Welcome to the Fiserv 2021 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Shub Mukherjee, Senior Vice President of 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 with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise noted, 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. As a reminder from our last earnings call, we will now be using the term organic revenue, which has replaced internal revenue and is still calculated on a constant currency basis. And now over to Frank.

Thank you, Shub, and thank you all for joining us this morning. 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 or large enterprises. We help our clients grow by extending our platform to capture new services and new money flows. As we exit the second year of pandemic, we had another successful year of delivering on our growth agenda. We delivered 11% organic revenue growth for both the fourth quarter and full year at the high end of our 7% to 12% outlook that we originally provided at our December 2020 Investor Day. We expanded full year adjusted operating margins by 250 basis points. We also achieved 26% growth year-over-year in adjusted earnings per share to $5.58, well above our original outlook of $5.25 to $5.45. Our merchant platforms, Clover and Clover Connect for small- and medium-sized businesses and Carat for enterprises are showing very strong growth. We are winning in omnichannel and seeing strong growth in value-added services such as Clover software, fraud, risk, lending and payment flows, including disbursements and cross-border. Our acquisitions of BentoBox and NetPay give us the assets to enhance self-service offerings in verticals like restaurants and allow us to power new flows via paybacks. We are successfully meeting our FI clients' goal of driving digital engagement through our best-in-class online and mobile banking platform ability as well as integrated mobile-first surround solutions such as CardHub, featuring Ondot for retail customers and SpendLabs for small business customers. Recall that we bought Ondot and SpendLabs in 2021 and are already seeing great traction with them. We expect these solutions will have a positive effect, strengthening our client value proposition across core banking, payment processing…

Thank you, Frank, and good morning, everyone. I'll cover some detail on each of our segments. If you're following along on our slides, I'm starting with Slide 5. We feel great about our performance for both the quarter and the full year, and we are well positioned to achieve a strong 2022 and beyond with sustained value for our clients and our shareholders. As Frank said, we are projecting 7% to 9% revenue growth for 2022, which is 150 to 350 basis points above our average growth over the last 3 years. Total company organic revenue was up 11% in the quarter with growth across all segments, led by the Merchant Acceptance segment, which grew 19%. For the full year, total company organic revenue grew 11%, also led by the Merchant Acceptance segment, which grew 20%. Total company adjusted revenue also grew 11% to over $4 billion in the quarter. And for the full year, adjusted revenue grew 11% to $15.4 billion. Fourth quarter adjusted operating income was up 11% to $1.4 billion, and adjusted operating margin was in line with the prior year at a very strong 35.6%. For the full year, adjusted operating income increased 19% to $5.2 billion, and adjusted operating margin expanded 250 basis points to 33.9%. We expect 2022 margin to expand an incremental 150 basis points or more above last year. This is driven by strong organic revenue growth of 7% to 9% on a scaled business and a continued focus on productivity, all while we continue to make meaningful investments for organic growth. In addition, as you heard earlier from Frank, we are proud to announce that we reached our $1.2 billion action cost synergy goal in the quarter, which is a result of our disciplined execution to drive value. Fourth quarter adjusted…

Thanks, Bob. I'm very proud of the goals we've accomplished with another quarter of double-digit adjusted revenue growth and double-digit adjusted EPS growth. Given the breadth and depth of our portfolio, as well as our history of strong operational performance, we believe we will deliver 7% to 9% organic revenue growth and 15% to 17% adjusted earnings per share growth to a range of $6.40 to $6.55. We expect each of our business segments to deliver organic revenue growth within the range of our medium-term outlook. Finally, I invite you to participate in an investor call we will be hosting in the next several weeks focused on our merchant acceptance business with a particular emphasis on Clover as a key driver of growth for the segment and the company. In addition to delivering on our financial results, we continue to focus on our associates and our communities. Our approach to corporate social responsibility is designed to incorporate a philanthropic, associate and community engagement to deliver thoughtful, strategic decisions where we invest our time and talent. Diversity and inclusion remains on the top of our ESG agenda and the results of our efforts speak for themselves. In January of the current year, Fiserv was named to the 2022 Bloomberg Gender Equality Index, marking our sixth consecutive year for this recognition. For the second consecutive year, Fiserv has been designated a best place to work for LGBTQ+ equality in the Human Rights Campaign Foundation's 2022 Corporate Equality Index. Now in its 20th year, the CEI is the national benchmarking tool on corporate policies, practices and benefits pertinent to LGBTQ+ employees. Since 2020, we have allocated $35 million of the $50 million commitment designed to help small minority-owned businesses affected by the COVID-19 pandemic and associated initiatives. In Q4, Fiserv was ranked #4 on Military Times Best for Vets Employers list, the fifth year in a row in the top 5 and #1 ranked in our category. Continuing our initiatives to support better and affiliated businesses, this quarter, we announced an extension of our partnership with the Institute for Veterans and Military Families at Syracuse University. And during our fourth quarter season of giving campaign, associate donations along with corporate matching donations from Fiserv contributed to over 1,200 community groups globally. I am proud of the positive impact of philanthropic and community programs have had in 2021, and I look forward to us doing more in 2022 to help businesses and communities thrive. I will close by thanking all 40,000-plus hard-working Fiserv associates around the world for working relentlessly to serve our clients and you, our shareholders. With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from Lisa Ellis from MoffettNathanson.

Good stuff here. I had a question with just hoping to drill in a little bit on your outlook for Merchant Acceptance for 2022. I know you mentioned you're expecting it to return to the medium-term range. I think that's 9% to 12%. So are you expecting Merchant Acceptance to get back to double-digit growth? And then could you drill in a little bit on 2 of the big drivers in there, what you're looking for out of Clover and then maybe what you're looking for out of your international business as you look out into 2022 to give you confidence in that outlook?

So first of all, yes, 9% to 12%. And yes, we're driving business to double digit. I think there's a multipronged effort here. And obviously, we have a lot of assets in the portfolio that are performing very, very well, whether it be our ISV business, whether it be in Carat. But specifically, the growth in Clover, we believe, will happen both in the U.S. and then in our global expansion on it also. And we continue to see that have very, very strong visibility and how deployment will happen outside the U.S. during the course of this year. And then you layer on top of that the Caixa partnership, the [ Deutsche ] partnership, and you can see us extending out in all regions, really. So you should expect to see Clover growth. You should expect to see geographic expansion. But you should also expect to see strong e-comm trajectory along with ISV trajectory as we continue to invest in Clover and Carat and the ISV business and continue to fuel our international growth.

Next, we'll go to the line of Tien-Tsin Huang from JPMorgan.

Yes. Really happy to see the 7% to 9% organic revenue growth for this year. I want to ask just on the margin outlook to get there for the segments. Where are you investing more aggressively? I know you have some integrations and implementations to do as well plus productivity. So any color there would be terrific.

Yes, Tien-Tsin, I'll start and Frank can jump in. I think you'll see continued investments in all 3 of our segments. Obviously, each one of them have a slightly different growth trajectory. As Frank just talked in answering Lisa's comment about the 9% to 12% merchant growth, we expect all 3 of our segments to perform in the medium-term outlook range, 4% to 6% for the Fintech segment and 5% to 8% for payments. And you're seeing us focus on bringing new solutions to our clients on where they want us to meet, obviously, really across the board, the continued drive for digital, for mobile expanding out our capabilities to integrate all of our solutions. You heard me in my prepared remarks talk about the new wins with UnionPay and with National Australia Bank, 2 individual contracts that both had merchant and payments incorporated in them. And so we'll continue to invest in building out those capabilities. We continue to invest in our digital capability around our CardHub acquisition with Ondot, with SpendLabs. Our Abiliti solution, our bank -- digital banking solution that we launched earlier this year, a cloud-native online banking solution will continue to expand in the marketplace. And obviously, once we close with Finxact, it will be a focus of ours as we build out that capability.

Maybe I'd say 1 or 2 other things. We have tremendous visibility due to the amount of wins you've heard us talk about. You could see that we have had very, very good momentum in the sales cycle, and that's all about future growth. I also think the investments we are making are for future growth. So the 7% to 9% we're talking about here in the medium term is what's right in front of us, and we have good visibility to it. But we also are integrating a lot of products building for the future, being very offensive towards how we're going to build. And so when you think about our spending, it's really not against this year's revenue, it's for future years' revenue.

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

Wanted to see what color you might give us just on Omicron impacts you may have felt in December and January, particularly in Merchant, but maybe a little bit on the issuer processing side, too. And then just how that translates into how we should be thinking about first quarter revenue growth by segment. I know you generally have some pretty easy comps there in Q1.

I'll start, Bob could fill in. I mean it definitely had an effect. We saw it as we came through December. You definitely felt it, and outside the U.S., more than even inside the U.S., I'd say. But -- and it has spilled into January across basically dividend credit when you think about it and affect the spending in general. But I view that as a short-term issue, nothing systemic there. . Bob, anything you want to add?

No, Jason, I think January, consistent to how we kind of closed out December, a little bit light. Obviously, the U.S., Europe, the globe is dealing with Omicron. We're starting to see the restrictions in Europe lifted, particularly in U.K., Ireland. Germany has still got a number of restrictions in various regions. It's not a country-wide program, it's region by region, and we're starting to see those lift. And so we expect things to improve as we progress through the quarter. I do expect each of the 4 quarters to be within that 7% to 9% range. So I don't think we have any quarter that's well below that and another quarter well above that. But with January being a little bit lighter, there could be some impact to Q1 there.

Next, we'll go to the line of Dave Koning from Baird.

Nice year. So I guess a couple of questions. First of all, on payments, 2021, it looked like full year about 5.5% organic, and you're kind of saying 5% to 8% would be 2022. So I'm just kind of thinking through the accelerating and decelerating factors, like I would think debit probably decelerates. But then what should accelerate to kind of propel growth in '22 to offset the debit deceleration?

Yes. We have seen some of that deceleration in debit. Again, it was part of the December to January dynamic. We certainly see some nice lift from the credit issuer wins that started going live really the second half of 2021. So we've got good lift from those in the full year of 2022. And with Atlanticus and ADS yet to onboard here in early 2021, that will give us some nice lift. So I think our credit issuing business will perform nicely. The improvement or the new contract wins that we talked about in bill pay will help stem some of that headwind that we dealt with in 2021. And broadly, the contract wins and the implementations and new services, CardHub is certainly having an impact on both our debit and credit business as we bring a more fulsome solution, very digital, state-of-the-art capability into our clients. And we see some real opportunity there.

Got you. And just secondly, the Acceptance segment, I was kind of looking back. It looks like the last few years mostly were down kind of 3% to 5% sequentially in Q1. You also mentioned selling the back book. I don't know how much impact that has. But is -- are we in kind of a pretty normalized like maybe down 3%, 5% sequentially?

Yes. So first, the sale of the back book will -- we expect to take place this quarter. We're almost halfway through the quarter. It isn't closed yet, but we do expect it soon. So it will be a modest -- it's a modest impact to the year, less than 50 basis points to the adjusted revenue for the company for the year. So a pretty small impact to Q1, particularly given that it's not yet closed. But I think you're largely in line. I don't expect any difference in terms of the seasonality as you go from Q1 -- Q4 to Q1.

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

I wanted to ask quickly on capital allocation, and you seem to have stepped up the pace of acquisitions recently. And I'm wondering with the slowing in valuations that we've seen at least in public markets, is that creating incremental opportunities for acquisitions, do you think? And how dynamic or flexible can you be on capital allocation, especially between acquisitions, buybacks and debt reduction? Just love to get kind of your sense and color around those topics.

Yes. I mean we talked about $850 million, and then we have Finxact here. Also, I mean we feel very, very, very confident in our ability to deploy capital where appropriate and all of that is to further accelerate growth rate. And I accentuate further accelerate. Two, we think we're darn good at integrating these properties. And the properties that we've acquired, we've also had invested. We invest in properties early, watch them, grow with them, nurture them and integrate them. So I think you should expect that these things are all strategically thought about ahead of time, whether it was a restaurant segment, whether it's our ability to bring a complementary product across our core. Our ability is without scale to be able to acquire some of these founder-led companies and then utilize them across us. I mean you look at an Ondot, and that's already completely deployed, integrated and succeeding in the clients' office. So we feel good about our ability to deploy the capital. We feel good about the platform's ability to scale the use. And they're all to us, middle of the fairway of where our business model is. And that's how you should think about us deploying the capital or against acquisitions. Obviously, we added a very strong year in repurchasing also because we thought it was appropriate to return money to shareholders in that fashion, $2.6 billion. So I think it's a very balanced approach.

James, just to kind of put an emphasis on that last point from Frank, it isn't an either/or it isn't an M&A or a share repurchase. In 2021, we deployed capital across the board. We spent $850 million on M&A. We repurchased $2.6 billion, so returned $2.6 billion to shareholders. That's the highest we've done as Fiserv, including $1 billion in the fourth quarter. We continue to invest organically. And all that done at the same time, we lowered leverage to 3.1x, down half a turn in the year and really, a full turn since our merger. So our ability is about deploying what is significant free cash flow across the portfolio and in a variety of different ways.

Next, we'll go to the line of Timothy Chiodo from Credit Suisse.

I want to talk about inflationary impacts to the top line across a few of the segments. Within the Acceptance segment, obviously, there's a little bit of hardware revenue. But with the rest of the revenue, maybe you could just remind us all on the proportion of that, that comes via ad valorem fees or basis points, how much of that is on a cents per transaction or other? And then also within Fintech, maybe you could just touch on the CPI-based pricing escalators worked into the contracts there for core banking.

Sure, Tim. So you had a lot of elements to that question, make sure I hit all of them. First and foremost, as you point out, we have a variety of different methods for revenue generation in our Merchant business, certainly a mix of volume driven as well as transaction driven. And of course, the other element of that is a variety of different distribution channels, whether it's a direct channel or through our partners or through a joint venture. So lots of different ways that, that revenue comes to us. Ultimately, we feel good about the pricing dynamic of the market. Inflation in 2022 will give us a natural lift on the activity that is volume based as volume goes up on higher volume transactions, which can be higher volume activity, we'll get a lift on that. And roughly, in the Merchant business, about 65% of our revenue is volume-based pricing and about 35% is transaction-based. If you turn to the Fintech segment, it's the segment that we probably have the highest level of CPI clauses in our contracts and certainly will be a lift for us in 2022 as those CPI increases go in. I don't have a percentage for you off the top of my head, but it's a good portion of the Fintech or the core account processing portions of Fintech that have a CPI index in it.

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

Can we just touch on the investments and the capital intensity you're putting into the business? Obviously, it's -- with the strong growth you have, it probably begs the question of whether or not your free cash conversion should stay in this 95% to 100% range versus the historic median term, which I think we kind of anticipated. But I'd just love to hear a little more color on what your thought process is on that. And then also whether or not we still feel good about the $25 billion of free cash over the next few years, $30 billion of capital deployment capabilities. . And then just really one quick follow-up. I thought it was interesting that you guys are hosting this call in the next few weeks on Merchant and Clover. Any kind of preview on what the goal is for that? Is it just to give us more comfort and color on sustainability and the breakdown of the business given how strong growth has been?

Yes. Why don't we start with that first? The concept on that is to really get you all to better understand the value being created for each client, that when you think about average revenue per merchant, Clover's impact to give you a real good look at the growth rate. And we talked to you about the e-comm business, too. We said [ covered them both ]. So when you look at it, you could see what that long-term ramp we have in here and the power of both of those platforms. So that would be answering the last part first. We had talked about $30 billion of capital to deploy. That number hasn't changed for us at all, in our changing in a conversion rate here. And if you want to think about what we're doing, I just -- I think it's about delivering integrated solutions as we acquire products, it's about delivering a changed experience ultimately in the client's office, all designed at long-term accelerated growth. So in many cases, we're also building functionality, which has given us a greater total addressable market as we approach it. So it's completely offensive in terms of us leaning into the opportunity. The beauty of this platform is its size and scale and its client base, and that size and scale in that client base avails us more opportunity than we actually imagine when we put the 2 companies together and the complementary nature of the assets and the ability to invest is really about growth. Bob?

Yes, Darrin, the 2 pieces I'd add, I guess is, one, that the $95 to $100 that we have for 2022 and the $94 million we did in '21 is in part driven by our increased spending on really 3 things. One is we are moving with a faster speed than we traditionally have around integrating new acquisitions. So a classic example is we acquired Ondot in the first part of 2021. And within a few months, we had that integrated in some of our mobile banking capability and started selling it as a truly integrated solution where traditionally, we might have taken a bit longer to actually integrate. We might sell it as a bundle, but really integrate it into the software, into the software offering. We're moving at a much faster speed. Secondly, you heard us talk in this -- on the prepared remarks about technology infrastructure spending. It's really associated with the merger of Fiserv First Data and finishing the swing on that. That's capital spending we're doing across our technology infrastructure. And then the third piece is building up some real estate. As we bring our organization back into the office after what's been a couple of years of working from home, we're building out what we think are world-class collaboration spaces to respond to what employees want and need now to enhance that collaboration. You heard us earlier in the year announce our new technology hub, innovation and technology hub in North Central New Jersey. That will be built out and occupied later this year. So that technology infrastructure associated with the Fiserv First Data merger and some of this real estate spend, you'll see kind of tail off at the end of this year, and then we'll see a shift in free cash flow going forward.

And our last question comes from David Togut from Evercore ISI.

Just bridging to the earlier question on inflationary impacts on revenue. Could you walk through the impact of inflation on your cost structure and what's built into the adjusted operating margin expansion guidance for 2022?

Yes. Well, I would say, first of all, there's definitely a war on talent, and there's definitely an inflation. And when you look in our model, we've accounted for the world we live in within that guide. We are very maniacally focused on how to create these work environments that attract the best talent, retain the best talent and continue driving innovation in a manner that gives us the outcomes that we've been getting and continue to drive forward. You know, Bob, maybe...

Yes. I would punctuate saying, number one, with 7% to 9% top line growth on our scale business that provides some nice operating leverage, that will improve operating margin but also allows us to continue to invest in the company. We also have a long track record of good, strong productivity. The last couple of years that's been called integration savings or synergy. But we continue to have real opportunities for productivity. As such, we feel comfortable that we'll have at least that 150 basis points of margin improvement in 2022.

Understood. And then is the 95% to 100% free cash flow conversion target for 2022 the new normal going forward as opposed to the 105% plus, which we saw historically?

No, I would not say that. Obviously, at this point, we're not ready to update 2023. But given some of that technology infrastructure spend and the real estate spend that I talk about -- that I talked about earlier, I expect that to drift down as we exit 2022 and beyond.

I'd like to thank everyone for their attention today. Please feel free to reach out to our IR team with any questions, and have a great day. Thanks for your time today.

Thank you.

Thank you all for participating in the Fiserv 2021 Fourth Quarter Earnings Conference Call. That concludes today's conference. Please disconnect at this time, and have a great rest of your day.