydowns. And that capital is now deployable, and obviously, we will continue to have a better growth rate. And I think you should expect that we will use the same methodology of investing for growth where we believe we can leverage our assets inside the house to bring other market opportunities, and we'll be buying back the shares opportunistically and returning those dollars to our shareholders as we always have in that tried and true methodology. And we feel kind of great about what we've done so far on the capital allocation. Hope you guys do, too. And we feel even stronger about it going forward.

Robert Hau, Chief Financial Officer

And Darrin, the one thing I'd add is, I guess, I don't think about it and I don't think Frank thinks about it as which should we do. I think given the capital we have available to deploy, we think we can do both. In the last 15 months, I think we've done 8 different acquisitions, both focused on digital as well as on our merchant business. Those digital investments benefited our merchant segment, they benefited our fintech segment, and they benefited our payments segment. And ultimately, as Frank pointed out, it's all about how can we better serve our customers so that they can better serve their customers.

Operator, Operator

Our next question comes from Dave Koning from Baird.

David Koning, Analyst (Baird)

Great job. My first question: you had the investor meeting a few weeks ago and talked about 11.5% growth in merchant over time. Should we expect that every quarter? And related to that, it seems we may be entering a period with smaller tickets and inflation, while pricing appears to be improving in the industry. Are all those fair assumptions, and do they support the 11.5% growth?

Robert Hau, Chief Financial Officer

So from a quarterly flow standpoint, obviously, first quarter closing after going through that merchant conference, we put up a 20% number. So we certainly don't expect 11.5% every year or 11.5% every quarter. Obviously, a great first quarter out of a 5-year projection, lots left to do, in very good shape in terms of executing on the multiple elements of growth that we talked about during that conference. Clover and Carat continued to perform well. We continue to invest in new capabilities there. So I feel like we're off to a great start. Of course, that conference, I think, was in early March. So we're early into the process, but we're in a very good position, and we think we've got a great set of assets in terms of operating systems to bring to both our enterprise and small business clients. We've got a great distribution system, our global reach and geography. Frank talked about in his prepared remarks how well Caixa is going and the strength in Latin America. So I think we're hitting on all cylinders. And we're quite pleased with where we are so far, but plenty more to go.

David Koning, Analyst (Baird)

Yes. Great, great. And then just one follow-up. The margin cadence through the year, Q1 was a little slower than the guidance. Q2 a little slower, too. Is that fair and then the back half is when you get maybe above the full year guidance?

Robert Hau, Chief Financial Officer

Yes, that's exactly where we're at. I believe we said in prepared remarks we're up 60 basis points for the first quarter. That's right in line with our internal expectations, and our internal expectations have us achieving the 150 for the full year. We continue to execute. It's not really a "hockey stick" — it's a matter of the tempo of the business. We did a significant amount of integration work in the last couple of years. We ended merger and integration treatment; we're no longer adding back to our adjusted results for merger and integration spending. We still have some of those projects as we finish up, now more than two years since we merged. Those costs will ease over the next couple of quarters, and we'll continue to get good growth and fall-through into the business. You'll see the 150 come in over the course of the year.

Operator, Operator

Next, we'll go to the line of Jason Kupferberg from Bank of America.

Jason Kupferberg, Analyst (Bank of America)

I just wanted to come back to the payments segment for a second. It sounds like you're seeing some positive signals there. You've got some newer wins coming down the pike. But just so that our expectations are calibrated properly, I know you're talking about the medium-term range of 5% to 8% being good for this year, but should we think about more of the lower half to maybe the midpoint just given that we're starting the year at 5%? I just want to make sure that we've kind of got the right cadence in our thought process because I know the comps get tougher from here on out.

Frank Bisignano, President and Chief Executive Officer

Comps do get tougher, but the pipeline comes in over time, too. And I think we talked about the elements of it. Obviously, we've talked a whole bunch leading into this year about $120 million of issuer wins, and we're beginning to see them in our numbers. We also feel the assets are very, very strong assets. And you heard us talk about a change in direction on bill pay from where we were a year ago. So we don't feel at all that we're at the low end of our range on that going forward.

Jason Kupferberg, Analyst (Bank of America)

Okay. That's good to hear, sure. And just a follow-up on the Finxact acquisition. How much revenue do you expect it to contribute to the fintech segment this year? And can you just go a little deeper maybe into the go-to-market strategy there and the kind of synergy that Fiserv is going to bring to this asset?

Frank Bisignano, President and Chief Executive Officer

Yes. Bob can talk about that more, but you won't see anything in this year's numbers. We have changed our growth rate structurally. Obviously, these are long-cycle sales. The go-to-market strategy is multi-pronged. One element is the ability to offer clients a digital sidecar today. If they want to build crypto or digital bank capabilities, we can do that. That expands the total addressable market of what we can offer, and even though you won't see any economic impact this year, it's an important part of our plan. The second element is combining DNA and Finxact to bring an exceptional offering to many clients in a new way. The third is standing up fintechs, digital banks, and other embedded finance. You hear us talk about our open finance initiative and how well Finxact complements it. Finxact also has a strong demonstration into a current customer base that, in some cases, would be larger than our previous lifetime sweet spot. You should expect that to increase our TAM. We will go to market together in a very concerted fashion, and when the assets around it all come together, it becomes a very strong offering. I think you'll see that growth in the outer years, not this year, but you should expect it to be highly accretive to our growth rate over time.

Robert Hau, Chief Financial Officer

Just to drive the point home on revenue this year: of course, it would be entirely inorganic, so it would not affect our 7% to 9% guidance for the total company or the 4% to 6% guidance for the fintech segment. Overall it would be very small from an adjusted revenue standpoint as well.

Operator, Operator

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

Ramsey El-Assal, Analyst (Barclays)

Can you guys share your updated view on consumer spending trends? Are you seeing any sign across the business that inflation or higher fuel prices or other macro factors are sort of tipping from tailwind to headwind? Any kind of clues that the robust spending levels that we've seen will prove sustainable?

Frank Bisignano, President and Chief Executive Officer

If you look at April, it basically looks the same, with some areas a little stronger and others a little weaker. Petro services and restaurants are holding up at roughly the same level, while travel and retail are a bit softer. We have been mindful of the consumer. As we look ahead, we have factored in the possibility of a slowdown, and that is covered in our prepared remarks. We discussed the prudence of our management approach. So there is very little change right now, but we are cautious and managing accordingly.

Ramsey El-Assal, Analyst (Barclays)

Okay. And I also was wondering if you could give us a little more color on the revamped bill pay interface that you mentioned that would be rolling out, I believe, in the summer. What kinds of things can you do with that business to kind of continue the nice inflection that I think you're seeing back in the right direction?

Frank Bisignano, President and Chief Executive Officer

Yes. It's really about the user experience — giving users capabilities that feel refreshing in that environment. That, in turn, enables our bank partners to increase their bill pay capabilities with their clients. We remain focused on this, as you hear in my M&A comments and in how we run the business. We aim to give our clients opportunities to do more business with their customers. Think of the new interface as a very good, easy-to-use, modern front end that lets end users navigate far more effectively than before. We built it with our banks in mind, and we believe that change will provide greater user capability, leading to more usage and higher client engagement.

Operator, Operator

Next, we'll go to the line of James Faucette from Morgan Stanley.

James Faucette, Analyst (Morgan Stanley)

I wanted to touch on the fintech segment first. Just trying to get a sense of banks' appetite to spend and continue upgrading their systems, especially given what looks like a strong earnings period and potential impacts as interest rates change. So what's your sense right now of the opportunity set there? Are you seeing any changes or improvements in appetite?

Frank Bisignano, President and Chief Executive Officer

Yes. Having spent a fair amount of time in charge of the spending of banks around these assets and now having been here, what I find is that the appetite is very, very strong. The appetite being strong means if they can get digital capabilities, if they can serve their clients better, if they believe that the change is actually going to help them grow and do a better job, they're completely committed. We've seen a lot of those DNA wins. We've seen it from small to tall, as I would like to say. And the addition of Finxact, in my mind, just has opened a lot of our current banks' eyes and a lot of our nonbanks', that we're not serving in that space, eyes towards the capabilities we can bring to them in the here and now. So I find it to be a tremendously encouraging time for that business.

James Faucette, Analyst (Morgan Stanley)

Got it. Got it. And as you think about this, obviously there's always a lot of focus on the merchant business and that kind of thing. But consistent with the Finxact acquisition and when you think about M&A, is there a place where you feel like we need to prioritize if we're going to look at potential acquisitions in merchant versus fintech? Or, based on where you're seeing traction and opportunity, are you leaning in one direction or another as you evaluate acquisitions?

Frank Bisignano, President and Chief Executive Officer

Well, I think Finxact was a very big acquisition that, in my opinion, gave us the most modern platform in the industry and can scale tremendously. That was very important and sets us up for the long haul. If you go back to my earlier comments, we are very focused on helping our clients grow in places where we were not previously present. For example, BentoBox allows us to move into front-of-store capabilities. That has a very strong impact on ARPU in our restaurant business. You should expect us to deploy capital on acquisitions that help us better serve clients in markets where we are not currently collecting revenue, investing for growth rather than for back-end synergies, and maintaining a strong digital focus.

Robert Hau, Chief Financial Officer

James, the one thing I'd add is, I guess, I don't think about it and I don't think Frank thinks about it as which should we do. I think given the capital we have available to deploy, we think we can do both. In the last 15 months, I think we've done 8 different acquisitions, both focused on digital as well as on our merchant business. Those digital investments benefited our merchant segment, they benefited our fintech segment, and they benefited our payments segment. And ultimately, as Frank pointed out, it's all about how can we better serve our customers so that they can better serve their customers.

Operator, Operator

And our final question comes from Jamie Friedman from Susquehanna.

James Friedman, Analyst (Susquehanna)

This Slide 25 on the annual guide is super helpful. But Bob, I was wondering if there were any call-outs specific to the Q2 of '22. For example, are there any standouts that we should be aware of from the Q2 of '21, like periodic or anything else that we should keep in mind?

Robert Hau, Chief Financial Officer

No. I guess the thing to think about is that within every individual quarter last year we had ebbs and flows of the pandemic recovery. We had a big stimulus push in Q1 of last year. Not only did we benefit from more cash flowing to the U.S. consumer, but we actually helped put that cash into consumers, for example by issuing cards. That was a Q1 activity. And then in Q2 and Q3, and Q4 for that matter, we saw the benefit of consumers using that cash. But overall, if you look at the Q2 growth rate last year, it's a pretty difficult compare. We did 18% growth, particularly a very strong merchant business, but that was off a recovery from a very difficult Q2 of 2020. So we feel good about the overall growth of the business, and we expect all three of our segments to continue to perform well.

James Friedman, Analyst (Susquehanna)

Any similar comment about the Q2 margin expectation?

Robert Hau, Chief Financial Officer

Yes. We talked a little about this earlier. We get various flows. We actually, I think, said this back in Q4 when we first said we expected at least 150 basis points of expansion for the full year. Because of the timing of the investments we're making and the ramping down of some integration work that we are no longer adding back to adjusted operating margin, you'll see margins improve in the second half. Obviously, we still improved this quarter, a little better than we expected at 60 basis points. But you'll see us reach that 150 basis points for the full year, with more of the expansion occurring in the second half.

Frank Bisignano, President and Chief Executive Officer

Thank you. Thank you, everybody, for your attention today. Please feel free to reach out to our IR department and team with any questions. And have a great day, and I look forward to talking to you in the future. Thank you.

Operator, Operator

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