Fiserv Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2022

Key Takeaways

  • Fiserv raised its full-year 2022 guidance to 11% organic revenue growth and $6.48–$6.55 adjusted EPS, driven by stronger-than-expected momentum and execution.
  • The Payments & Networks segment delivered 11% organic revenue growth and a 190 bp margin expansion to 45.9%, powered by new large issuer contracts and AI-driven fraud management.
  • Merchant Acceptance achieved 14% organic revenue growth, outpacing its 9–12% target, fueled by new Clover offerings, retail vertical pilots, and major wins at sports and fuel merchants.
  • Fiserv introduced a Data-as-a-Service solution in partnership with Snowflake to give clients near-real-time access to payments data, now in pilot with a large energy company and a mid-Atlantic bank.
  • The Financial Technologies segment grew just 1% organically in Q3 due to timing of product implementations and professional services revenue, though it remains on track for its 4–6% full-year goal.
AI Generated. May Contain Errors.
Earnings Conference Call
Fiserv Q3 2022
00:00 / 00:00

There are 12 speakers on the call.

Operator

Welcome to the Fiserv Third Quarter 2022 Quarter Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over question comes from Julie Sherriell, Senior Vice President of Investor Relations at Fiserv.

Speaker 1

Thank you, and good morning. With me on the call today are Frank Visagnano, our Chairman, President and Chief Executive Officer and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non GAAP financial measures discussed on this call, along with a reconciliation of those measures 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 You should refer to our earnings release for a discussion of these risk factors.

Speaker 1

And now, over to Frank.

Speaker 2

Thank you, Julie. Before I begin, let me again welcome Julie to the team. As we announced last quarter, should move to a new role as the Head of Strategy. Julie joins us from Bloomberg, where she was a senior equity analyst covering the Fintech Welcome to your first Fiserv earnings call, Julie. Turning to the results.

Speaker 2

Overall, I am very pleased with yet another quarter of double digit growth in both organic revenue and adjusted EPS. We continue to demonstrate the strength of our client base, depth of our partnerships and resilience of our businesses. Consumers activated more cards, continued to spend and were issued new credit. Merchants financial institutions upgraded their systems and invested in new products to better compete and capture efficiencies. In the early days of the Q4, we are seeing the same trends continue.

Speaker 2

We grew adjusted revenue 8% with organic revenue up 11%, at the top end of our full year 2022 guidance range. Adjusted operating margin of 35.2 percent was up 100 basis points year over year, expanded 170 basis points sequentially and was consistent with our internal modeling. Adjusted EPS of $1.63 included an $0.08 foreign exchange headwind versus last year, which is $0.03 more than we anticipated 90 days ago. As we look forward, But as a global and diverse business, we are well prepared to capitalize in any market environment. Based on continued momentum, strong execution and near term visibility, We are raising our revenue guidance at a high end of the range for this year to 11% organic and raising our adjusted EPS to $6.48 to $6.55 Clearly, we are executing well beyond our legacy as a mid single digit top line grower.

Speaker 2

Based on the actions we've taken and the investments we've made, I remain confident that we can achieve faster growth

Speaker 3

question comes

Speaker 2

from the line of Fiserv and First Data in July 2019, We envision an industry leading combination with a complete set of strong payments and FinTech capabilities How being a diversified company that serves merchants and financial institutions, large and small, Across all payment types is the winning strategy. We believe we're already demonstrating this through market share gains, Faster growth and expanding margins in the 3rd quarter is another proof point of the power of this team question and answer session of assets and capabilities. 3rd quarter highlights the continuing momentum in our Payments and Networks segment with organic revenue growth of 11% and adjusted operating margin expanding 190 basis points to 45.9%. Our Issuer Solutions business, which includes credit processing for large issuers and Card and Statement Services was particularly strong. Issuer Solutions contracts With 3 of the top 25 North American credit card issuers within the last 2 years, a testament to our single platform that delivers a full suite of digital capabilities.

Speaker 2

We can trace our success here directly to the investment we've made AI based fraud management, cardholder experience technology via the On Dot acquisition, Since we began combining Fiserv and First Data, we made a decision to pursue the opportunity in the government vertical With its large TAM and multiple use cases that span merchant, issuer and output services. We began investing in the solutions, people and infrastructure, and the strategy is now playing out. Since announcing this win last quarter, we were awarded another contract with the California State Comptroller for cards supporting various disbursement needs. We work with 5 other states to disperse question and process their unemployment benefit cards. The pipeline remains large and this vertical is traditionally quite resilient the investing in innovation is a constant across our business, and nowhere are the benefits more evident Then in our Merchant Acceptance business.

Speaker 2

We had another strong quarter for Merchant, growing organic revenue 14%, Once again outpacing our medium term guidance of 9% to 12%. At Clover, we rolled out several new products This quarter, we'll be piloting an expanded retail vertical offering With additional horizontal value added services, including an integration with accounting and business software. Our vertical solutions are resonating. In September, Clover Sports signed an agreement with Caesars Superdome and the Smoothie King Center in New Orleans, adding to its base of over 250 professional and college level sports venues. Clover will streamline purchasing at concession stands, premium bars and clubs with digital contactless and self-service purchasing.

Speaker 2

We will also provide 3rd party integration to related services and real time data insights. Our enterprise omnichannel operating system launched new money flows and continued to lead the market in payout We launched more instances of our multi purse wallet, a white label solution Fiserv was a Merchant Acquirer of the Year by the Merchant Payments Ecosystem Awards As I mentioned earlier this year, data is an emerging business for us, and it spans both merchant and financial institution clients. We're excited to announce our new data as a service offering in September, partnering with Snowflake. Fiserv will enable customers to access their payments data in near real time to better inform business decisions. By leveraging Snowflake's secure data sharing, customers can now seamlessly and securely access and integrate their data, A large energy company is just one type of client already in pilot.

Speaker 2

Financial institutions are excited by our data as a service offering as well. Carter Bank, A $4,000,000,000 Mid Atlantic Community Bank is in an open data pilot with us to consolidate and connect All data across the enterprise. Many banks tell us they spend too much time trying to source, Vizerv and non Vizerv systems to fully understand their customers down to the branch level. FinTech performance was lower than normal this quarter at 1% organic revenue growth, but generated 4% growth year to date and is on track to meet our organic growth guidance of 4% to 6%. This is a consistent business, but timing of product additions, new business implementations and professional services revenue And we have good line of sight to full year revenue in the medium term guidance range.

Speaker 2

We remain encouraged by our visibility here After signing 14 core wins in the quarter, with 9 being competitive takeaways spread across large banks, new banks, Fintechs, Community Banks and Credit Unions. Earlier this year, Webster Bank acquired Fiserv client Sterling Bank To create a $65,000,000,000 Northeast Regional. In the quarter, Webster chose Fiserv as its core account processing platform with multiples around spanning our FinTech and payments offering. We've talked about the strategic importance of FinTech, a leading cloud banking core today, With 11 clients already in production, after just 6 months under our umbrella, FinZac is attracting strong interest from both new and existing Fiserv clients. With 2 large new client wins in the quarter, FinZac will become the cloud based core platform for 2 more emerging online banks.

Speaker 2

And just yesterday, we entered into a new agreement with Zenith to power this global digital bank's first to market solution running FinTech On the Microsoft Azure Cloud. Looking forward, there's plenty of uncertainty around what 2023 will bring. We are currently in the planning phase, but have already taken steps to ensure we are prepared for a softer macroeconomic environment. We are fortunate to have a well diversified business with high recurring revenue and a strong balance sheet. Bob will talk more about these factors shortly, The Payments segment has successfully capitalized on industry trends that are enabling strong growth.

Speaker 2

I call out 4 major trends that are responsible not only for the strong growth we are seeing now, but a robust pipeline for the coming year. 1st, cardholders continue to expect better payment experiences and more issuers look to our platforms such as better digital, fraud and loyalty capabilities, all of which offer us attractive cross sell opportunities. 2nd, the addressable market is growing. Segments such as healthcare, education and government have also been actively entering the card issuing and lending space. 3rd, demand for plastic solution remains high As issuers compete heavily for new volume, finally, the card payments environment has remained active.

Speaker 2

2 regulation led opportunities. First, the Fed announced That is real time network FedNow would go live in mid-twenty 23. Fiserv has been part of the FedNow pilot, We enable financial institutions and eventually billers and merchants to integrate with a variety of real time services and networks throughout single connection. 2nd, earlier this month, The Federal Reserve finalized a clarification to Reg II that the dual network requirement for debit applies for all transaction types, including card not present. Fiserv believes this will promote market competition, Our debit networks, Star and Excel support card not present transactions, but many factors will influence In merchant acceptance, the uncertain macro environment has merchants large and small looking to optimize the value in their operations.

Speaker 2

In some cases, this has increased their desire for a single full service provider over fragmented specialists, And fraud is presenting more value added service opportunities as well. In fact, we've won a few deals to enable pay by bank, One of our large petro merchants, Sunoco, with 5,500 locations was just one such win in the 3rd quarter With the e commerce penetration returning to a more normal growth trend, card present solutions are in focus customer is looking to us here. This includes leading Petro and Grocery merchants In our FinTech business, banks are managing through the macro uncertainty with a focus on serving existing customers and improving operational efficiency. Two areas where we provide a number of important products and services that offer a way to grow accounts FinZac, our new cloud native modern banking platform A leading example is our partnership with 1 Finance, supporting their growth initiatives in retail. We can offer them faster time to market with greater flexibility and scalability plus

Speaker 4

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I will cover additional detail on total company 3rd quarter results showed continued strength and the benefit of our broad portfolio. Total company organic revenue growth was 11% in the quarter with continued momentum in merchant acceptance, a nice step up in growth in our Payments and Network segment Year to date, total company organic revenue grew 11%, led by the Merchant Acceptance segment, which grew question comes from the line of John. 3rd quarter total company adjusted revenue grew 8% to $4,300,000,000 and adjusted operating income grew 11% to $1,500,000,000 resulting in an adjusted operating margin of 35.2%, an increase of 100 basis points versus the prior year. As Frank mentioned, Margins improved sequentially 170 basis points from the 2nd quarter on 1% higher revenue and 2% lower expenses.

Speaker 4

For the 1st 9 months of the year, adjusted revenue grew 9% to $12,400,000,000 and adjusted Operating income increased 10% to $4,200,000,000 resulting in an adjusted operating margin of 33.6 40 basis points ahead of the prior year period. The adjusted operating margin for the quarter was impacted by several factors, including: first, investments related to new acquisitions, including BentoBox and FinZac second, the significant strengthening of the U. S. Dollar, particularly in September and third, the net impact of inflation on our revenue, offset by costs for both labor and material. As we've previously said, we expect significant adjusted operating margin expansion in the 4th quarter.

Speaker 4

We have 4 factors driving this improvement. First, the benefits of the final ramp down of prior integration expenses and resulting productivity benefits. 2nd, in the latter part of the Q3, we began taking some cost actions to tighten spending in light of the continued uncertain macroeconomic conditions 3rd, as part of our ongoing strategic review, we divested our Korea business These factors should deliver our full year guidance for at least 100 basis point improvement and sets us up well for 2023. 3rd quarter adjusted earnings per share increased 11% to $1.63 Year to date through September 30, adjusted earnings per share increased 14% to $4.59 Free cash flow came in at $849,000,000 for the quarter $2,100,000,000 for the 1st 9 months of the year. Free cash flow conversion was 81% of adjusted net income this quarter, well ahead of prior year and first half levels.

Speaker 4

Like the Q4 of 2021, we expect a significant ramp in free cash flow and free cash flow conversion in the last quarter of the year. With this higher organic revenue growth outlook and execution on cost actions that support continued adjusted operating margin expansion, We are raising our full year adjusted EPS guidance range to a new range of $6.48 to $6.55 representing growth of 16% to 17% over 2021, at the high end of our original 15% to 17% guide. This includes significant strengthening of the U. S. Dollar, which leads to an additional $0.06 of unfavorable foreign exchange impact in the 3rd 4th quarters Q4 relative to our expectations just 90 days ago.

Speaker 4

While we anticipate greater than 100% conversion of free cash flow in the 4th quarter, We continue to anticipate strong revenue growth as indicated by another increase in our organic revenue outlook. We have real investment opportunities We now expect full year free cash flow conversion to be approximately 85%. Now looking to our segment results starting on Slide 5. Organic revenue growth in the Merchant Acceptance segment was a healthy 14% in the quarter 17% year to date. Adjusted revenue growth in the quarter was 9% 14% for the 1st 9 months, well ahead of the medium term segment guidance question comes from the line of 9% to 12%.

Speaker 4

Merchant volume and transactions grew 10% and 5%, respectively, excluding the loss of a processing client mid last year. Activity was consistent in North America with some deceleration in Europe. We see new opportunity with the launch of our Deutsche Bank joint venture in the quarter. Turning to our merchant operating systems Clover and Karat, we continue to see gains across key metrics, including net new merchant adds, value added services penetration and partner relationships. Clover revenue grew 19 21%.

Speaker 4

Software and services penetration reached 15% of total revenue, an increase of over 2 60 basis points from last year and up 30 basis points sequentially with strength in assets like Clover Capital. Clover Connect for ISVs momentum with very strong revenue growth in the quarter as we continue to execute on our vertical strategies, adding 37 ISV partners. We won key clients away from competition such as Salon Ultimate Software, A comprehensive solution for salons and spas. Another PayFac win in the quarter was Tempus, which expands our presence in the healthcare vertical. We focused on our integration of BentoBox and rounded out our restaurant offering with the acquisition of NextTable for reservations, providing an opportunity to expand ARPU beyond the average increase of 2 to 3 times, which we see for merchants using BentoBox We delivered on our new innovations and signed agreements with Sunoco to launch Pay by Bank and with Subway's digital acquiring business in Puerto Rico Operating income in Acceptance segment increased 11% to $610,000,000 in the quarter and adjusted operating margin was impact of acquisitions and divestitures as well as FX.

Speaker 4

Year to date, adjusted operating income improved 14% to $1,700,000,000 And adjusted operating margin grew 20 basis points to 30.8%. Turning to Slide 6, on the Payments and Networks segment, Organic revenue grew 11% in the quarter, above the high end of the 5% to 8% medium term guidance range. 19% versus Q3 of last year. This growth was driven by both new business onboarding and a favorable credit environment. Our international issuing business grew strong double digits driven by macroeconomic improvement as well as the onboarding of new clients.

Speaker 4

And our debit business continues to post solid growth, driven by new client wins on our debit networks, STAR and XL. We are pleased with several wins among Fintechs in the quarter as well, including one with Papaya for e bill distribution. Papaya is an app provider that brings billers and consumers together for a better bill pay experience. Year to date, organic revenue grew 8% And we expect the momentum in this segment to continue through the rest of the year, resulting in full year organic revenue growth at or above the top end of our medium term outlook range of 5% to 8%. Adjusted operating income for the segment was up 14% to $744,000,000 and adjusted operating margin was up 190 basis points to 45.9 percent, driven by strong operating leverage.

Speaker 4

Year to date, adjusted operating income was up 9% to $2,000,000,000 and adjusted operating margin was up 70 basis points versus last year at 44.1%. Moving to Slide 7. In the Financial Technologies segment, we posted 1% organic revenue growth for the quarter and 4% year to date, within our 4% to 6% medium term guidance range. The non recurring portions of this business, including new product implementation work and professional services, Meanwhile, customer momentum continues and we had 14 core wins in the quarter, including 9 competitive takeaways. Adjusted operating income was down 5% in the quarter to $261,000,000 and up 3% 34.1 percent in the quarter, driven by investment in FinZac and timing of periodic revenue.

Speaker 4

Year to date, the segment's adjusted operating margin declined 50 basis points to 34.8%. The adjusted corporate operating loss was $109,000,000 in the quarter, a slight improvement from the first half run rate question and $356,000,000 year to date. The adjusted effective tax rate in the quarter was 20.9% and was 19.8% year to date. We expect the full year 2022 adjusted effective tax rate to be approximately 20%. Total debt outstanding was $21,400,000,000 On September 30, the debt to adjusted EBITDA ratio dropped another 10th of a turn to 2.9 times, reaching our target leverage of being below 3 times, which we set when we announced our merger.

Speaker 4

During the quarter, we stepped up our share repurchases, buying back $750,000,000 worth of our stock. We had 24,500,000 shares remaining authorized So far in October, we are fully committed to our long standing capital allocation strategy, which includes investing in our business organically, With that, let me turn the call back to Frank.

Speaker 2

Thanks, Bob. Let me wrap up with an update question

Speaker 3

comes from the line

Speaker 2

of our progress on ESG and our portal platform. Since the release of our most recent CSR report the Q2. We have seen positive momentum in our ESG ratings at MSCI, Refinitiv and SMP CSA and significant increases In our ISS quality scores, we have submitted our CDP survey for the 2nd year. These improvements are attributable to our improved ESG programming, framework alignment As an uncertain year ahead, Fiserv is well positioned for the long haul. We've made the investments in product, So let me take a minute to discuss our people.

Speaker 2

We are grateful for our dedicated workforce, This made it particularly gratifying when we were ranked number 6 The index measures how well these companies foster economic mobility This index is one indicator that shows we are well positioned to compete for talent. Our hybrid workforce strategy is greatly enhanced by world class facilities and closed over 70 facilities in the past 2 years. This morning, we announced our new location Our Global headquarters in Downtown Milwaukee. Last month, we opened the largest FinTech hub on the East Coast, Our innovation center in Berkeley Heights, New Jersey, where we anticipate LEED Platinum certification. This followed a major upgrade of both our production and office facilities in Omaha, Nebraska.

Speaker 2

We are opening new and expanded facilities in Dublin, Ireland and Sao Paulo, Brazil And are working towards LEED certification in these facilities after achieving LEED Gold status in New York. While the spending will ease in 2023, we are already reaping the rewards I will close by thanking our more than 40,000 hardworking Fiserv

Operator

questions. Our first question will come from Lisa Ellis from MoffettNathanson. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking my questions. First one, just Bob, it's for you. On free cash flow, can you just elaborate a bit on what changed, I guess, relative to 90 days ago that caused you to sustainable level of free cash flow conversion is for Pfizer, realizing that there were some unusual items in this year in 2022? Thank you.

Speaker 3

Yes. Good morning, Lisa. Thank you. So I guess a couple of things. 1, in terms of the adjustment in our outlook the question comes from the line of John.

Speaker 3

I think I would point to a couple of things. One is we continue to see Good opportunities to invest for future growth. Obviously, we're seeing an impact in the current year from 11% growth rate, that puts pressure on working capital as you grow the top line. You have more receivables, But we're also carrying more inventory. One of the things that has persisted longer than we had anticipated China around getting point of sale devices, etcetera.

Speaker 3

And We continue to ensure that we have availability of product and can support our client base with having a product point of sale product. We also have some new geographies and new clients that are bringing on Clover and other point of sale devices. So we continue to invest in that. You see our capital spending around new product development, software cap. We continue to see good opportunities, so we're driving for sustainable, very high single, perhaps even low double digit growth Investments around the acquisitions of FinZac, On Dot, Bento Box.

Speaker 3

We've made the question comes from the line of David. Okay. In terms of long term Sustainability, I'm not prepared to give guidance for 2023, but we've certainly seen in the last 2 years, 2021 and 2022, a pretty significant step function change in our growth rate, 11% last year, which Granted, this is against the COVID adjusted prior year, but 11% this year, bending that curve, so to speak, from companies that were Mid single digits and perhaps generously mid single digits pre merger, now double digits. You're going to see something less than 100 Okay. All right.

Speaker 5

And then my follow-up, Frank, for you. In your prepared remarks Commenting in regards to Carrot. You highlighted that many merchants find that the in store, the card present component of acquiring Omnichannel acquiring is often the more complicated part. Can you just elaborate on this? I think this is a question we get often just question related to how to think about omni channel acquiring and the tricky aspects of executing that

Speaker 6

Good to hear from you, Lisa. I think we always had For e commerce transactions and then we veered into the front end of the business and Sure. Connected hardware, connected systems, as companies evolve and want many question comes from the line of Karen Long Term. And when we look at current long term, you see us also talking about wallet that puts more product in there. It could be loyalty, it could be prepaid, it could be repaved.

Speaker 6

So how it bring all that So we're pretty excited. We've built it out. The use cases are there. We So it's been strategic. We came from a different place than others.

Speaker 6

We came with

Operator

Terrific. Thank you. Next, we'll go to the line of David Togut from Evercore ISI. Please go ahead.

Speaker 7

Thank you. Good morning. Bob, could you dig into your commentary around the bridge to 2022 margins, Particularly your actions to tighten spending in the Q3. Can you bracket for us what the annualized cost savings from these actions might be?

Speaker 3

Sure, Dave. Good morning. So a couple of things from a margin standpoint. If you recall actually going back to 1st quarter earnings call, which we reiterated in the 2nd quarter earnings. We've expected since beginning of the year that our margin would accelerate into the second half of the year.

Speaker 3

That acceleration was largely driven by Carryover integration spending that we used to back in 2021 adjust out as merger and integration spending. Our company policy says you do that through the end of last year, and any projects that are continuing No longer get adjusted out of our earnings, and so we had some cost flow into the P and L at the beginning of the year that we knew those projects were Improvement in investment or lower spending on those projects, plus you get the benefit of the projects being done, I. E. Those Generate a return, generate productivity, and so you get a double bang in the second half of the year, and in particular, Those projects again have largely been completed at the end of Q3. We'll see that come down in Q4 and get The second piece of growth in margin is basic productivity, I.

Speaker 3

E. Non merger related, non integration, what we used to refer to as operational excellence, rolling through the business. Some of that is Very basic productivity, 6 Sigma, leaning out your spending sort of a thing. Some of it is the fact that we've now We opened our offices and our associate base is returning to the office, increasing our collaboration. Frank talked about the location work that we've done in creating large hubs like the Berkeley Heights facility in North Central New Jersey that Final two things that will drive margin in the Q4.

Speaker 3

1 is scale. As you know, an incremental dollar of revenue in this company comes through at higher than company average growth, given the fixed cost nature of the company, and so we feel good about 3 small units that we sold at the end of Q3, you'll see the benefit of 4th. Q3 over Q2, We expanded margins 170 basis points. Obviously, if you do the math, we've got a big expansion expected in the 4th quarter. But quite frankly, if you look over the last 5 or 6 quarters, right in line with what we've done in the past, 300, 400, even 500 basis point margin improvement in a number of quarters in the last 6, 8 quarters.

Speaker 3

So, feel good about our ability to generate At least 100 basis points for the full year.

Speaker 7

Thanks for that. Just a quick follow-up on the Clover revenue growth, which stepped down a little bit

Speaker 3

Q1 of 2019. Sure, David. Yes, I guess the fastest The largest thing to think about is the 19% number that we showed in our prepared remarks and in the slides. That's a reported number. Obviously, FX had a pretty significant impact in the entire company, actually in all companies In Q3, if you were to currency adjust that number, you'd probably pick up 3 points, maybe even 4 points of growth.

Speaker 3

Plus, as you recall, in Q1 of this year, We technically generated about $175,000,000 of cash. So on an organic basis, that clover growth is More in line with the 25% that we've talked about as part of our long range expectation of growing Clover to at least $3,500,000,000

Speaker 6

Yes. I would add there. We talked about 3.5 We're in normal compares and we're at 14% right now for the segment. I also think the work we're doing on value added services and it will keep inching up and moving up as you saw It's a key driver here. We continue to grow the merchant base, Grow VLTV, grow the ARPU and we feel highly confident Exactly what we said in March, and I think it's playing out right now exactly as planned.

Speaker 6

Our sequential growth has Very high. And I think so if you look at it, ex what Bob talked about and just looked at the business case

Operator

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

Speaker 8

If we break down the merchant growth rate again, 14% is obviously somewhat industry leading growth and yet the volume growth I think was 10%. If you could just remind us, are the components all the same as to what's really Driving that outperformance on overall growth and the spread between revenue and volume, if that's something that you see sustainable, what's driving that? Obviously Clover and Cara continue to do well, but how is international? How is the SMB versus enterprise? And Frank, just any patterns you're seeing change, if any, in the consumer behavior would be great.

Speaker 6

We like to say, hey, we don't really talk about yield, we talk about revenue. I know you've heard us be consistently beating that drumbeat. We decided to beat that drug deal, but we're on the right side of that curve. So you didn't think we used it as a walk away I think the investment you see us putting into this business And that investments from sales to infrastructure to product development is really driving the number. I think you heard us announce partnerships across the board and even more today even as we talk more about Deutsche.

Speaker 6

But then the ISVs. I think our business mix, which we You said at the start of the pandemic that we had this tremendously balanced mix. We had the best It's fabulous. Geographic reach It's still playing out and that really is what's driving our growth number and our volume number. We did not have a

Speaker 3

great

Speaker 6

quarter in the European theater, Retailers to the pizza store in Brooklyn, as you know, I like to talk about my own town, really show us through in the model. I think the work in Clover and the building of the value added services Franchise, I think Clover and you've always been supportive of it from the start, has proved out its merit And you're seeing it come through. I'd say the only other thing I'd add is our Franchises in Brazil, in Argentina continue to win and grow as does our U. S. Franchise.

Speaker 6

So, value added services, omni channel and growth in verticals like restaurants international, that was our story in the beginning of the pandemic and that's our story Coming out of it and we're having a margin discussion and We're fully confident where we're going to be there. I would note that merchant has the largest margin it's ever had this

Speaker 8

quarter

Speaker 6

also and That's a testimony to our leadership and that business is driving it and the outcomes is getting.

Speaker 8

Okay. Thanks, Brent. Just a quick follow-up on the Payments segment. Just the strong, strong growth, obviously, the accounts and the issuer side was strong and the credit card and the new wins. But if If you could just comment on what's happening in some of the other aspects of the business, whether it's bill payments or it's the network, just and what kind of Aspects of that growth is sustainable versus maybe once we anniversary the new wins, is there more to go?

Speaker 8

Thanks, guys.

Speaker 6

Yes. I mean, we had talked about this, the wins, the onboarding of the wins, the growing. I'd like to frequently go back to Investor Day where we talked about this incredible pipeline, which at the time felt like It was a once in a lifetime event, meaning you win 3 the top 25 issuers. And that part was a one time event, but that pipeline It's the same size and shape as it was back in 2020. And the building out of healthcare and Government verticals, investment in education, all bode very well distribute payments in a card based fashion and having probably the best capability in the industry around that.

Speaker 6

Thanks,

Speaker 3

Vern. Next,

Operator

we'll go to the line of Dave Koenig from Baird. Please go ahead.

Speaker 9

Yes. Hey, guys. Thank you. And a couple of things. I guess my first question, kind of a follow-up on David Togut's question.

Speaker 9

It looks like your sequential EBIT dollars of growth, the way you're guiding is $150,000,000 plus. Your revenue is about $50,000,000 give or take. So let's say that all goes to EBIT, that's $100,000,000 of extra, right, of extra kind of that cost control. Is that a fair way to think about it? And you I mean is that $400,000,000 of run rate cost savings because I mean that would be a huge benefit into next year as well.

Speaker 9

Are we looking at that right?

Speaker 3

Yes, David, I'd be a little careful. I might have to run through all of your math. You've got some broad assumptions on the sequential growth or the growth year over year in Q4. Ultimately, the simple or straight answer is, look, we see some good cost improvement 3rd quarter Q4, as I talked about earlier, the ramp down of these integration projects as well as the benefit of the projects Driving productivity into the organization now that we've got integration largely behind us, maintaining the productivity mojo that you've seen from this company for a lot of years and certainly incremental revenue drops to the bottom line. The growth in payments certainly helps Sid.

Speaker 3

Obviously, that's our highest margin business And continuing to see good growth in SMB also helps. So we feel good about the quote, to use a 4 letter word mix In the Q4, we see good opportunity or good line of sight towards Strategic units that are low margin and getting that scale really helps into the Q4.

Speaker 9

Got you. Thank you. And just a quick follow-up, in the FinTech segment, I know Q3 was clearly weak. Is there a way to give kind of a more normalized growth number ex the implementations? And then Also Q4 has been higher than Q2 every year going back since I think 'eight was maybe the last time Q4 was below Q2.

Speaker 9

Is it fair just to think that if everything's kind of normalized that that pattern would continue?

Speaker 3

No, we put up a 7% Q2 number, I would not anticipate us being north of 7% in Q4. We do feel good about the growth of the FinTech segment. If you look over the last several years, there's variation quarter to quarter. Some of that is the periodic revenue or license We have the additional impact in Q3 of this year for these non recurring one timer type. It's just a term one timer because they're regular.

Speaker 3

As contracts renew, we get Short term or immediate term revenue, and some of that's already slipped into 4th quarter, I. E, we started to see some of that We feel good about number 1, we're already in the 4% to 6% range and we'll close the year out that way.

Speaker 6

Yes, I just thought that

Operator

Thank you. Next, we'll go to the line of Tien Tsin Huang from JPMorgan. Please go ahead.

Speaker 10

Thank you. Good revenue here. I just wanted to ask on the buybacks here. You're at your target leverage as you called out and you stepped up your buybacks. Looks like what 80% of free cash flow is getting allocated to buybacks year to date.

Speaker 10

So just want to check your appetite on buying back stock here. It sounds like October Was in line with the 3rd quarter run rate appetite to buy back stock versus acquisitions?

Speaker 3

Tien Tsin, I guess, first, yes, obviously, we've been buying back shares. We are always in the market. Every once in a while, there's some ebbs and flows, and we've been we were strong in the Q3 and certainly strong so far In Q4, feel good about our ability to continue to buy back shares. It's a balanced capital deployment approach that we've always had and continue to have around investing in organic growth. If you look at that new slide, we added a significant increase in CapEx, which is Trade off.

Speaker 3

If I spend a dollar in M and A, I don't have that dollar available on for share repurchase, but we have good capacity to do both. We look at acquisitions through the lens of a share repurchase. We're certainly interested in Continuing to add to our portfolio, as I've said in the past, I don't wake up in the morning saying, geez, I really need to go get X capability. Given the breadth of our existing portfolio, there are lots of things that we can add, whether it's NextTable that we did Recently or it's BentoBox or FinZac. We did all of that while also buying back a lot of shares.

Speaker 6

Yes. No, I think I just say that we have an appetite, you see our appetite across segments. We are highly selective, Bento, Nintac. And then we come back and invest heavily as we had done on Clover. So we

Speaker 3

We feel good

Speaker 6

about our balanced approach. I think you can see that obviously we invest in the business organically, only Invest in the business and organically, and then we focus about buying back out of the stock and We're returning that to shareholders too. You should imagine that we're going to have that continued balance mentality. And obviously, we like to integrate companies and grow them.

Speaker 10

Good. Thanks for that. My quick follow-up, if you don't mind. Just on the you mentioned Star and Excel supporting card not present transactions. I know I've asked I hear you that you want to wait for how issuers want to implement the new rule in July, but the readiness For Star and Excel, is there still a lot of investment required to attack that?

Speaker 10

And I guess I'll ask how aggressive will Fiserv be in that pursuit? Thanks for the time.

Speaker 6

I'd say readiness is high. I think we made a comment that they are designed to be dual network And our ability to execute it up, We think it's very high. Obviously, we always felt that This would create more competition, and we like that. Obviously, we weren't competing for those transactions before, And you should expect us to behave like we do in every other business line, which is try to grow them At the best possible rate. So I think we're in the planning stage.

Speaker 6

Obviously, it is Thanks as always. Thank you.

Operator

Thank you. Our last question will come from Jason Kupferberg from Bank of America. Please go ahead.

Speaker 11

Thanks, guys. Just wanted to go back to, Bob, your answer to Lisa's question in the Q and A. The free cash flow conversion, I think you question is likely to remain below 100% going forward. But I'm just trying to think about this in the context of the Analyst Day in 2020. I think the target there was 105% plus And that was with a 7% to 9% revenue growth rate.

Speaker 11

So just wanted to kind of calibrate this. I mean, if revenue growth moves back to the high single digit range from the current low double digit run rate, does that mean that free cash flow conversion goes back north of 100% or have some other things changed in the business around CapEx or other factors that we should

Speaker 3

question Yes. 1, I'll have to go back and check the transcript. I don't think I said it was likely, I said to see a business growing at this level. I try not to give guidance or an outlook or adjust What we've said previously, obviously in today's world, the view of 2023, 2024, 2025, 2025, 2026 is question is just a little bit cloudy and we'll continue to evaluate. Some of it is what are our investment opportunities question comes from the line of John.

Speaker 3

Our investor conference back in December of 'twenty, we hadn't yet closed the FinZac transaction. We've talked about how that acquisition May give us an opportunity to bend the curve, so to speak, yet again on the FinTech segment, which today hitting at a 4% to 6% rate is above what we've been able to do traditionally. And as FinTech continues to grow, we'll see some opportunity there, Building out Clover and growing our merchant business at perhaps even the high end of that 9 to 12, The March of 'twenty two Investor Conference talked about perhaps better growth in that segment. So lots of opportunities for us, and we're going to make sure that we are making good investment decisions to grow the top

Speaker 11

And just quick follow-up, just given all the momentum in the payments segment, do Do you feel more bullish on your ability to be near the higher end of the 5% to 8% target range there, not just for this year, but beyond this year?

Speaker 3

Look, I think we've seen some very nice progress in the growth this year. We're getting some great feedback from our clients. The $120,000,000 worth of wins that we talked about back in December of 'twenty now, all implemented and growing, many of them actually outperforming That $120,000,000 worth of ACV, we have a continued strong backlog building out that government vertical that we've talked about, Certainly an opportunity. Again, we're not prepared to give an outlook or guidance for 2023, but we feel quite good about how that segment is performing right now.

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