Earnings Call Transcript - FISV Q1 2025

Operator, Operator

Welcome to the Fiserv, Inc. First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode until the Q&A session. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Julie Chariell, Senior Vice President of Investor Relations at Fiserv, Inc.

Julie Chariell, Senior VP of Investor Relations

Thank you, and good morning. Joining me on the call today are Frank Bisignano, our Chairman and Chief Executive Officer, Mike Lyons, our President and incoming CEO, 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 measure. 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, for the last time, I'll turn the call over to Frank.

Frank Bisignano, Chairman and CEO

Thank you, Julie. And thank you all for joining us today. It was a particularly active first quarter, but I think you've come to expect that from Fiserv, Inc. First, we were steadfast on execution, and that worked out well as we exceeded consensus EPS, expanded a leading client franchise and partner relationships, and advanced our new product and market initiatives while making several strategic acquisitions. We also completed our CEO transition. Mike has exceeded all of my expectations, and as a company, we have not missed a beat. While the economic landscape remains dynamic, we are focused on executing, driving our growth initiatives, and hitting the commitments we set forth in February. As for me, I'll continue to do all I can to extend Fiserv, Inc.'s industry-leading position, pending the outcome of the full Senate vote on my nomination as Social Security Commissioner. You've often heard me talk about the deep bench we have here at Fiserv, Inc., and last month, Mike and I took steps to further advance the organization with the elevation of Takis Georgikopoulos, our new Chief Operating Officer. Takis was named as the Senior Advisor back in June after a successful career at JPMorgan, most recently as Global Head of Payments. The COO role is a natural next step for Takis, who is an accomplished leader and talented operator with deep expertise in technology and payments around the world. He took the baton from Guy Chiarillo, who became vice chairman and continues to report directly to Mike. In this role, Guy is focused on developing best-in-class products, deepening client and partner relationships, and guiding our technology strategy. He is also spearheading our efforts to leverage artificial intelligence and data, both within Fiserv, Inc. and for our clients. The balance of the management committee remains in place. Lastly, I'd like to wrap up with some reflections. I am extremely proud of what we have built at Fiserv, Inc. The company's ability to extend its leadership position is clear. It comes from scale and profitability, a strong balance sheet, global footprint, marquee clients, broad distribution through a network of partners, vast resources to invest and innovate, and a business model that's durable enough to weather shifts in the economy. These attributes have led us to outperform on both operating and valuation post-merger and can extend our track record of thirty-nine consecutive years of double-digit adjusted EPS growth. The alignment of our ecosystems for merchants and financial institutions is driving our growth now and into the future. As commerce and banking are increasingly interconnected, we are positioned to help clients on both sides to meet their growth aspirations. It is a construct unparalleled in the market today, ripe with opportunity and clearly hard to replicate. And with that, I'll turn the call over to Mike.

Mike Lyons, President and Incoming CEO

Thank you, Frank, for your tireless efforts in guiding Fiserv, Inc. and me personally through this transition. It is truly an honor and a privilege to lead the company going forward, and I feel fortunate to do so alongside Guy, Bob, Takis, and the rest of our established and proven management team. Over the last ninety days, I've had the opportunity to meet many of our talented employees and partners and over 1,000 of our clients. These interactions have only further validated my view that Fiserv, Inc. has an absolutely outstanding franchise with many attractive growth opportunities, some of which we are actively pursuing and some that have yet to be tapped and would bring incremental TAM. In nearly all of my client discussions, the focus was on what more Fiserv, Inc. could do for them. It's clear that we are valued, trusted, and that clients recognize our scale, stability, and technical prowess. These attributes are even more important in the current environment of macro uncertainty and industry disruption. So for Fiserv, Inc., commerce and banking activity carry on, and our clients continue to engage with us to explore ways to modernize and digitize, grow their market share, and better serve their customers. Turning to first-quarter results, Fiserv, Inc. is off to a strong start for the year with total company organic revenue up 7%, adjusted earnings per share up 14%, and our adjusted operating margin up 200 basis points. As you know, we had anticipated slower revenue growth to start the year and remain confident that growth will accelerate as the year progresses and we execute on existing contracts and key initiatives. Confidence in our positioning and prospects has us leaning into opportunities presented in this dynamic environment. And in the last sixty days, we announced four strategic acquisitions outside the United States and a new U.S. operating hub. In March, we acquired Payfair, a Canadian provider of program management solutions that enhances our growing embedded finance capability and adds two major gig economy companies as clients. Shortly thereafter, we closed the acquisition of CCV Group, a prominent player in omni-channel payment solutions that meaningfully expands our footprint in The Netherlands, Germany, and Belgium. CCV will help us accelerate the deployment of Clover across Europe. Earlier this month, we acquired Pinch Payments, a payment facilitator serving merchants in Australia and New Zealand. And finally, earlier this week, we announced the planned acquisition of MoneyMoney in Brazil to enhance our capital offering to merchants based on risk scoring capability and integration with the receivables registry infrastructure regulated by the Central Bank. This past Monday, we were excited to announce the opening of a new FinTech hub in Overland Park, Kansas. This new location will house 2,000 associates, part of our proven strategy to bring people together in major offices to drive innovation, collaboration, and efficiency. Let's shift to our performance at the segment level. Merchant Solutions posted 8% organic revenue growth with a 10 basis point rise in adjusted operating margin to 34.2%. Bob will discuss the details, so I'd like to highlight our progress in the quarter on three key near-term initiatives. First is driving Clover growth through new products, new markets, new partners, and new geographies. Second is signing more financial institutions as merchant referral partners, and the third is adding new and existing enterprise merchant clients to our Commerce Hub platform and driving vast penetration. Let's dig into these starting with Clover.

Bob Hau, Chief Financial Officer

Thank you, Mike, and good morning, everyone. If you're following along on our slides, I'll cover the detail on total company and segment performance in the first quarter, starting with our financial metrics and trends on Slide four. Our first-quarter results were in line with our expectations. As I said during last quarter's call, we anticipated a slower start to the year and are pleased with the progress toward our plan for faster growth in the second half. Total company organic revenue growth was 7%, with good growth in each of our segments. Adjusted revenue growth was five, including the impact of currency translation, which had a significantly smaller impact compared to Q1 of last year and was in line with historically average levels of just under 2%. Free cash flow of $371 million reflects expected Q1 seasonality, mostly related to timing of working capital and green tax credits. On a trailing twelve months basis, free cash flow was $5.2 billion, and for 2025, we continue to expect approximately $5.5 billion of free cash flow. Revenue growth this year looks dramatically different from 2024 due to the effects of interest and inflation on our business in Argentina. The contribution from excess inflation, interest rates, and the interim Dollar Turista program to our organic revenue growth is zero this quarter, compared to 10 of the 20 percentage points of organic growth in the year-ago quarter. Total company adjusted operating margin was 37.8%, an increase of 200 basis points versus the prior year, and adjusted operating income growth of 11%. Adjusted earnings per share for the quarter was $2.4, up 14%. Turning to performance by segment, starting on Slide five. Organic and adjusted revenue growth for the Merchant Solutions segment was 8% and 5%, respectively, for the first quarter. This is in line with our expectation and reflects three timing-related factors. First, the impact of leap year, which contributed an extra day last Q1. Second, timing of the Easter holiday moving from Q1 last year to Q2 this year. And third, a difficult year-over-year comparison against the large term fee that we discussed in Q1 2024. The sum total of these three items impacted our merchant organic revenue growth by roughly three percentage points.

Operator, Operator

Thank you. We would now like to open the phone lines for questions. As a reminder for today's call, please limit yourself to one question to ensure ample time to answer as many questions as possible. If you would like to ask a question, you may use star one on your phone. If you need to withdraw your question at any time, you may press star two.

Darrin Peller, Analyst

Hey, guys. Thanks. Maybe we could just start off on the trajectory of the merchant business. Obviously, the Clover growth was very strong at the 27% we're seeing. And so when we build that in, if you could just remind us some of the trends we're seeing and maybe a little bit more quantification of what we'd expect volume growth to look like for Clover as the year progresses? And then more importantly, as we build out in Brazil and Australia and we add these VaaS, what kind of revenue growth do you see in terms of a bridge between volume and revenue growth for Clover? Finally, just overall merchant trajectory as the year progresses would be great from a sequential standpoint.

Bob Hau, Chief Financial Officer

Yes, Darrin. Good morning and thanks for the question. Overall, we feel good about the 27% revenue growth for the Clover business. BaaS moving up to 24%. As we continue our march and we reaffirm our commitment to delivering the $3.5 billion for the full year and 25% BaaS for the full year of this year. And Q1 results were right in line with our path towards doing that. We certainly continue to expect growth in the latter part of the year, both in terms of further VaaS penetration reaching that 25% as well as overall volume growth. We mentioned in the prepared remarks this morning that Q1 was really impacted by a couple of key things. Obviously, leap year gave us an extra point of growth last year. Easter was in March. It's actually very late April this year. And so we see some acceleration of volume and therefore the revenue growth. Adding to that things like Clover Hospitality going out, the continued acceleration of our international regions, both in Latin America and in Asia Pacific. New countries going live during the first quarter and early second quarter. And then we'll also see some benefit from CCV, the new acquisition. Continued distribution channel expansion in Europe, and actually essentially adding a new country with Belgium having a good distribution channel through CCV and being able to sell Clover through that distribution channel. So there's a number of good things ahead of us that give us confidence in the ability to deliver that $3.5 billion of revenue, and that includes performance in Q1.

Mike Lyons, President and Incoming CEO

Yes. Think probably continue to in terms of distribution and merchant, financial institution partnerships, we continue to see good growth on that front. And then we continue to enhance, talked about it and will throughout the year, continue to enhance the merchant experience, whether that be with the partnership with ADP, the rollout of Cash Flow Central and the integration of that into Clover over time, leveraging AI into Clover's in the merchant opportunities for new leads, get loyalty. Lots of different things around merchant experience.