Fiserv Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2022

Key Takeaways

  • Strong Q1 results: 11% organic revenue growth, 20% adjusted EPS growth to $1.40, and 60 bps adjusted operating margin expansion to 32%, with $603 million of free cash flow.
  • Merchant Acceptance up 20%: Global merchant volume grew 11% year-over-year, while Clover revenue jumped 39% and Carat omni-commerce systems secured new enterprise mandates.
  • Payments & Networks growth: 5% organic revenue increase driven by a 10% rise in credit accounts on file, 40% growth in Zelle transactions, and onboarding major credit processors like Genesis Financial.
  • FinTech segment momentum: 6% organic revenue growth, bolstered by the Finzact cloud-core acquisition and new open-finance/API partnerships targeting embedded finance and banking-as-a-service.
  • Guidance reaffirmed: Full-year 2022 outlook maintained at 7–9% organic revenue growth and 15–17% adjusted EPS growth, with the $600 million revenue synergy goal expected by year-end and leverage at 3.0× EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
Fiserv Q1 2022
00:00 / 00:00

There are 12 speakers on the call.

Operator

As a reminder, today's call is being recorded. At this time, I will turn the call over to Shoop Mukherjee, Senior Vice President of Investor Relations at Fiserv.

Speaker 1

Thank you, and good morning. With me on the call today are Frank Bisignano, our President and Chief Executive Officer and Bob Haupp, 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.

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, Shu. 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 We help our clients grow by extending our platform to capture new services and new money blows. 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 2nd consecutive year. We've entered 2022 with strong momentum.

Speaker 2

We delivered 11% total company organic revenue growth in the Q1. We expanded adjusted operating margin by 60 basis points to 32%. We also achieved 20% adjusted EPS growth to $1.40 We attained $40,000,000 of actioned revenue synergies in the quarter, reaching $520,000,000 since the merger. 87% of the increased commitment of $600,000,000 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 $1,200,000,000 of synergies since the closing of the merger.

Speaker 2

As we invested to accelerate growth, free cash flow came in At $603,000,000 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% Now turning to our business strategy. Fiserv's solutions are geared towards merchants and financial institutions, Including FinTechs.

Speaker 2

Starting with merchants, we are transforming from selling merchants individual point solutions To offering operating systems, Clover for small to medium sized merchants and Carrot 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. 1st, attracting more merchants to our operating systems. 2nd, 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.

Speaker 2

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 FinTech, a leading developer of cloud solutions. We have already seen a tremendous amount of interest in the platform from existing and new 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.

Speaker 2

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% 8%, respectively. Our global active merchant accounts grew 6% year over year in the Q1, continuing a positive trend since the start of 2021. Results were strong across all regions.

Speaker 2

North America Spending across EMEA was strong in the quarter as restrictions were lifted in the U. In 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 Exclusive merchant acquiring mandate from Cascia in Brazil with 140,000 merchants currently on boarded. Ending 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 restaurants.

Speaker 2

In addition to the sickle who rebound, the region has continued to win and implement new business. Moving to our merchant operating systems. Clover and Carrot continued to gain significant traction with clients. Clover 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.

Speaker 2

Starting with restaurants, The integration of Bento Box 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. Tarett, our 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 ecom acquiring including a card not present acquiring mandate for the leading fantasy sports player DraftKings, An extension of our long standing omni channel partnership with Chick Fil A, A mandate for fast food brand, Jersey Mike's Subs.

Speaker 2

Within new payment flows, Harrods leadership in 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 on boarding, risk and funding services to support these high growth platform businesses. We have seen rapid growth in this end market with new clients signings nearly doubling transactions in the past year.

Speaker 2

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 Carrot operating system for large enterprises and enabling DNPL 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.

Speaker 2

This growth was enabled by a variety of drivers across our business lines. Our North American credit 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 on to our platform in the quarter, Which along with the onboarding of Atlanticus last year marks 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 Excel and debit processing businesses, driven by new wins despite the stimulus induced tough growth comparisons in a year ago.

Speaker 2

We've seen impressive growth in engagement metrics across OFIs, driven by our market leading digital solutions like Cardhub, SpendTrak, 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.

Speaker 2

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.

Speaker 2

We continue to win credit processing mandates globally. In the 1st quarter, we signed a new installment loan provider, Flexity Financial in Canada.

Speaker 3

The debit wins in the quarter included a processing win extending our relationship with KeyBanc and an integrated debit

Speaker 2

And an integrated debit processing,

Speaker 3

network and Digital Surround Solutions win with Heritage Federal Credit Union,

Speaker 2

a $900,000,000 asset size client.

Speaker 3

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.

Speaker 2

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 Q2 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 the continued growth in Payments and Networks segment. Moving to the Financial Technology segment, We posted strong organic revenue growth of 6% in the quarter.

Speaker 2

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 ABILITY, 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 SpendTrak thereby creating stickier clients. The competitive landscape continues to evolve quickly and we believe that our FinTech strategy combined with FinTech's modern core capabilities Positions us uniquely to offer a full stack of offerings aimed at expanding the addressable market

Speaker 4

for

Speaker 2

Embedded Finance and Banking as a Service. The winchpin of our FinTech strategy is our open finance initiative. In the Q3 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 modern FinTech solutions to their client base to increase engagement and relevance while extending their reach And the 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

Speaker 5

Thank you, Frank, and good morning, everyone. I'll cover some additional operating detail on our 3 segments. If you're 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%.

Speaker 5

Total company adjusted revenue grew 10% to over $3,900,000,000 Adjusted operating income was up 12% to $1,200,000,000 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 4.20 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. 1st quarter adjusted earnings per share increased 20% to $1.40 Free cash flow was $603,000,000 for the quarter, resulting in a conversion rate of 65%, Driven by a combination of 1st, increased capital expenditures in the areas of technology and integration of newly acquired capabilities 2nd, increased working capital investment driven by revenue growth, including growth in anticipation revenue in Latin America. 3rd, increased hardware inventory to minimize any potential disruption to our clients given supply constraints.

Speaker 5

And finally, timing factors impacting cash from 1 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.

Speaker 5

Global Merchant volume and transactions grew 11% 8%, respectively. Excluding the loss of a processing client mid last year, Global merchant volume and transactions grew 15% 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 $49,000,000,000 or $197,000,000,000 on an annualized basis of 39%. Our ISV volume in the quarter through Clover Connect grew 51% year over year.

Speaker 5

We signed 44 ISVs this quarter. Karat, our omni commerce operating system for enterprise clients grew revenue 20% in the Q1. Adjusted operating income in the Acceptance segment increased 21 percent to $470,000,000 And adjusted operating margin was up 70 basis points to 28.4 percent 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 in the Q4 2021 earnings call, the impact of this sale is estimated to be under 50 basis points Our total company adjusted revenue is fully contemplated in our full year 2022 outlook.

Speaker 5

Turning to Slide 6, the Payments and Networks segment posted organic revenue growth of 5% in the quarter within our guided range of 5% to 8% 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 on board. 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 Zelle 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 $625,000,000 and adjusted operating margin was up 110 basis to 42.5% in the quarter.

Speaker 5

Turning to Slide 7. The Financial Technology segment organic revenue grew 6% in the Q1, including 100 basis points from periodic revenue. Adjusted operating income was up 12% in the quarter $275,000,000 resulting in adjusted operating margin expansion of 200 basis points to 35.4 percent. The adjusted corporate operating loss was $122,000,000 in the quarter, in line with the average of the last four quarters. The adjusted effective tax rate for the quarter was 17.3%, 10 basis points higher than last year.

Speaker 5

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 $500,000,000 to shareholders through share repurchases this quarter. We have more than 37,000,000 shares of repurchase authorization remaining. Total debt outstanding was $21,000,000,000 on March 31st And the debt to adjusted EBITDA ratio decreased to 3.0 times as we approach our target leverage level. Turning to a new slide, Slide 8.

Speaker 5

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 half a turn from Q1 last year and a full turn since the merger. Over the last 2 years, we've generated $7,000,000,000 of free cash flow and have allocated $4,900,000,000 Towards a combination of M and A and share repurchases, representing 5% of shares outstanding. Additionally, we have deployed $2,100,000,000 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 3 times debt to adjusted EBITDA leverage. This will allow us to allocate even more capital to value creating acquisitions and share repurchase.

Speaker 5

Finally, turning to Slide 9. Although we outperformed on adjusted revenue and EPS for the Q1, 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.

Speaker 2

Thanks, Bob. I'm 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 And to our employee and community engagement strategies. In the Q1, in addition To the Fast Company Most Innovative Recognition I mentioned earlier, Fiserv For the 2nd consecutive year, Fiserv has been designated by Vets 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.

Speaker 2

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 With that, operator, please open the line for questions.

Operator

Thank you. We would now like to open the lines Our first question will come from the line of Tien Tsin Huang from JPMorgan. Please go ahead.

Speaker 6

Hey, thanks so much. Had a couple of questions. The first one on the Acceptance segment, obviously very strong there. It looks like volume growth matched visas, But the revenue growth did exceed that. So what's driving the higher revenue spread to volume This quarter and what should we expect here going through the balance of the year?

Speaker 6

I had a quick follow-up if you don't mind.

Speaker 5

Yes, Tim, I think there's like we saw in previous quarters, there are a number of differences between our volumes And Visa's volumes in the international mix and cross border mix, etcetera, etcetera. So as you said, we're in line from a volume standpoint. We had good revenue growth overall, as we've talked. Yield is a metric that ebbs and flows quarter to quarter the last Couple of quarters, the math has been a little bit weaker. This quarter, it's quite strong.

Speaker 5

I think there's a lot of variation And it's one of the things we continue to point to that we're quite focused on revenue growth and margin expansion, A little less so on the yield because of that quarterly variation. Clearly, very pleased with the performance of our Merchant segment with good Very strong growth, we're continuing in clover, good growth in carat and across the board, 20% organic revenue growth for the segment in the quarter is a great start to the year.

Speaker 6

Yes. No, 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, the 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.

Speaker 3

I think it's Frank. First of all, it was way more than physical terminals. It was important parts also. And we thought it was a very prudent and smart move to buy ahead into the supply chain given the volume Opportunities we have across the board, which drive growth. So that would be clearly in the one timer Inventory category, obviously, we see, as we reiterate, Confidence on margin also, we see the ability to grow and expand margins as part of The confidence story going forward.

Speaker 3

And obviously, these are ebbs and flows quarter to quarter also And timing of capital. So I think about it in those manners. We feel great about the growth. We feel good about our ability to And the margins, so we feel good about the ability of what we want ahead to actually drive growth and not have that expenditure going forward.

Speaker 6

Understood. Thank you.

Operator

Thank you. Our next question comes from Lisa Ellis from MoffettNathanson. Please go ahead.

Speaker 7

Good morning. Thank you. 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.

Speaker 7

Can you just parse those apart a little bit, meaning what was sort of one timers 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. Thank you.

Speaker 5

Sure, Lee. 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 2020 and into 2021, a consumer shift of credit to debit, which we think was stimulus driven. And 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. And 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 payment 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 and credit doesn't manifest itself in revenue directly.

Speaker 5

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 on the bill pay and biller side, We've actually seen an improvement of the headwinds. So it's still an issue for us.

Speaker 5

And we talked to a Couple of things that we see, things beginning to improve over probably the last two quarters, The rate of growth decline has improved quite a bit. And as we go live with the 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 And of course, as we now have implemented 2 of the big three Credit issuers with the 3rd one going live here late Q2, you'll see accelerating growth from the credit issuer side of the business.

Speaker 7

Got it. Okay. A quick just follow-up maybe for Frank on the new I guess You highlight around advanced data and analytics with these partnerships with Equifax and Synicity, etcetera. Can you just give maybe a little bit of color or examples Of the types of offerings there and is this a new revenue stream or is this more of a win rate Stickiness dynamic in the bank base, just elaborate a bit.

Speaker 3

No, no. It's a new revenue 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 dedicated Talent against it and it is manifesting itself. We have a pretty good road map Two 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 and providing real time data and providing decisioning data, And that's what we have right now. We do see the opportunity, as we said, in marketing and other We 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 part

Speaker 7

Terrific. Thank you.

Operator

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

Speaker 8

Hey, thanks guys. First on the growth side on the top line, I just want to touch on both, first the FinTech When we look at the growth, it does seem like mid single digits seem pretty resilient now. And on top of the Finxact acquisition and what I'd love to hear more thoughts on what that can actually do to add to business given the pipelines you're seeing. But CPI price escalator is potentially built in. What extent do you expect to push those through this year and can that also contribute?

Speaker 6

So I

Speaker 3

want to talk about I think the team in FinTech and their maniacal focus on how to serve the client Growth is showing up. We had an expectation that we would get to these type of levels. And when we laid it out in December of 2020, and I think the action plans with that team and the product innovation and Bringing all the components of the company, where we think we have a strategic advantage and showing guidance to where we are today. I think our digital assets play very, very well. So when I talk about those surrounds, our ability to have a good Digital lens really is a strategic advantage.

Speaker 3

And then you saw us do things like Bring On Dot into mobility, which also is a one of a kind offering. And when that all comes together in the client's office, It gets us to where we are today. I think thinking beyond today, FinTech is very strategic. As we had said, we think it expands our TAM capability. And we think Over the long haul, the combo of our assets plus FinTech allow us to get to other markets we've only tattooed before.

Speaker 3

So when you look at it, we feel great about the job the team has done. The FinTech acquisitions, 20 plus B is closed and that's moving along very, very well, the integration of the team and the We need to deliver what we expect over the next few years from that. We have clear line of sight, we believe, and I think that's how we think about the totality of our current business, our digital offerings and our future digital offerings And expanding the total addressable market that we were addressing around that

Speaker 5

And then Darren, in terms of CPI, we do get typically in our core account processing business, typical Contract does allow for annual CPI changes. Those are A very typically annual item. So at the end of the year, we calculate the CPI Index and apply it to the next year's billing. And contracts vary. Some have caps, some have full CPI, and it varies across the board.

Speaker 5

But that is fully baked into First of all, our guidance, you're seeing it in the Q1 results. And because it's an annual bill, it's locked for the year.

Speaker 8

Guys, one quick follow-up. That's helpful. Thanks. But Frank, just from an M and A standpoint, when we think about what you just said, the leverage level now below 3, Obviously, opportunistic buybacks make a ton of sense, but at the same time, there's definitely valuations coming in across the market. So Can you just revisit your preference in terms of capital allocation going forward and what types of assets?

Speaker 8

Thanks again, guys.

Speaker 3

Yes. I think we've demonstrated a pretty balanced approach to our capital Allocation both if you look at what we did with FinZac or you look at what we've done with Bentovox or And you 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 It is largely about addressing new markets, new opportunities and how in fact we help our clients grow their business, which in fact will become the beneficiary also. And you should expect that mindset around future acquisitions, which is It's 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 to into merger and integration expense and then pay downs and That capital is now deployable and obviously we will continue to have a better growth rate.

Speaker 3

And I think you should expect that We will use the same methodology of investing from 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 And returning those dollars to our shareholders as we always have in the tried and true methodology. And we feel kind of great about what we've done so far on capital allocation. I hope you guys do too and we feel even

Operator

Our next question comes from Dave Koenig from Baird. Please go ahead.

Speaker 4

Yes. Hey guys, great job. And I guess my first question, you had the investor meeting a few handful of weeks ago And talked about 11.5% growth in merchant. Should over time, should we expect that every quarter of the year? And I guess Kind of behind that, it seems like we're entering a period maybe we'll get into smaller tickets, inflation, pricing seems to be getting better in the industry now.

Speaker 4

All those things contributing, Are all those fair assumptions and then that 11.5% question?

Speaker 5

So from Quarterly flow statement, obviously, Q1 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 Carrot continue to Perform well. I would continue to invest in new capabilities there. So I feel like we're off to a great start.

Speaker 5

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 Our global reach and geography, Frank talked about in his prepared remarks, Well, cash 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.

Speaker 4

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?

Speaker 5

Yes. That's exactly where we're at. And I believe we said in prepared remarks, we're up 60 basis points for the Q1. That's right in line with our internal expectations. And Obviously, our internal expectations have us achieving the 150 for the full year, and we continue to execute.

Speaker 5

And it's not really Hockey stick, it's a matter of the tempo of the business. We did, as you know, significant amount of integration work The last couple of years, we ended merger and integration treatment, I. E, we're no longer adding back To our adjusted results for merger and acquisition merger and integration spending, but we still have some of those projects Going on as we finish up, the what 2 plus years now since we merged, that will ease in over the next couple of quarters. Those costs will And we'll continue to get good growth and fall through to the business. So you'll see the 150 come in over the course of the year.

Speaker 4

Yes, sounds great. Thanks guys. Good job.

Speaker 5

Thanks, David.

Operator

Next, we'll go to the line of Jason Kupferberg From Bank of America, please go ahead.

Speaker 9

Good morning, guys. Thanks. 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 Since they're calibrated properly, I know you're talking about the medium term range of 5% to 8% being good for this year.

Speaker 9

But Should we think about more of the lower half to maybe the midpoint just given that we're starting the year at 5? 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.

Speaker 3

Comps do get tougher, but pipeline It comes in over time too. And I think we talked about the elements of it. Obviously, we've talked a whole bunch way into this year About $120,000,000 of issuance and you'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.

Speaker 3

So we felt we don't feel at all that we're at the low end in

Speaker 9

Okay. That's good to hear. And just a follow-up on the FinZACT 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?

Speaker 3

Yes. Well, you won't I'm not going to talk about more, but you won't see anything in This year's numbers that would change structurally our growth rate. Obviously, these are long cycle sales. But The go to market strategy has multi prongs. One is the ability to bring to our clients today A digital sidecar if they want to.

Speaker 3

If they want to build a crypto or digital bank capability, we have The ability to do that, so that expands the TAM of what we could do. Having doing that, given the fact that people, You won't see anything in the economics for this year, but that's one element of it. The second element is the combination of DNA and FinTech together being able to bring an unavoidable offering to a number of clients in a The third is standing up Fintechs and Digital Banks and other embedded finance. And you

Speaker 5

hear us talk

Speaker 3

about our open Finance initiative and how well FinTech complements that. And then I think FinTech has a great demonstration of the current base that they've sold into that in some cases would be larger Where maybe that lifetime sweet spot was, but you should expect that to be more TAM opportunity. We go to market together in a very conservative fashion. And when the assets on our surrounds all come to it, it becomes a very, very strong offering. I think you'll See that growth in the outer years, not in this year, but you should expect it to be highly accretive to our Okay.

Speaker 5

And just to hit the point home on revenue this year, Of course, it would all be inorganic. So it is it wouldn't impact our 7% to 9% for The total company or the 4% to 6% for the FinTech segment.

Speaker 9

Right. Thanks, Bob.

Speaker 5

But overall, very small from an adjusted revenue standpoint

Speaker 9

Okay. Thank you.

Operator

Next, we'll go to the line of Ramsey El Assert from Barclays, please go ahead.

Speaker 10

Hi. Thanks so much for taking my question this morning. 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?

Speaker 3

Well, I mean, I would say if you looked at April, it fundamentally looks the Same with maybe some places having a little more, some places having a little less. Obviously, areas like Petro Services and Restaurants are Holding up at the same level, maybe a little bit on travel and retail. But clearly, we've been conscious of the Consumer and as we think about the future, we factored in what would happen Yes, this slowdown did occur and that's really, as in our prepared remarks, we talked about our prudence and prudent Management around the thought process. So very little change right now, but We're guarded. We're very guarded and we're managing it in a guarded fashion.

Speaker 10

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.

Speaker 3

Yes. I think it's really about the user experience. It's all about the user experience, about giving them capabilities that we're refreshing in that environment. It Allows our bank partners to then be able to actually increase their bill pay capability with their So remember, we're always focused and you hear it in my M and A comments, you hear it And how we run the business on how we give our client the opportunity to do more business with their clients. So think about it as a very good, easy, usable front end that actually will be the most modern Our banks and us believe that changed because we've completely built it without banks in mind and their conversation I believe that it allows them to get more user capability, which will equal more usage and Higher engagement by the client base.

Speaker 10

Got it. All right. Thanks so much. Appreciate it.

Operator

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

Speaker 11

Thank you very much. I wanted to Touch on the FinTech segment first. Just, obviously the and try to get a sense of Appetite of banks to spend and continue to upgrade their systems, especially given what looks to be a Strong earnings period and potential for them as interest rates change, etcetera. So just what's your feel right now for And are you seeing any changes or improvements in appetite?

Speaker 3

Yes. Having spent a fair amount of time in charge of the And the banks around these assets and now having been here, what I find is that the appetite is very, very Sure. 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.

Speaker 3

We've seen it from small to tall, as I would like to say. And The addition of FinZac, in my mind, just has opened a lot of our current bank size And a lot of our non banks that we're not serving in that space lies towards The capabilities we can bring to them in the here and now, so to speak. So I find it to be a tremendously encouraging time for that business.

Speaker 11

Got it. Got it. And as you think about obviously, there's lots of Focus always on the merchant business and that kind of thing. But consistent with the FinZac acquisition and when you think about M and A, is there A place where you feel like, okay, we need to prioritize if we're going to look at potential acquisitions on merchant versus fintech or Based on what you're seeing traction and where you feel like there's opportunity, are you leaning in one direction or another As you're evaluating acquisitions.

Speaker 3

Well, I think FinTech was a very, very big acquisition, Which gave us, in my opinion, the most modern platform in the industry that can tremendously scale. So I think that that was very important and sets us up for the long haul. If you go back to my comments earlier, I think we're very focused on helping our clients grow in places we're not We're not in manner. If you look at Bento Box, it allows us to move to be the front of the store capability. What that does to ARPU for us in our restaurant business is very, very strong.

Speaker 3

And so you should expect us to deploy our capital and acquisitions more in the space of how to Better serve our clients in markets that we're not collecting revenue, so investing for growth as opposed to back end synergies and really a digital eye on all of it.

Speaker 11

That's great.

Speaker 8

Sorry, Bob.

Speaker 5

Yes. 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. And 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 payment segment.

Speaker 5

And ultimately, as Frank pointed out, it's all about how We better serve our customers so that they can better serve their customers.

Speaker 11

That's great color, gentlemen. Thank you very much.

Speaker 5

Great. Thank you.

Operator

And our final question comes from Jamie Friedman from Susquehanna. Please go ahead.

Speaker 4

Hi, thank you. 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 2022. For example, are there any standouts That we should be aware of from the Q2 of 2021 like periodic or anything else that we should keep in mind?

Speaker 5

I guess the thing to think about is 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 by having more cash into the U. S. Consumer, but we actually helped Put the cash into the consumer, I. E, we issued the cards.

Speaker 5

That was a Q1 activity. And then Q2 and Q3, we saw and Q4, for that matter, We saw the benefit of the consumer 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, In particular, very strong merchant business, but that was off of a recovery of 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.

Speaker 4

Any similar comment about the Q2 margin expectation?

Speaker 5

Yes, we talked a little bit about this earlier. We get various flows. We actually, I think, said this back in Q4 when we first gave the 150 basis at least 100 and basis points expansion for the full year, because of some

Speaker 11

of the timing of the

Speaker 5

investments we're making, because of the Ramping down of some of the integration work that we're no longer adding back from an adjusted operating margin standpoint, You'll see margins improve in the second half. Obviously, we still improved this quarter, in fact, a little bit better than we expected at 60 basis points, but you'll see us reach that 150 basis points for the full year throughout the year, but more Expansive, I guess, in the second half. Got it. Thanks for the color.

Speaker 6

Sure.

Speaker 3

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.

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