Fiserv Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2023

Key Takeaways

  • Strong Q4 & 2022 financials: Organic revenue grew 12% in Q4 (11% full year), adjusted operating margin improved 360 bps to 39.2%, adjusted EPS of $1.91 (+22%), and 2023 guidance calls for 7–9% revenue growth, 125+ bps margin expansion and $7.25–7.40 EPS.
  • Merchant Acceptance outperformed with 16% organic growth in Q4 (17% full year), driven by Clover and Carrot platforms, 16% VAS penetration and 174 new ISV partnerships, on track for the 2025 $10B revenue target.
  • Payments & Networks posted 10% organic growth in Q4 (9% full year), led by three credit issuer implementations and two new wins with Target and Desjardins, which will begin contributing revenue in 2024.
  • FinTech rebounded to 8% organic growth in Q4 (5% full year) with 14 core wins (155 over three years), ramping license and services revenue and strong early adoption of the cloud-native FinZac banking solution.
  • 2023 outlook assumes a mild US recession, underscoring macroeconomic uncertainty that could pressure results if economic softness exceeds the baseline.
AI Generated. May Contain Errors.
Earnings Conference Call
Fiserv Q4 2022
00:00 / 00:00

There are 9 speakers on the call.

Operator

Welcome to the Pfizer 4th Quarter 2022 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 will turn the call over to Julie Sherriell, Senior Vice President of Investor Relations at Fiserv.

Speaker 1

Thank you and good morning. With me today on the call are Frank Busignano, our Chairman, President and Chief Executive Officer and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter and full year are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non GAAP financial measures discussed on this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year over year comparisons.

Speaker 1

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.

Speaker 2

Thank you, Julie, And thank you all for joining us today to discuss the strong ending to a pivotal year at Fiserv. 2022 marked a year of great progress for us, with better than expected growth against the challenging backdrop. The integration of First Data and Fiserv wrapped up in the first half and we are entering 2023 With the focus on growth and operational excellence to drive quality and productivity to the next level. We laid out a plan for our Merchant segment that includes extending Clover's leadership and are on pace To achieve our 2025 objectives, we won awards for our new enterprise omnichannel solution, Carrot, And continue to roll out this unified commerce platform with a leading number of value added services. In payments, we completed the 3 major credit issuer implementations and followed them up With 2 major new wins in the 4th quarter and we advanced our core banking cloud roadmap For new and existing clients with the acquisition and integration of VINZAC, through all of that, we navigated The return to office and are seeing a boost in productivity as our employees come back together, Many in new state of the art facilities.

Speaker 2

We head into 2023 as a unified company That's better than the sum of its parts. 1 with faster growth and deeper investment that still holds a tradition Our progress over the last two years is undeniable after consecutive years of 11% Organic revenue growth. 3.70 basis points of total adjusted operating margin improvement And over $5,000,000,000 in share repurchases. We delivered on our guidance with a Deep ramp in the 4th quarter, with 12% organic revenue growth, 360 basis points of adjusted operating margin improvement and adjusted earnings per share of 1 point $0.91 This led to 2022 results within the guidance range, Which we raised twice last year despite unexpected FX headwinds. For the year, organic revenue growth was 11%.

Speaker 2

Adjusted operating margin expanded 120 basis points To 35.1 percent and adjusted EPS was $6.49 of 16%. Free cash flow conversion was 84% as we continued to invest for growth. Each of our operating segments recorded strong performance, led by Merchant Acceptance With organic revenue growth of 16% 17% in the quarter year, Respectively. Our Clover and Carrot operating systems are driving segment growth well above pre pandemic levels. Our newer products such as data as a service, pay by bank, Disbursements in EBT Online widen the value proposition to clients and bolster our strong positioning in card and non card payments.

Speaker 2

Expanded ISV And direct sales channels extend outreach to merchants and help us capture more of the value in each transaction. Payments and network revenue had a superb year of growth, up 10% organically in the 4th quarter 9% for the year, above our medium term guidance range. Performance was led by implementations We followed this up with 2 major new credit wins in the 4th quarter. With Target, one of the largest retailers in the world, and with Desjardins, the largest credit union Consortium in Canada and the 4th largest card issuer. We are very excited to bring one of the world's largest on to our platform and we're pleased to expand our geographic reach in Canada with Desjardins.

Speaker 2

It is another example of a major in house card issuer partnering with us to achieve industry leading capability. And it's our first connection with a major Canadian issuer, giving us important scale in a key market. We've already begun working with both clients and anticipate revenues starting in 2024. In FinTech, we delivered 8% organic revenue growth in the quarter, rebounding From Q3 as expected. For the full year, we generated 5% organic growth At the midpoint of our medium term guidance, core wins were robust over the last several quarters And continue to go live, adding to an already strong recurring revenue base in this segment.

Speaker 2

Interest in FinZac is exceeding our expectations and we are excited to extend our leadership in cloud core banking By going live with Digital Bank Cello, we continue to believe we have the most clients in production in the cloud. We are carrying this positive momentum forward into 2023. This year, we expect Organic revenue growth of 7% to 9%, adjusted operating margin expansion above 125 basis points And adjusted earnings per share of $7.25 to $7.40 which assumes a mild recession in the U. S. Our guidance reflects internal confidence in the face of external uncertainty.

Speaker 2

This confidence is built on the strength of our unparalleled client base, our industry leading distribution, A broad and growing product portfolio and our best in class management team, we have the revenue base, The profit driven cash flow and sturdy balance sheet that should sustain us through a tougher economy. It's times like these that make it good to be an industry leader that continues to invest in new and innovative products. Nowhere was this strong positioning more evident than in the many noteworthy contract extension And product additions signed with existing clients in the Q4. These wins are a reflection of 4 factors. First, our list of clients is vast, high quality and full of opportunity and our relationships with them are deep.

Speaker 2

2nd, we have the broadest portfolio of solutions supporting both growth and operating efficiency for our clients. 3rd, our client first relationship model is off to a strong start. And 4th, Our vision for the cross sale opportunity between Fiserv and First Data offerings has become reality. The promise of the merger is being realized. Synergies are apparent.

Speaker 2

For example, between acquiring and core banking core banking and embedded finance and card issuing services across multiple verticals. In Merchant Acceptance, for example, we expanded our global relationship with ExxonMobil. This energy giant With Gateway Acquiring and Fraud Security Services. We also renewed Harrods contract We're one of the largest beauty retailers in the U. S.

Speaker 2

And added network tokens to their e commerce system to help increase authorizations, reduce cost and limit fraud. And a major restaurant operator We'll extend our merchant acquiring and prepaid business to more of its brands in the Payments and Networks segment In addition to the significant target and deja dans wins, we expanded our existing relationship With the state of California, after a successful rollout of the middle class tax refund program in the 4th quarter, We were awarded another prepaid mandate supporting California's unemployment And related insurance programs, this along with disbursement support for the Comptroller's Office Announced in October, represents longer term recurring work for the state and marks our leadership In payments for the government vertical, we also signed a large e commerce payments company for Debit Network Services. This client will enable our Star and Xcel networks for its millions of merchants as an alternative To the larger debit networks. And in FinTech, as a proof point of our deep relationships, Ability to cross sell products and seize synergy from our merger, we continue to add solutions for Webster Bank Since its merger with Sterling National Bank earlier this year. In addition to the account processing win we announced In the Q3, we've now added the Optus platform and ATM services To the growing list of solutions we provide.

Speaker 2

Similarly, Betpage Federal Credit Union Has also added several of our payments products to its existing core banking platform. In keeping with the emerging trend of core modernization, Innovation Credit Union of Canada will be the latest client Azure Cloud. This is one of a couple dozen DNA customers migrating to the cloud For more flexibility and resilience in their infrastructure. It highlights the modern architecture of DNA, Fiserv's experience in the cloud and further migration from license to ASP revenue. Outside the U.

Speaker 2

S, we made important progress in EMEA, adding APSA Bank in Mauritius As a client of our Internet Gateway, this will allow ABSA clients to tap into the fast growing e commerce segment in Africa and grow with key corporate clients that are active in this well known tourist destination. It also opens the door for us to enter 8 other countries in Sub Sahara Africa Where ABSA operates today. In Latin America, we extended a large bank acquiring relationship To include several more countries and in APAC, we signed India's Tata Motors For loan processing and attained a major payment institution license in Singapore. This will allow us to expand beyond merchant acquiring into domestic and cross border money transfer services, A market that has $180,000,000,000 of payment flow. A key to our new and follow on wins It's a significant investment we have made to bring new products to market, increase our value to existing customers, Open the door to new customers and grow our TAM.

Speaker 2

Let me recap just a few of our innovation and advancements this year, Starting with merchant. In the SMB space, we serve small businesses wherever they want to conduct business. Through cloud based operating systems like Clover, through our channel partners, including ISVs, banks and ISOs And on platforms that act as payment facilitators or PayFac. At Clover, We integrated the Bento Box acquisition into the Clover platform to add more e commerce and digital capability To our offerings in the restaurant vertical, catering services and hotel restaurants Our emerging sub verticals for us now and we know that when Bento and Clover are sold together, We see an over 3 times increase in average revenue per user. We also rolled out Lower cost hardware and partnered with major providers of retail technology to offer web Endpoint of sale inventory solutions to this large SMB vertical.

Speaker 2

We've begun migrating merchants From our existing Internet gateway to a new Clover gateway, where they can more easily access Our full suite of value added services. This positions Clover to compete more For card not present business this year from a position of strength, value added services penetration, An important driver of Clover growth and ARPU reached 16% in the quarter from 13% a year earlier. One example is Clover Capital, a product we continue to invest in. It's growing rapidly It's favorably impacting customer attrition in the SMB segment. In the ISV channel, We've added 174 ISV partners this year and continue to benefit from the high growth And lower customer acquisition costs of this go to market approach.

Speaker 2

Since our acquisition of NetPay, We continue to build PayFac, Marketplace and Software Platform Solutions, including real time boarding, Underwriting and split pay services. In the quarter, Fiserv continued to expand and deepen our Platform integrations with partners that include PayPal, offering our customers more flexibility and their service offerings. We look forward to exploring other integrations with current and future partners, While expanding our capabilities across this market, Carrot, our leading enterprise omnichannel solution, Continues to expand its capabilities, including payout choice and flexibility. With the introduction of several products this year, including digital checks, prepaid cards and crypto wallets, Followed by our multi purse wallet, a white label solution that holds multiple sources of value, including loyalty and prepaid. We continue to onboard large merchants for Pay by Bank, Which lowers the cost of acceptance for merchants and is an easy way for consumers to earn rewards.

Speaker 2

And we've seen a strong early uptake in our new data as a service offering, partnering with Snowflake. It enables our merchant customers to access their payments data in near real time To better inform business decisions, we also have a growing number of financial institutions lined up To pilot our open data solution offered in partnership with Snowflake, open data enabled near real time access To data across customers, accounts and activities, bringing relevant insights To support strategic decisions, in payments and network, our strong growth in Issuer Solutions Can be traced directly to the investments we've made in our operating platform, Optus. This includes a robust set of APIs, AI based fraud management, cardholder Experience technology via the On Dot acquisition, integrated output solutions, plus Ongoing cloud enablement of key features. We have multiple payment innovations underway to take advantage of emerging trends such as real time payments. The Clearinghouse RTP network, Zelle and FedNow all work differently than legacy networks, creating demand For an end to end solutions provider, we are leveraging the Fiserv Now network To be just that this year.

Speaker 2

In FinTech, we've been taking an open source approach to serving our clients. We've preintegrated 3rd party digital solutions into many of our cores and made these solutions discoverable to clients via our app marketplace. We've also made our platform attractive to the developer community By exposing our microservice APIs through our Developer Studio. Building On its Webby award last year, this product won a Debbie award from Developer Week in January For best innovation in Financial Services. With these advancements, we are driving Fiserv To become the destination of choice for embedded finance, integrating card issuing and processing, Merchant and core banking capabilities for a variety of non traditional providers, including retailers, QSRs, PayFac and Government Entities.

Speaker 2

Another highlight of 2022 Was the VINZAC acquisition, our new cloud native banking solution, which we've been integrating With our existing digital surrounds, selling to our existing clients as an innovation platform or sidecar core And winning new logo sales. Our pipeline is particularly active with pioneering digital banks And big issuers entering the banking market via embedded finance. FinZac offers them faster time to market, Greater flexibility and scalability and the largest product portfolio available, Making it an ideal way to conceptualize, create and launch new banking products. With all of this new product development and the client wins that validate, I hope you'll see why we remain enthusiastic So let me pass the discussion to Bob for more detail on our financial results.

Speaker 3

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 4. 4th quarter and full year results reflected our focus on delivering on our commitments With momentum in all three business segments. Total company organic revenue growth was 12% in the quarter With ongoing strength in merchant acceptance, further growth in our Payments and Network segment and a rebound in the FinTech segment as previewed on our last earnings call. For the full year, total company organic revenue grew 11% in line with the higher guidance we provided 90 days ago.

Speaker 3

This performance was led by the Merchant Acceptance segment, which grew 17%. 4th quarter total company adjusted revenue grew 8% to $4,400,000,000 and adjusted operating income grew 20% to $1,700,000,000 resulting in adjusted operating margin of 39.2 percent, an increase of 360 basis points versus the prior year and a sequential improvement of 400 basis points. As we anticipated, four factors drove this margin improvement. 1st, the final ramp down of integration expenses and resulting productivity benefits 2nd, operating leverage On increased revenue and improved inflation comparisons third, actions taken late in the Q3 and in Q4 to tighten spending in light of the uncertain macroeconomic conditions across the globe and finally, the divestiture of our Korea business in 2 small low margin non strategic units. As expected, the 4th quarter performance brought the full year adjusted operating margin The 35.1 percent, an increase of 120 basis points over 2021.

Speaker 3

4th quarter adjusted earnings per share increased 22 percent to $1.91 compared to $1.57 in the prior year. Full year adjusted earnings per share increased 16% to $6.49 Volume, productivity and operating performance more than offset the foreign exchange headwind of $0.25 for the full year. This was much higher than the $0.11 assumed in our guidance at the start of the year. Free cash flow came in at $1,400,000,000 for the quarter And $3,500,000,000 for the full year. Free cash flow conversion was a strong 115% of adjusted net income for this quarter.

Speaker 3

For the full year, free cash flow conversion was 84%, roughly in line with our expectations for approximately 85%, With a slight increase in accounts receivable and some slower collections. Now looking to our segment results starting on Slide 6. Organic revenue growth in the Merchant Acceptance segment was a healthy 16% in the quarter 17% for the full year, Well ahead of our medium term segment guidance of 9% to 12%. Adjusted revenue growth was 9% in the quarter and 13% for the full year. This is well ahead of the 11.5% annual growth rate needed to achieve our Merchant Acceptance Segment revenue outlook of $10,000,000,000 by 2025 as laid out in our March 2022 investor call.

Speaker 3

As we've said, we grow and create value in 3 ways. 1st, attracting more merchants to our operating systems. Our Clover active merchant count grew 9% in 2022. 2nd, expanding our merchant relationships The adoption of more value added software and services, Clover VAS penetration reached 16% in the quarter, up 13% from last year. And 3rd, by growing with our existing customer base, Our average revenue per Clover Merchant expanded 12% in 2022.

Speaker 3

In the quarter, Merchant volume and transactions grew 6% 3% respectively. For the year, they grew 10% 6% Excluding the loss of our processing client in mid-twenty 21, volume in local currency was up 8% for the quarter and 12% for the year, Excluding the client loss, this is in line with our typical spread relative to the card networks. Factors that drove faster revenue growth Include value added services, new payment flows and value based pricing. Turning to our merchant operating systems Clover and Karat. We continue to post robust growth and we are on track for $3,500,000,000 in Clover revenue by 2025 as presented at our merchant investor call this past March.

Speaker 3

Clover revenue grew 23% in the 4th quarter on payment volume growth of 16%. For the full year, Clover revenue was up 25%. We posted above average growth in Clover Capital, Clover Software and Marketplace SaaS. Clover Connect for ISVs continues to post very strong revenue growth And added 48 ISV partners in the quarter, totaling 174 for the full year. Carrot, our enterprise omnichannel solution, Also had a strong quarter with revenue growing at 15%.

Speaker 3

For the year, Carrot revenue grew 18% on important new client wins and enhancements for existing clients. This includes our new client experience portals, which improve service and access to data, While positioning us to sell more products from data as a service to fraud services to emerging flows. In 2023, we will complete the build out of our single orchestration layer known as Commerce Hub, which will allow our clients to more seamlessly integrate with the breadth 22% to $648,000,000 in the quarter with margin up 3 50 basis points to 34.8%. Full year adjusted operating income improved 16% to $2,300,000,000 And margin grew 100 basis points to 31.8%. The improvement in both periods was led by operating leverage and productivity.

Speaker 3

We completed the acquisition of Merchant 1 in late December, folding in this long term Fiserv customer. This should enhance our direct merchant acquisition capabilities, extend the reach of our Clover product line and create cost synergies. We also acquired Yaquare late in the quarter, expanding our capabilities in Argentina by enabling us to bring our QR code payment acceptance to our merchants there. We stand to rapidly become a significant QR code provider as we get this technology into customers' hands. Looking into 2023, in January, overall volume growth was stronger than volume growth in December.

Speaker 3

This is partly attributable to an easier year over year comparison, but also indicates the ongoing strength of the consumer and the Fiserv brand. Turning to Slide 7 on the Payments and Networks segment. Organic revenue grew 10% in the quarter. This growth was enabled by a variety of drivers across our business lines. Our North American credit active accounts on file grew 17% driven by both new business onboarding and a favorable credit environment.

Speaker 3

The California middle class tax refund program Was also an important contributor to revenue during the quarter. While the revenue is mostly one time in nature, we've signed 2 additional contracts with the state that will bring in recurring revenue in 2023 and beyond. Full year organic revenue growth of 9% Was above the upper end of our medium term outlook range of 5% to 8%. 4th quarter adjusted operating income for the segment was up 14% to $811,000,000 and margin was up 2 30 basis points to 48.5 percent driven by strong operating leverage. For the full year, adjusted operating income was up 10% to $2,800,000,000 And margin expanded 120 basis points to 45.3%.

Speaker 3

Moving to Slide 8. In the Financial Technologies segment, we posted 8% organic revenue growth for the quarter and 5% for the full year, Right in the middle of our 4% to 6% medium term guidance range. The rebound in non recurring revenue portions of this business, License, professional services and termination fees was a meaningful contributor to growth in the 4th quarter, As we expected after those revenues slowed in the Q3. Meanwhile, customer momentum continues and we had 14 core wins in the quarter including 8 competitive takeaways. Over the last 3 years, we have 155 core wins and a healthy backlog of implementations that offers solid visibility to revenue for 2023.

Speaker 3

Adjusted operating income was up 18% in the quarter to $340,000,000 and up 7% to $1,200,000,000 for the full year. Adjusted operating margin in the segment increased 400 basis points to 41.3% in the quarter helped by higher periodic revenue and productivity. Full year margin increased 70 basis points at 36.5%. The corporate adjusted operating loss was $88,000,000 in the quarter, Slightly improved from the first half run rate and $444,000,000 for the full year. The adjusted effective tax rate in the quarter was 19.3% and was 19.6% for the full year, in line with our expectations.

Speaker 3

We expect 2023's adjusted effective tax rate will be approximately 20% for the full year. Total debt outstanding was $21,400,000,000 on December 31. The debt to adjusted EBITDA ratio dropped another tenth of a turn to 2.8 times within our target leverage of being below 3 times in the second half of the year. We have approximately 19% of our debt And variable rate instruments. During the quarter, we repurchased $750,000,000 of our stock, bringing our total 2022 share repurchase To $2,500,000,000 $5,000,000,000 over the last 24 months.

Speaker 3

We had 17,000,000 shares remaining authorized for at the end of the quarter. Our long standing capital allocation strategy will continue into 2023 defined by strong balance sheet, Share repurchases and complementary and innovative acquisitions. As we look through the mixed indicators on the 2023 economy, We are taking a measured approach to our outlook and assume a mild consumer spending recession, lower inflation and higher interest rates. As Frank said earlier, we expect organic revenue growth of 7% to 9%, in line with our medium term guidance With adjusted operating margin expansion of at least 125 basis points. This translates into adjusted earnings per share of 7 point and would represent our 38th consecutive year of double digit adjusted EPS growth.

Speaker 3

This strong operating performance In a weaker economic environment reflects our continued investment in growth opportunities at a time when others may be cutting back. We are redirecting our free cash flow guidance toward dollars instead of conversion since this aligns more directly with how we run our business. We estimate approximately $3,800,000,000 of free cash flow for 2023. In the past 2 years, We increased our level of investment in growth initiatives and it led to back to back years of accelerated 11% organic revenue growth. We see tremendous opportunity to do the same this year to invest in our growth platforms and continue to grow faster than our markets.

Speaker 3

We retain our focus on long term free cash flow as a driver of long term value for our shareholders. With that, let me turn the call back to Frank for some closing remarks.

Speaker 2

Thanks, Bob. In the quarter, Fiserv provided back to business grants to 13 veteran and military spouse business owners through our partnerships in Atlanta. We also launched back to business in New Jersey, committing $1,000,000 to small local minority owned businesses. For the year, we awarded 241 such grants in total. The CDP published our GHG emissions results for 2021.

Speaker 2

They improved from the prior year in part because of the COVID shutdowns. We are encouraged by the future direction A Vowel program since receiving lead gold status for our 1 Broadway space, Awaiting lead platinum status for our new Technology Innovation Center in Berkeley Heights And pursuing lead gold for offices in Milwaukee and Dublin, Ireland. Overall, I am excited about what the next 5 years can bring for Pfizer. We are off to a great start in 2023. Having just been recognized as a World's Most Admired Company by Fortune Magazine For the 12th time in 15 years, I'm especially proud about 2 most admired attributes, Innovation and financial soundness, 2 particularly important qualities In the current environment, we delivered beyond expectations in the past year And that was not by chance.

Speaker 2

It was the result of specific actions and thoughtful investment. The groundwork is laid for more strong performance to come. Leading products, bigger TAM, Expanding geographies, better service and streamlined modern technology are in our grasp. The years I have spent at highly successful businesses have taught me that our reach must exceed our grasp. There is always room for improvement.

Speaker 2

So my leadership team and I are focused on driving greater productivity And better processes this year in the quest for operational excellence. I'm confident And our more than 40,000 Fiserv associates around the world, you come prepared to meet our high bar every day And I thank you for all you do. With that, operator, please open the line for questions.

Operator

Thank you. We would now like to open the phone lines for questions. Our first question comes from Tien Tsin Huang from JPMorgan. Please go ahead.

Speaker 4

Hi, thanks. Good morning. Solid results here. Mike, one question. I'll ask Frank, if you don't mind.

Speaker 4

You spent some time talking about how Fiserv is better than the sum of the parts with the cross selling and the synergies, Etcetera. Has your thinking on synergy contribution to growth changed at all in the last year or 2? Any way to size That in terms of contribution to growth maybe for fiscal 2023 or the midterm outlook in general? Thanks.

Speaker 2

Well, I think if you If you look at this year's growth rate, obviously at 11%, we can feel the power of the franchise coming Right. And obviously, I'd like to step back on that question a little bit too. Remember, we announced A merger, maybe top 10 mergers of the year in 2019 and then we had a pandemic. And that definitely did not accelerate our ability To see clients sell and get in frame on offerings, we manage through it. We saw the tools available.

Speaker 2

But I think today when you look through the company, the opportunities are larger than we thought. Remember, we said we're going to stop really Talking about the synergy number, we put a bow on it, we closed out M and I And then continue to still working. But I think embedded in what you see in our growth rate And what we believe the promise was is much larger. And I think it will continue. It's just natural cross sell now, but it's So cross sell now, but it's bringing we love talking about merchant acquiring and core banking, on behalf of those banks.

Speaker 2

We like to think about the opportunities that we've got in by Taking our larger capabilities across the company and delivering more product to the government vertical, you see the things So we're doing that neither company did before, but the 2 together did. And I'd say, I simply always think that this is a completely different company fundamentally in its 4th You're a new company. We took the 2 growth rates and Seated either one and we'll do that for the rest of our life and with the exception of a pandemic. So I think it's bigger than we ever thought. And I think you'll continue to see it and it's definitely had an effect and I think it's the effect of the difference in the growth rate.

Speaker 2

So we see that 2 combined companies and then from what we originally announced, and how it shows up in today's numbers. So thanks. Thanks for asking that. It really does matter a lot. It's really we are getting the benefits of what It's all week 2 and it's better than we thought.

Operator

Next, we'll go to the line of Lisa Ellis from VB MoffettNathanson, please go ahead.

Speaker 5

Hey, good morning. Thanks for taking my question. Frank, another one for you as well. I was hoping to follow-up on the growth in Payments and Networks and specifically the 17% growth in North America credit account growth, I think this is several quarters in a row now. You guys have highlighted mid teens growth there and then you highlighted 2 additional wins.

Speaker 5

Can you just elaborate a little bit on what is going on in the credit issuer processing space? Like you guys have a ton of momentum here right now. So Kind of what's changed and what's driving that really strong momentum? Thank you.

Speaker 2

Yes. I think as you've watched the evolution over time, I start with, we love operating systems. We love our platform systems. And the investments that we made And I think it's the full enterprise capability that we bring. I think it's a single platform that we bring.

Speaker 2

It's the modernization of the platform That we did over the past few years. And I think we came in and talked to you at 2020 Investor Day about the 3 large wins that were in the top 25. And then we continue to add, if you remember, I've said to many, I believe that, we did think those 3 Top wins were a very, very, very one time unique situation. But we came back and said over the past year, we've won as much as those 3 And then we've followed on with these 2 wins that we're pretty darn proud of. The RedCard of Target And Deja or Dan, these are long term big decisions for these issuers, Long term relationships.

Speaker 6

And I

Speaker 2

think the team has done an unbelievable job building out the platform, building out the capabilities All the way from loyalty to user interfaces. And so I think the fruit sales labor continue to come through and that will be a ramp like the last one.

Operator

Thank you. Our next question comes from Dave Koning from Baird. Please go ahead.

Speaker 7

Yes. Hey, guys. Great job. And I guess my question, within the Acceptance segment, the gap between revenue growth and volume growth It was pretty massive. It was 10%, which might be the biggest we've ever seen potentially.

Speaker 7

Is that the mix of SMBs? Like are you actually seeing SMBs really good? Is it just more products sold to Clover? You talked about that. Is it pricing?

Speaker 7

Maybe talk a little bit about that. And then is that sustainable through 2023?

Speaker 3

Yes, David, it's Bob. Thanks for the question. The answer to your question is yes, it was those items. Obviously, we were continuing to see great growth in the business. We've talked about the key drivers of growth, Getting more merchants, selling more to merchants, the value added sales, you saw our penetration rate go up in Clover.

Speaker 3

We continue to build out our direct sales channel. The integration of Bento Into the Clover solution, significantly increases the ARPU, and we saw some benefit of value based pricing. So kind of across the board doing very well and that's both in the SMB as well as in the enterprise Markets for us. Am I going to suggest we'll continue that 10% every quarter going forward? Now I wouldn't Laid that out, but we see tremendous opportunity for continued growth.

Speaker 3

Recall you back to our March Investor call that we had on the merchant business, we think this is a $10,000,000,000 business in 2025 and 2022, the 1st year on that journey was right on track.

Operator

Thank you. Our next question comes from Ramsey El Assal From Barclays, please go ahead.

Speaker 3

Hi, thanks for taking my question. Can you comment on growth in different geographies? I know Europe I had seen some weakness previously. Where are you seeing the more robust growth across the globe versus some weakness? Yes, Ramsey.

Speaker 3

Definitely seeing some very nice growth across our 3 international regions. They are, for all practical purposes, almost double, maybe a little bit better than double our U. S. Growth rate, continue to see tremendous contribution. The fastest growing region for us is certainly LatAm, With good growth in Brazil and Argentina, particularly in the merchant space, but also seeing some nice traction And our credit issuing capability across the regions, we talked about expanding our reach with A large bank growing our reach in the number of countries in Latin America this past quarter, seeing good growth in APAC, Both of those obviously smaller than our footprint in EMEA.

Speaker 3

But even EMEA, we're seeing good growth, particularly in the issuer space. So all three regions contributing to the growth and in total our international business growing almost double the rate of our domestic U. S. Business.

Operator

Timothy Chiodo from Credit Suisse. Please go ahead.

Speaker 8

Great. Thank you for taking the question. Since Distribution is one of your major advantages and super important to the Clover growth algorithm. You mentioned some of the various channels you have, the bank channel, direct sales, ISVs, ISOs. I was wondering if you could just give us an update on the mix in terms of where Most of the new gross adds are coming from.

Speaker 8

And as the a very brief follow-up, if you could give us an update on the U. S. Versus international mix for Clover?

Speaker 3

Yes, Tim, I think the simplest way To tee that up is we're seeing actually growth across those channels. There are some ebbs and flows as you go quarter to quarter, etcetera. But Broadly, we continue to sign more banks and get more merchants through that bank channel. We continue to build out our direct sales force. ISO is obviously our Partner channel is obviously quite significant.

Speaker 3

ISV, our corporate connect solution for our ISV partners It's still adding ISVs in a meaningful way. We talked about some of those numbers in our prepared remarks. So The benefit for us is the broad distribution channel isn't that one It's growing faster than the other and they're offsetting each other. It's that we just have a broad reach and we can grow across the board. And overall, Clover continues to grow.

Speaker 3

You heard us quote the 25% growth in 2022, nicely on our path To our $3,500,000,000 plus goal for 2025 and international is certainly part of that. In 2023, We'll continue to get some nice growth there, in particular with Deutsche Bank joint venture now live and beginning to provide some growth for us.

Operator

Thank you. Our next question comes from Darrin Peller from Wolfe Research. Please go ahead.

Speaker 8

Hey, guys. Nice job this quarter. I just want Look at the Frank, when you look at the strategy for the merchant growth to continue and you see how strong some of the assets like Clover and Carrot have been, Maybe talk to us about the next couple of years of your view of what could drive that growth to continue at what seems to be above industry levels. And it looks like You mentioned services and value added, but it looks like pricing probably played a part as well in the merchant revenue growth rate. Is that continuing?

Speaker 8

Last one is just for Bob on the segment growth rates. What are you guys thinking about for the year ahead in terms of merchant or really all three segments embedded in the guide? Thanks guys.

Speaker 2

Let me take the first part. First of all, On all the indicators that we talked about in March Relative to our merchant business, we see that as visibly as we saw it back in March, The opportunity. I do think this is about an operating system. It's about platforms. And with that software capability that we bring, obviously value added services Yes.

Speaker 2

Change is our growth rate. As I said on this call, I think that we've made a Big point of getting off of yield. And as I hope you could see, we didn't get off of it because We were going in a different direction. We just think that ultimately we're going to bring more product in And the mix of our business is different. I think when you take a look at this business, When you're running it the way we do, when you're bringing more stickiness, more client, Limiting, attrition through those value added services.

Speaker 2

You also have pricing opportunity And we definitely have value based pricing that is not having any effect On our attrition rate, because we're really delivering multiple products into the clients, that's why we think a lot about ARPU And LTV around these. So it will be continued to invest in value added services. We love distribution partners. We love direct sales. And our distribution partners, I think we have the largest Salesforce of agents out there, I think retail ISO business, remember when we say ISO in that To mention, I'm really talking about retail, I saw way more than wholesale, which we really highlighted more in the processing space.

Speaker 2

So our vision is to invest in software, continue to drive software sales, Continue to grow distribution, continue to grow our own direct distribution And obviously, drive to $10,000,000,000 which is clearly in sight and the other indicators we talked about.

Speaker 3

And Darren, in terms of the 2023 outlook by segments, you heard the full year, we expect To be kind of in the 7% to 9% range, the baseline does assume a mild consumer recession, Which obviously will impact our merchant segment more than our payments in FinTech that tend to be more high recurring revenue. I would say that our Merchant business will probably be at the top end, maybe above The top end of our 9% to 12% medium term guidance, in our FinTech space, we did 5% in 2022. I'd expect that to continue to be in our range of 4% to 6% that we provided for medium term guidance. And in our payment space, which was 9% in 2022, actually above our guidance range. I think we'll be at the top half of our medium term range of the 5% to 8% As we exit 2023.

Operator

Thank you. Our next question comes from Bryan Keane from Deutsche Bank. Please go ahead.

Speaker 6

Hi, guys. Good morning and congrats on the solid results here. Frank, just want to ask you about the mild recession that you're expecting. Are you seeing any signs of that today? Or are you just kind of reading the tea leaves?

Speaker 6

And maybe you

Speaker 3

can talk about the

Speaker 6

timing Of the potential recession as you see it?

Speaker 2

Well, first of all, I'm not Calling for a mild recession, that's in our baseline, right? I just want to be very clear on that. And I mean, there are plenty of people, including Bob, that would say statistically, We already have seen a recession given the contraction in GDP we saw Last year. But I would treat it like we built that in To our baseline. And to the extent that doesn't happen, We have expectations on high end at minimum is how I would think about that.

Speaker 2

And I think we're not right now feeling that element. So it was not a Forecasted early session as much as a planning baseline to consider all scenarios.

Speaker 3

And Brian, obviously, it's Well, February 7, January came in well, good. There is certainly some benefit of comparisons. January last year, we were actually coming back out of COVID in a couple of spots. And so it's a little bit easier that will Moderate a bit as we go through February March, but things seem to be generally holding. And if If you listen to the talking heads on TV or read Wall Street Journal or Feet or whatever, there's more folks now talking about Maybe not a recession.

Speaker 3

We think kind of the baseline is a slowing Of the GDP and that's obviously U. S, 84% of our revenue is U. S. Based. Obviously, Europe, particularly in the UK and Germany are seeing a tougher economic environment.

Speaker 3

Who knows what happens with China? And for us, China Directly isn't an issue, but the implications, particularly in APAC. So we think it's appropriate prudence To have that baked in and it's tough to know whether we'll have a mild recession, let alone when, But right now, things are holding.

Operator

Thank you. And our final question comes from Dave Togut from Evercore ISI. Please go ahead.

Speaker 6

Thank you. Good morning. With 4th quarter organic revenue growth of 12%, well above your midterm guide and annual guide for next year of 7% to 9%, How should we think through the cadence of organic revenue growth and margin expansion, thinking through the higher supply chain And wage inflation you had in the 1st 2 to 3 quarters of last year combined with any call outs on periodic revenue comparisons?

Speaker 3

So maybe the most straightforward way to think about that is to look at some of the ebbs and flows that we had in 2022. Obviously, Q4 margin came in quite strong. Inflation eased as we ended the second half of the year. So it's a different comparison point margins will expand better in the first half, 1st 9 months of '23 than they did in 'twenty two because of that timing. Certainly from a periodic revenue standpoint or non recurring revenue standpoint, Q3 of 2023 will be against a much easier compare, which was 1% in Q3 of 2022 that jumped to 8%.

Speaker 3

So you'll see variations like that. I don't necessarily see anything in 2023's results. That's going to drive great variation. So it's more against the comparisons, of course, other than broad economy and that magical timing of when the recession might actually hit. But given that it is expected to be mild, you're not going to see shocks like we did in 2020 In Q2 when the world just shut down, not Gunwood.

Operator

And that was our final question.

Speaker 2

Well, I'd like to thank everybody for your attention today. Please feel free to reach out to our Investor Relations team with any questions and have a great day and thank you for your time.

Operator

Thank you all for participating in the Pfizer 4th quarter 2022 earnings conference call. That concludes the call for today. Please disconnect at this time and have a great rest of your day.

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