Fiserv Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Shub Mukherjee, Senior Vice President, Investor Relations
• Frank Bisignano, President, Chief Executive Officer
• Robert Hau, Chief Financial Officer

Analysts

• Tien-Tsin Huang, JP Morgan Cazenove
• Lisa Ellis, MoffettNathanson
• Darrin Peller, Wolfe Research
• David Koning, Robert W. Baird.
• Jason Kupferberg, Bank of America Merrill Lynch
• Ramsey El-Assal, Barclays PLC
• James Faucette, Morgan Stanley
• Jamie Friedman, Susquehanna Bancshares, Inc.

Presentation

[Operator]

Welcome to the Fiserv 2022 First Quarter Earnings Conference Call. [Operator Instructions] At this time, I will turn the call over to Shub Mukherjee, Senior Vice President of Investor Relations at Fiserv.

[Shub Mukherjee, Senior Vice President, Investor Relations at Fiserv]

Thank you and good morning. With me on the call today are Frank Bisignano, our President and Chief Executive Officer and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call. Along along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about among other matters expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results, and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now over to Frank.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Thank you, Shub, and thank you all for listening in as we share our results for the quarter, and highlight the progress against our growth agenda. As you know, we serve as the operating system for commerce and money movement across our client base of banks, credit, unions fintechs and businesses ranging from SMBs to mid market to large enterprises. We help our clients grow by extending our platform to capture new services and new money for others. Our relentless pursuit of innovation for our clients has placed us on the list of the world's most innovative companies by Fast Company for the second consecutive year.

We've entered 2022 its strong momentum we delivered 11% total company organic revenue growth in the first quarter. We expanded adjusted operating margin by 60 basis points to 32%. We also achieved 20% adjusted EPS growth to $1.40. We attained $40 million of actioned revenue synergies in the quarter, reaching $520 million since the merger 87% of the increase commitment of $600 million for the 5-year period following the merger and now expect to hit that goal by the end of this year. As we shared with you on our year-end 2021 earnings call, we concluded our cost synergy program having actioned the promised $1.2 billion of synergies since the closing of the merger.

As we invested to accelerate growth, free cash flow came in at $603 million. The outperformance on the top and bottom line versus our full year guidance ranges, puts us in a good position to meet or exceed our full year outlook. As we evaluate the year ahead, we believe it is prudent to you with our 2022 guidance unchanged, given the uncertain macroeconomic backdrop with high inflation rising interest rates and geopolitical issues. 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 $6.50, representing growth of 15% to 17% for 2022.

Now turning to our business strategy. Fiserv solutions are geared towards merchants and financial institutions, including fintechs. Starting with merchants. We are transforming from selling merchants individual point solutions to offering operating systems. Clover for small to medium-sized merchants and Carat for large enterprises. This is 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 three ways. First, attracting more merchants through our operating systems. Second, expanding the relationship we have with our merchants by encouraging adoption of more software and services modules, and third, benefiting from their organic growth of our existing customer base.

Turning to our financial institution clients, we remain steadfast in our commitment to continuously innovate for our clients and broadening our total addressable market. In early April, we closed the acquisition of fintech, a leading developer of cloud native banking solutions. We have already seen a tremendous amount of interest in the platform from existing and new clients. We believe, this acquisition will augment our ability to enrich and accelerate the delivery of digital solutions to existing clients, as well as broaden our client base to include large financial institutions and fintechs through banking as a service and embedded finance opportunities.

We advanced our strategic focus on data and analytics. This quarter, we announced partnerships with Equifax, Finicity and MX which will utilize our vast and highly valuable real-time data to create insights to strengthen and create new offerings across fraud, risk and market. While early in the journey, we expect data and analytics to be a new growth driver for us. Next, diving deeper into our performance in the quarter by Business segment, let me start with Merchant Acceptance. We posted a very strong organic revenue growth of 20% year-over-year. Global merchant volume and transactions grew 11% and 8% respectively.

Our global active merchant accounts grew 6% year-over-year to the first quarter continuing the positive trend since the start of 2021. Results were strong across all regions. North America was led by strength in SMBs, particularly within the restaurant vertical, as well as strength in enterprise verticals such as travel and petro.

Spending across MA is strong in the quarter as restrictions were lifted in the UK and the Netherlands in early January, followed by Ireland, Poland and Germany later in the quarter. Travel is particularly strong followed by restaurants and hospitality. Our merchant business in LATAM was also very strong in the quarter. We made significant progress in on-boarding merchants to exclusive Merchant Acquiring mandate from Caixa in Brazil with a 140,000 merchants currently on-boarded. In just one year, since I agreement we are also expanding our presence rapidly in Mexico and Colombia.

Spending trends in APAC were very strong, as key markets such as India and Australia continue to resume normalcy. Fueling discretionary spend in verticals such as travel, retail and restaurants. In addition to the cyclical rebound the region has continued to win and implement new business. Moving to our merchant operating systems, Clover and Carat continue to gain significant traction with clients. Clover global revenue grew 39% in the quarter, driven by volume growth of 39% as well as close to 200 basis points of sequential growth in software and services penetration of revenue to 15%.

We continue to make progress on our vertical focus. Starting with restaurants the integration of BentoBox into Clover is well underway. And the early proof points in both lease conversion rate and ARPU are all very positive. Within the services and retail verticals we are offering merchants leading solutions to address key business functions through a combination of pre-installed apps and tailored vertical SaaS offerings. Carat 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 e-com acquiring included a card-not-present acquiring mandate, to the leading fantasy sports, players DraftKings an extension of our long-standing omnichannel partnership with Checkpoint a mandate for fast food brand choosing my subs.

With the new payment flows tariffs leadership and digital payouts contingents with a doubling of disbursement volume processed in the quarter. During the quarter, we extended our contract with Coinbase to support their launch of an AFT marketplace. We are making rapid inroads into the high growth markets such as payment facilitators and platforms. The November acquisition of NetPay gives us a differentiated solution in the market, including fully managed onboarding risk and funding services to support these high growth platform businesses.

We have seen rapid growth in this end market with new clients signing nearly doubling transactions in the past year. Finally, before closing out the Merchant segment, an update on the progress of our point of sale lending offering. Our strategy all along has been to leverage our position as the operating platform for businesses, small, medium and large to offer a range of buy now pay later options. We are simplifying the merchant experience through an integration into the Carat operating system for large enterprises and enabling the NPL app downloads through the Clover app market for small and mid-size 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 and in easy to manage cost effective way.

Moving to the Payments and Network segment, organic revenue grew 5% 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 10% versus Q1 of last year. This growth was driven by new business onboarding and our favorable credit environment. We fully Genesis Financial onto our platform in the quarter, which, along with the onboarding of Atlanticus last year. Marci, onboarding of two of the three 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 the year ago. We've seen impressive growth in engagement metrics across OFIs driven by our market leading digital solutions like CardHub SpendTrack our loyalty platform and our AI-based fraud system. These surrounds not only greatly enhance the competitiveness of our credit and debit card processing offering, but also serve to drive more cars into our debit network and more opportunities for Fiserv to offer a 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 US. Bank and Regions Bank. Additionally this summer, we will launch a revamp 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 clients synchronous spanning across issuer processing bank services and Merchant Acquiring reinforcing our commitment to providing best-in-class solutions to our clients. We continue to win credit processing mandates globally. In the first quarter, we signed new instalment loan provider West Citi Financial in Canada. The debit wins in the quarter included a processing win extending our relationship with KeyBank, and in integrated debit processing network and digital surround solutions win with Heritage Federal Credit Union, a $900 million asset size client.

These wins showcase the breadth and reach of our debit processing capabilities spanning from smaller credit unions to some of the nation's largest financial institutions. We also continue to show the power of our enterprise offering, and our competitive advantage when working with fintechs. This quarter, we signed an enterprise agreement with a new digital financial services company across bank services, credit and debit processing and output services. We will also fully onboard Bread Financial, previously known as Alliance Data for a card processing in the second quarter of this year. The tailwinds from our large grade implementation recent debit wins like KeyBanc this quarter Chime in Great Southern over the last couple of quarters and the investments in our digital surround solutions gives us confidence to continued growth in Payments and Network segment.

Moving to Financial Technology segment, we posted strong organic revenue growth of 6% in the quarter. We had 12 core wins in the quarter, including 4 competitive takeaways. Sales of digital surround solutions continue to grow at a healthy clip, driven by the increased digital focus about 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 SpendTrack 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 for embedded finance and banking as a service.

The wind spin of our strategy is our open finance initiative. In the third quarter of 2021, we launched our new developer boilm The Developer Studio a platform for exposing our micro service APIs for the developer community with the goal of becoming a destination of choice for the embedded finance ecosystem including card-issuing and processing, merchant and core banking integrations. Our banking as a service capability enables financial institutions to expose modern fintech solutions to their client base to increase engagement and relevance while extending their reach in 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 banking as a service and embedded finance due to our footprint of community financial institutions and breadth of banking and payment capabilities. Now, let me pass the discussion to Bob for more detail on our financial results.

[Robert Hau, Chief Financial Officer at Fiserv]

Thank you Frank, and good morning everyone. I'll cover some additional operating detail on our three 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%. Total company adjusted revenue grew 10% to over $3.9 billion. Adjusted operating income was up 12% to $1.2 billion and adjusted operating margin expanded 60 basis point32% in line with our expectations. As a reminder, we delivered 360 basis points of margin expansion in the year ago quarter resulting a 420 basis points of expansion over the last two years. We reaffirm our outlook to deliver at least 150 basis points of adjusted margin expansion for the year.

First quarter adjusted earnings per share increased 20% to $1.40 free cash flow was $603 million for the quarter, resulting in a conversion rate of 65% driven by a combination of first, increased capital expenditures in the areas of technology and integration of newly acquired capabilities. Second, increased working capital investment driven by revenue growth including growth in anticipation revenue in Latin America. Third, increased hardware inventory to minimize any potential disruption to our clients given the supply constraints. And finally, timing factors impacting cash from one quarter to the next, we reaffirm our outlook to achieve 95% to 100% free cash flow conversion for the full year.

Now looking to our segment results starting on slide 5. Organic revenue growth in the Merchant Acceptance segment was a very strong 20% in the quarter. Adjusted revenue growth was 18% year-over-year. Global merchant volume and transactions grew 11% and 8% respectively. Excluding the loss of a processing client mid-last year global merchant volume and transactions grew 15% and 10% in the quarter, respectively.

Clover, our operating system for small and medium-sized businesses continues to build on the strength of its product offering to attract and retain more merchants and expand relationships with them. In the quarter Clover posted a strong 39% revenue growth and quarterly GPV was $49 billion or $197 billion on an annualized basis of 39% or ISV volume in the quarter through Clover Connect grew 1% year-over-year. We signed 44 ISVs this quarter. Carat our omni commerce operating system for enterprise clients grew revenue 20% in the first quarter.

Adjusted operating income in the Acceptance segment increased 21% to $470 million and adjusted operating margin was up 70 basis points to 28% 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 fourth quarter of 2021 earnings call the impact of the sale is estimated to be under 50 basis points of total company adjusted revenue and is fully contemplated in our full-year 2022 outlook.

Turning to slide 6, the Payments and Network segment posted organic revenue growth of 5% in the quarter with their guided range of 5% to 8% for the year. As expected, our credit issuer solutions business saw strong growth, driven by the growth in credit active accounts on file, as well as the impact of new clients coming on board. Our debit processing and network businesses continue 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 the 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 million and adjusted operating margin was up 110 basis points to 42.5% in the quarter.

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

The 2022 adjusted effective tax rate should continue at the same quarterly pacing as last year and is expected to be approximately 21% for the full year. Additionally, we returned $500 million to shareholders through share repurchases, this quarter. We have more than 37 million shares of repurchase authorization remaining. Total debt outstanding was $21 billion on March 31, and the debt to adjusted EBITDA ratio decreased to 3.0 times, as we approach our target leverage level. Turning to a new slide, slide 8, we highlight our balance sheet performance and capital allocation results over time. We've made meaningful strides to lower our debt to adjusted EBITDA ratio by over half a turn from Q1 last year, and a full turn since the merger.

Over the last two years we've generated $7 billion of free cash flow, and have allocated $4.9 billion towards a combination of M&A and share repurchases, representing 5% of shares outstanding. Additionally, we have deployed $2.1 billion over that time towards debt repayment and integrations, both of which are expected to significantly decline as we completed the integration of the First Data and Fiserv merger at the end of last year and approach our goal of under 3 times debt to adjusted EBITDA leverage.

This will allow us to allocate even more capital to value creating acquisitions, and share repurchase. Finally, turning to slide 9. Although we outperform an adjusted revenue and EPS for the first quarter, we feel it's prudent to keep our 2022 outlook unchanged, given that it is still early in the year and the macroeconomic backdrop remains uncertain. With that let me turn the call back to Frank.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

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 into our employee and community engagement strategies. In the first quarter in addition to the Fast Company's most innovative recognition, I mentioned earlier, Fiserv was named as a 2022 great place to work in Argentina, Uruguay, Colombia and Mexico. For the second consecutive year Fiserv has been designated by events indexes as a 5-star employer. In addition, our Nenagh technology center and Ireland has been recognized as a great way to work for the fourth consecutive year. Fiserv has activated several initiatives in response to Russia's invasion of Ukraine, including financial grants for our associates, direct donations to local not-for-profit organizations and other humanitarian programs for civilians just voiced in the region.

We've also activated a matching donation campaign and support of American Red Cross efforts. A quick note that our 2021 CSR report will be finalized and published in the coming weeks. As I close, I would like to thank of 40,000 plus hardworking associates around the world for working relentlessly to service our clients and you our shareholders. With that, operator, please open the line for questions.

Questions and Answers

[Operator]

Thank you. We would now like to open the lines for questions [Operator Instructions] Our first question will come from the line of Tien-Tsin Huang from JP Morgan. Please go ahead.

[Tien-Tsin Huang, Analyst at JP Morgan Cazenove]

Hey, thanks so much. And a couple of questions. The first one on the Acceptance segment. Obviously very strong there. It looks like volume growth matched these, but the revenue growth did exceed that. So what's driving the higher revenues spread the volume in this quarter? And what should we expect here going, going through the balance of the year? I had a quick follow-up if you don't mind.

[Robert Hau, Chief Financial Officer at Fiserv]

Yeah. Since then, I think there is like we saw in previous quarters, there are a number of differences between our volume and as volumes in the international mix and cross-border mix, etc., etc. So, as you say, 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 in the last couple of quarters, the amount that has been a little bit weaker this quarter, it's quite strong. I think there's a lot of variation in there and it's one of the things we continue to point to that and 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 continuing in Clover good growth in Carat and across the board having a 20% organic revenue growth for the segment in the quarter is a great start to the year.

[Tien-Tsin Huang, Analyst at JP Morgan Cazenove]

Yeah, no, good outcome their Bob. So let me ask my quick follow-up just on the free cash conversion that I heard the CapEx then opportunistically buying some terminals here but you're keeping the, the full year and then if I too heard the same. So what's the, what's the outlook for some of the moving pieces here to drive that confidence and getting to that 95% to 100% for the full year?

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

I think it's Frank. First of all, it was way more than physical terminal to know it was from the dealing parts also, and we thought it was very prudent and smart move to buy ahead into 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 our confidence on margin also, we see the ability to grow and expand margins as part of the confidence story going forward. And obviously, these are ebbs and flows quarter to quarter also and timing of capital. So I think about those manners. We feel great about the growth, we feel good about now ability to expand the margins so it's still good about the visibility of what we bought ahead is actually try growth and not have that expenditure going forward.

[Tien-Tsin Huang, Analyst at JP Morgan Cazenove]

Understood. Thank you.

[Operator]

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

[Lisa Ellis, Analyst at MoffettNathanson]

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 a pandemic. Can you just parse those apart, a little bit. Meaning what was sort of one timer's 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.

[Robert Hau, Chief Financial Officer at Fiserv]

So within the Payments segment stimulus certainly created a tough compare to Q1 of last year with our prepaid business. And as we saw really late '20 and into '21 a consumer shift of credit to debit, which we think was stimulus driven and we're now starting to see that kind of revert back mean or to norm with more move to credits and it is debit because as you know, we get paid on a per transaction basis on the debit side, but on a credit processing side in the Payments segment were pay down gross active accounts.

And so that we're seeing a nice lift in the number of accounts. But the transaction shift from debit, credit doesn't manifest itself in revenue directly. So good growth in our credit business this quarter versus Q1 still had growth in debit, but not as high as we had all of last year. Debit Q1 of last year was quite weak and came back throughout the year and the bill-pay and biller side, we've actually seen an improvement of the headwind, so it's still an issue for us. 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 the bill-pay biller business but also in payments overall. And course as we now have implemented two of the big three credit issuers with the third one going live here late second quarter, you'll see accelerating growth from the credit issuer side of the business.

[Lisa Ellis, Analyst at MoffettNathanson]

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

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

No, it's. It's a new revenue stream we. We've always believed that we had a data advantage. And you know we, we did some things organizationally. Maybe you remember at the top of the house where we did talent against it and it is manifesting itself. We have a pretty good road map to capabilities to offer to our clients and then to jointly offer with partners and combining capabilities, that is why we believe when we come into the latter part of this year and then going into next year a completely new revenue stream with high margins in those capabilities and providing real-time data and providing decisioning data and that's what we have right now.

We do see the opportunity, as we've said in marketing and other information. We yet haven't proved out that proof of concept, yet, but the others have improved and we expect to be in market at the later part of this year.

[Lisa Ellis, Analyst at MoffettNathanson]

Terrific, thank you.

[Robert Hau, Chief Financial Officer at Fiserv]

Thanks, Lisa.

[Operator]

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

[Darrin Peller, Analyst at Wolfe Research]

Hey, thanks guys. First on the growth side, on the top line. I just wanted to touch on both, first on Fintech segment. When we look at the, the growth it does seem like mid-single digit seem pretty resilient now. And on top of the fintech acquisition and what that can do. 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, prices escalator is potentially built in what extent do you expect to push those through this year and can that also contribute?

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

I'll talk about. I think I think team in fintech and their maniacally focused on have some decline in growth is showing up. We have an expectation that we will get to these type the level and relate it out in December 2020 and I think the action plan of the team and the product innovation and bringing all the components of the company where we think we have a strategic advantage or guidance to where we are today. I think our digital assets play very, very well. So I'm talking about the surrounds our ability to have a good digital lens really is a strategic advantage. And then you saw us do things like bring Ondot into mobility, which also is one of the client offering and all when that all comes together in the client's office it gets us to where they are today.

I think, thinking beyond today Fintech is very strategic. It -- as we had said, we think it expands our TAM capability, and we think over the long-haul combo of all assets plus Fintech of ours to get to other markets we were adjusting before. So, when you're looking at it we feel great about the job the team has done the fintech acquisitions you know 20-plus days closed and that's moving along very, very well. The integration of the team and the ability 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 it totality of our current business, our digital offerings at our future digital offerings and expanding the total addressable market we were addressing around that segment.

[Robert Hau, Chief Financial Officer at Fiserv]

And then in terms of CPI we do get particularly in our core account processing business, typical contract does allow for and annual CPI changes. Those are very typically annual items. 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, but that is fully baked into to 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.

[Darrin Peller, Analyst at Wolfe Research]

Guys, one quick follow-up. That's helpful thanks. But, Frank, just from an M&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 is 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? Thanks again, guys.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Yeah, I think we've demonstrated a pretty balanced approach to capital allocation both if you look at what we do is fintech or you look at will be done with BentoBox or Ondot and you will find all of them really leaning into helping our clients grow their business, what their clients and digital framework. So I put that out there, because it is largely about addressing new markets, new opportunities and how, in fact we help our clients grow their business which in fact would become beneficiary of them also. And you should expect that mindset around future acquisitions, which is another form of investing for growth. This is and Bob talk through that 29% over the last 24 months of the capital allocation when into merger and integration expense and debt pay downs and that capital is now deployed all and obviously we will continue to having better growth rate.

And I think you should expect that we will use the same methodology investing for growth, where we believe, we can leverage our assets, inside the house to bring other market opportunities and we'll be buyback the shares opportunistically and returning those dollars to our shareholders, as we always have in China through methodology. And we feel great about what we've done so far on capital allocation. I hope you guys stick to and we feel even stronger about it going forward.

[Operator]

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

[David Koning, Analyst at Robert W. Baird.]

Yeah, hey guys, great job.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Thanks, Dave.

[David Koning, Analyst at Robert W. Baird.]

And I guess, yeah, yeah. 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, all those things contributing are all those fair assumptions and then that 11.5% question?

[Robert Hau, Chief Financial Officer at Fiserv]

So I, from a quarterly flow obviously first quarter closing after going through that merchant conference we put up a 20% number. So we certainly don't expect 11.5% every year or 11.5% every quarter. Obviously a great first quarter out of a five-year projection. What's left to do in very good shape in terms of executing on the multiple elements of growth that we talked about during that conference Clover and Carat continue to perform well continue to invest in new capabilities there. So I feel like we're off to a great start. Of course that conference I think was in early March. So, we're early in the process but we're in 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 distributions system. Our global reach and geography. Frank talked about his prepared remarks how 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.

[David Koning, Analyst at Robert W. Baird.]

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

[Robert Hau, Chief Financial Officer at Fiserv]

Yeah, that's exactly where we're at. And I believe we said in prepared remarks. And we are up 60 basis points for the first quarter. That's right in line with our internal expectations. And obviously your internal expectations have us achieving the 150 for the full year, and we continue to execute and it's not really quarter-on-quarter hockey stick, it's a matter of the tempo of the business. We did, as you know, significant amount of integration work in 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 and we still have some of those projects going on as we finish up the what two plus years now since we merged that will ease in over the next couple of quarters, those costs will be reduced 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.

[David Koning, Analyst at Robert W. Baird.]

Yeah. Sounds great. Thanks guys, good job.

[Robert Hau, Chief Financial Officer at Fiserv]

Thanks, Dave.

[Operator]

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

[Jason Kupferberg, Analyst at Bank of America Merrill Lynch]

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 coming down the pike. But just so that our expectations are calibrated properly. I know you're talking about the medium-term range of 5% to 8% being good for this year, but should we think about more the lower half to maybe the midpoint. Just given that we're starting the year at 5%. I just want to make sure that we've kind of got the right cadence in our thought process because I know the comps get tougher from here on out.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Comps are getting tougher but pipeline comes in over time, too. And I think, we talked about the elements of it, obviously we've talked about whole bunch moving into this year that's the $120 million issuer wins and beginning to see in our numbers. We also feel the assets very, very strong assets and you heard us talk about a change in direction on bill pay from where we were a year ago.

So we, so we don't feel at all that we're will end in low-end of the range on that in the go forward.

[Jason Kupferberg, Analyst at Bank of America Merrill Lynch]

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

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Yeah, well you won't. You know I'm not going to talk lot more, but you won't see anything in this year's numbers so we change structurally, our growth rate. Obviously these are long cycle sales but the go-to-market strategy has multi-problems. One is the ability to bring to our clients today a digital side card if they want to, if they want to build a crypto or digital bank ability we have the ability to do that. So that expense the TAM of what we can do, having doing that given the fact that team folks you won't see anything in the economics for this year, but that's one element of it.

The second element is as you know, the combination of DNA and fintech together being able to bring on more offering to a number of clients different manner. The third is standing up fintechs and digital banks and other and then in finance. And you hear us talk about our open finance initiative and how well fintech complements that. And then you know I think fintech has a great demonstration of the client base that they sold into that in some cases would be larger than where maybe a lifetime sweet spot was. But you should expect that to be even more TAM opportunities. We go to market together in a very conservative fashion. And when in the assets on our surrounds all come to becomes a very, very strong offering. I think Joe you'll see that growth in the outer years not in this year, but you should expect to be highly accretive to our growth rate over time.

[Jason Kupferberg, Analyst at Bank of America Merrill Lynch]

Okay, that's great.

[Robert Hau, Chief Financial Officer at Fiserv]

Just hit the point, online revenues this year. Of course it would all be inorganic so it is, it wouldn't impact our 7% and 9% for the total company or the 4% to 6% for the Fintech segment.

[Jason Kupferberg, Analyst at Bank of America Merrill Lynch]

Right. Thanks, Bob.

[Robert Hau, Chief Financial Officer at Fiserv]

But overall very small from an adjusted revenue standpoint also. Okay, thank you.

[Operator]

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

[Ramsey El-Assal, Analyst at Barclays]

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 from tailwind to headwind? Any kind of clues that the robust spending levels that we've seen it will prove sustainable.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

I mean. I would say if you looked at April, it fundamentally looked the same was maybe some places and in our more, some places have a little less. Obviously areas like petro services and restaurants are holding up at the same level maybe a little bit time travel and retail. But clearly, we've been conscious of the consumer. And you know as we think about the future, we factor that what would happen if this slowdown did occur and naturally I said our prepared launch. 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.

[Ramsey El-Assal, Analyst at Barclays]

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

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Yeah, I think it's, really about the user experience. It's all about the user experience about giving the capabilities that we're refreshing in that environment. It allows our bank partners to then to be able to actually increase their bill pay capabilities with there clients. So remember, we're always focused when you hear it in my M&A comment you here it in 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 would be the most modern you can touch that will allow much more ability for that end-user to be able to navigate versus what they had before.

And our banks and us believe that change as we've completely built-it without banks in mind then their conversation believe that it allows allows them to get more user more user capability which will equal more usage and higher engagement by the client base.

[Ramsey El-Assal, Analyst at Barclays]

Got it. Alright. Well, thanks so much. Appreciate it.

[Operator]

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

[James Faucette, Analyst at Morgan Stanley]

Thank you very much. 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, etc. So just what's your feel right now for opportunity sets there? And are you seeing any changes or improvements in appetite?

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Yeah, you know, have spent a fair amount of times majority of the spending of banks around these assets and now having been here. What I find is that the appetite is very, very strong. The appetite being strong means if they think that digital capabilities. If they can serve their clients better if we believe that the change is actually going to help them grow, and do a better job, they're completely committed we've seen a lot of those DNA wins. We've seen it from, small too tall is I would like to say. And the addition of fintech in my mind just has opened a lot of our current bank size and a lot of our non-bank that we're not serving in that space size towards the capabilities, we can bring to them in the here and now, so I find it to be a tremendously encouraging time for that business.

[James Faucette, Analyst at Morgan Stanley]

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 fintech acquisition, and we think about M&A. Is there 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 where 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?

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Well, I think you know fintech was a very, very big acquisition, which gave us in my opinion, the most modern platform in the industries that can tremendously scale. So, I think that was very important, and sets us up for long haul. If you go back to my comments earlier, I think we're very focused on helping our clients grow in places where not warrant or we're not in manner. If you look at BentoBox, it allows us to move to be in the front of the store capability. What that does the ARPU for us in our restaurant business is very, very strong. And so you should expect us to deploy our capital in acquisitions, more in the space of how to better serve our clients in markets that were not collecting revenue so investing for growth, as opposed to the back-end synergies, and really a digital eye on all of them.

[James Faucette, Analyst at Morgan Stanley]

That's great color. Thanks. Oh, sorry Bob.

[Robert Hau, Chief Financial Officer at Fiserv]

Yes. The one thing I'd add is, I guess, I don't think about it not only Frank thinks about it as, which should we do and 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 it takes 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 the benefit in our Payments segment. And ultimately as Frank pointed out, it's all about how can we better serve our customers so they can better serve their customers.

[James Faucette, Analyst at Morgan Stanley]

That's great color. Gentlemen, thank you very much.

[Robert Hau, Chief Financial Officer at Fiserv]

Great, thank you.

[Operator]

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

[Jamie Friedman, Analyst at Susquehanna Bancshares]

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

[Robert Hau, Chief Financial Officer at Fiserv]

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 do we benefit by having more cash in the U.S. consumer, but we actually helped put the cash into the consumer, i.e. we issued the cars 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 and we feel good about the overall growth of the business, and we expect all three of our segments to continue to perform well.

[Jamie Friedman, Analyst at Susquehanna Bancshares]

Any similar comment about the Q2 margin expectation?

[Robert Hau, Chief Financial Officer at Fiserv]

Yeah. We talked a little bit about this earlier. We get various flows we actually I think has said this back in Q4 when we first gave the 150 basis, these 150 basis points expansion for the full year because of some of the timing of the 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 with obviously you still improve this quarter, in fact all the better than we expected at 60 basis points, but you'll see us reach that 150 for the full year, throughout the year but more expansive I guess, in the second half.

[Jamie Friedman, Analyst at Susquehanna Bancshares]

Got it. Thanks for the color.

[Robert Hau, Chief Financial Officer at Fiserv]

Sure.

[Frank Bisignano, President, Chief Executive Officer at Fiserv]

Thank you. Thank you everybody for your attention today. Please feel free to reach out 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. Thank you all for participating in the Fiserv '22 First Quarter Earnings Conference Call. [Operator Closing Remarks]