Welcome to the Fiserv 2020 Second Quarter Earnings Conference Call. All participants will be in a listen only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Peter Pullian, Senior Vice President of Investor Relations at Fiserv.
Thank you, and good afternoon. With me on the call today are Jeff Yabuki, our Executive Chairman Frank Bisignano, our 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. Our remarks today will include forward looking statements about, among other matters, the impact of the COVID-nineteen pandemic on our business, expected operating and financial results, strategic initiatives and expected benefits and synergies from the First Data acquisition. 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 factors. Please refer to our earnings release and supplemental materials for an explanation of the non GAAP financial measures discussed in this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless stated otherwise, performance references made throughout this call are year over year comparisons and all references to internal revenue growth are on a constant currency basis. Also note that non GAAP financial measures in our earnings release and supplemental materials include the 3 6 months ended June 30, 2019 results for First Data, which have been prepared by making certain adjustments to the sum of historical First Data and Pfizer GAAP financial information. Lastly, we're holding an Investor Day on December 8 in New York City to share our strategic vision.
While we intend to host the event in person with appropriate protocols as circumstances allow, we'll also prepare to broadcast the content for those who prefer that approach. We look forward to seeing you at this important event. And now I'll turn the call over to Jeff.
Thanks, Peter, and good afternoon, everyone. A lot has changed at Fiserv since we announced Q1 results. Coming off tremendous financial performance in January February, we hit the COVID-nineteen cliff in the second half of March, which further worsened in April. At our May 7 call, we shared our thesis that April would be the likely trough and we expected to see gradual improvement from there and that is exactly what has happened. Each month revenue has improved sequentially from the lows of April and culminated with a return to internal revenue growth in July.
Clearly, the results are not what any of us expected prior to the pandemic. However, we are quite pleased with our overall performance, the resilience and strength that produced nearly $900,000,000 of free cash flow in the quarter and tremendous sales momentum, which reinforces our market leading value propositions and further positions us for accelerated growth. We successfully completed the dissolution of the BAM's joint venture on July 1. As part of this, we welcomed nearly 120,000 direct clients to Fiserv and inked a new processing agreement with the bank as their provider for merchant services. We are grateful to Bank of America for their historic merger.
We've made tremendous integration progress while continuing to invest in our future. We've also gained significant confidence in the size and scope of the opportunity and wrapped up a series of 1st year accomplishments including generating $3,500,000,000 of free cash flow. We allocated more than $1,700,000,000 to share repurchase well ahead of schedule and also repaid $1,100,000,000 of debt. We raised our cost synergy target by a third to $1,200,000,000 and increased our revenue synergy goal by 20% to $600,000,000 And of that in the 1st 12 months, we've actioned $750,000,000 of cost synergies and $160,000,000 of revenue synergies. Interest expense has been reduced by nearly $290,000,000 annually, which when combined with synergies actioned is more than 1 $100,000,000 of run rate pre tax earnings in the 1st 12 months of what was originally set as a 5 year journey And sales, as measured in annual contract value, grew 15% over the prior year, supporting the power of our combined value proposition.
Overall, these proof points are representative of our commitment to delivering on the promise of Fiserv in the client's office, harnessing the power of the best associate team in the industry and delivering sustained above market returns for our shareholders. And last, we effectuated a seamless CEO transition to Frank on July 1. Seamless because Frank and I have been working closely together since the transaction was announced as we are today. And seamless because Frank continues to bring his leadership and commitment to deliver superior results against our proven Fiserv shareholder value creation strategies. As both an advocate and large shareholder, I assure you that the company is in fantastic hands with Frank at the helm.
With that, let me turn the call over to our new CEO.
Thanks, Jeff, and good afternoon, everyone. Let me start by thanking Jeff for his tremendous partnership since we started talking about merging our 2 great companies almost 2 years ago and working closely together the last 18 months on the integration. I'm excited to lead this great company, which Jeff has led brilliantly for the last 15 years. While we, all of us, have been navigating the global pandemic, Fiserv has faced those challenges with a clear mandate of serving our clients with excellence, while keeping our associates safe and healthy. The great progress we've made on those fronts is manifesting an accelerated integration, improving results and much stronger than anticipated sales.
Importantly, revenue has shown sequential improvement each month since April bottom. In June, we saw just 1% decline in internal revenue and we returned to internal revenue growth in the month of July. As Jeff mentioned, we have made great progress in the 1st year, actioning over $1,100,000,000 of incremental pre tax earnings as new Fiserv. And we are highly confident of the additional value ahead. In addition to our financial accomplishments, I'm thrilled with how our value proposition is coming together in the client's office.
We closed a number of terrific deals in the 2nd quarter with sales up a very strong 38% over the prior year and 20% year to date. Our excellent momentum continued into July with 2 important competitive takeaways in our credit card processing business. We were selected to provide issuer processing solutions by Atlanticus Holdings and Genesis Financial Services, both leading providers of consumer credit solutions. And each on their own would rank among the top 25 largest card portfolios in the U. S.
Based on active accounts. Larger issuers choose Fiserv for a variety of reasons, including our highly configurable processing platform, breadth of integrated digital solutions and a client centric approach. We expect both of these important clients to go live with our market leading solutions next year. The resilience and diversity of our revenue was evident in our Q2 as we navigated a very difficult macro environment and generally delivered results above internal expectations across most key performance measures. Internal revenue declined 7% in the quarter and is down only 2% for the first half of the year.
This performance is a strong testament to the great work by our people to deliver value for clients regardless of the difficulty in the end market. Adjusted earnings per share in the quarter was down 4% to $0.93 driven primarily by COVID weakness. Adjusted EPS through June 30 is up 6% to $1.92 on excellent cost and revenue synergy performance and the strength and scale and breadth of our business. Importantly, we generated nearly $900,000,000 of free cash flow in the quarter, up 23% over the comparable quarter and up 13% to $1,700,000,000 through June 30. Consistent with our capital allocation strategy, we repurchased 5,700,000 shares for $550,000,000 in the quarter.
And for the year to date, have repurchased 14,300,000 shares for $1,400,000,000 In dealing with these uncharted waters, we have put our energy and focus on sustainable actions, such as cost synergy acceleration that we believe will make us stronger and more profitable for the long term. We delivered $155,000,000 of cost synergies in the 2nd quarter results alone and now expect to book at least $550,000,000 of cost synergy savings in 2020. We've actioned nearly $700,000,000 of our $1,200,000,000 target through the end of the second quarter and $750,000,000 through the end of July. Revenue synergies are progressing equally well with continued strong performance in network innovation, bank merchant and cross selling our market leading solutions across the company. For example, we were able to add our DNA account processing solution for a new client's digital bank, where we were initially awarded credit processing.
Revenue synergy sales in annual contract value were more than $50,000,000 in the 2nd quarter. We saw continued strength in our bank merchant synergy program even with the COVID slowdown, adding 42 new bank merchant clients in the quarter and nearly 70% were competitive takeaways. We signed more than 160 banks and credit unions in our 1st full year and have a very strong pipeline of nearly 400 institutions. Overall, we had actioned $130,000,000 in annualized revenue synergies through June and are in a great position to achieve $600,000,000 revenue synergy growth. We signed 17 new core account processing clients in the corner, 9 on D and A, including Northwest Federal Credit Union, one of the largest credit unions in Virginia with $3,400,000,000 in assets and United Federal Credit Union with $2,900,000,000 in assets.
Another important highlight was South State Bank, an existing Fiserv Premier account processing client, which recently merged with CenterState Bank and selected Fiserv's core platform and a number of additional solutions for their newly combined $38,000,000,000 institution. Even in these challenging times, our leading solutions continue to win in the market. Our industry leading digital electronic payment solutions such as Mobility, CardValet, Architect, TransferNow and Zelle have us incredibly well positioned support to support our clients in the digital transformation, which we believe is further accelerated by the pandemic. One excellent proof point on our digital momentum was in a recent competitive win with Northwest Bank, a long term Fiserv client who expanded our existing relationship to establish us as their strategic digital partner. Northwest added a number of new digital solutions led by Architect, to offer a more innovative and integrated solution for their clients.
In our card issuing business, we signed an important renewal with PNC, extending our long term partnership with the 7th largest bank in the U. S. For both credit and debit processing. Bank of Baroda, one of India's leading public sector banks awarded us their credit card processing in the quarter. When live, we will provide card processing services for 4 of the top 6 issuers in India.
Prior to the onset of COVID, our merchant business had displayed its emerging strength, recording high single digit internal revenue growth through all of 2019 and further accelerating to low double digits in the first 2 months of this year. Even in the pandemic, our merchant business has performed very well relative to the market and we believe is even better positioned going forward. That strength is attributable to a number of factors, including the size and scale of our distribution network, geographic reach, diversity in diverse industry coverage, our CloverPath platform and rapidly growing and leading digital technologies, including e commerce and ISV. Clover gross payment volume is recovering well from the weakness experienced early in the quarter, with GPV up 24% in June and was up 32% in July. GPV for the quarter was $23,400,000,000 or more than $90,000,000,000 annualized.
Simply stated, our Clover strategy is to grow the number of clients using our platform as important to extend the breadth of services offered to these clients. We're creating deeper client relationships through solutions such as virtual terminal and online ordering that were rolled out in Q2 and are seeing solid early adoption rates. We are pleased to see our digital merchant acquiring platforms transactions across a variety of industries and geographies. We are seeing accelerated sales momentum in e commerce solutions, adding 50 new clients in the quarter, 86 year to date and 144 over the last 12 months. As the pandemic spurs the need for innovation, we are seeing our investments in omni channel merchant capabilities such as order ahead to pick up in store gain even more traction.
As a leader in this space, we provide omni channel solutions to 9 of the top 15 QSRs, including McDonald's, Chick Fil A, Taco Bell and Dunkin' Donuts. In Q2 alone, these QSR transactions more than doubled to greater than $50,000,000 per month. Given the demand, we are expanding these capabilities into more verticals such as grocery as well as other geographic markets around the world. Our integrated payments continue to perform well, expanding our number of partners by more than 20% in the quarter, in spite of COVID, our ISV revenue was up double digits in the quarter. We remain focused on driving additional differentiation to capture additional market share in this space.
Overall, we're very pleased with our first half performance in this challenging time. The combination of integration benefits, the payoff from targeted investments and delivering new innovation that clients' needs is translating to significant sales and market momentum, which we will expect will both support growth today and well into the future. With that, let me pass the discussion to Bob for more detail on the financial results.
Thank you, Frank, and good afternoon, everyone. We turned in a relatively strong performance in the face of a tumultuous impact COVID-nineteen had on business and consumer activity around the world, displaying the resilience and strength of our business. Total company internal revenue declined 7% in the quarter, driven by the significant impact of lower transactional volume associated with the global pandemic. Importantly, as Frank mentioned earlier, we saw internal revenue steadily improve as the quarter progressed with June internal revenue down just 1%. The monthly improvements continued into July with company internal revenue growth turning positive for the first time since February.
Year to date, internal revenue has declined just 2% due to the strength of the business and better than anticipated progress on actual revenue synergies, which were $38,000,000 in the quarter and are $65,000,000 year to date. We now expect to be above the midpoint of our 2020 revenue synergy estimate of $75,000,000 to $100,000,000 Although not in the category of formal guidance or outlook, based on what we can see today, we estimate that our internal revenue is likely to be in the range of plus or minus flat for the year. 2nd quarter adjusted operating income decreased 14% to $927,000,000 which includes a 2 percentage point negative impact from dispositions and decreased 7% to $1,900,000,000 through June 30. Adjusted operating margin of 28.8 percent in the quarter declined 90 basis points compared to the prior year, but improved 100 basis points sequentially. Adjusted operating margin through June 30 declined 50 basis points to 28.3%.
As anticipated, adjusted operating margin for both the quarter and the year was severely pressured by the COVID related decline in revenue and the associated expenses, timing of brand assessments and prior year dispositions, partially offset by $155,000,000 of expense synergies achieved in the quarter. 2nd quarter adjusted earnings per share declined 4% to $0.93 compared to $0.97 in the prior year as adjusted for the Investment Services transaction that closed in Q1. Adjusted earnings per share through June 30 has increased 6% to $1.92 setting the stage to achieve our 35th consecutive year of double digit adjusted earnings per share growth. Free cash flow in the quarter was excellent, up 23% to $895,000,000 and up 13% to $1,700,000,000 year to date. Free cash flow conversion for the quarter was a stellar 142% and is 126% year to date.
This performance was driven by strong working capital, timing of settlement activity in our merchant business and lower capital spending for the combined company. Our impressive free cash flow is the result of our resilient business, mission critical solutions and significant transaction synergies. We expect free cash flow for the second half of the year to remain strong as cost synergies continue to ramp and we further capitalize on opportunities to drive efficiency across the company. Looking into the segments, internal revenue in the Merchant Acceptance segment, which has been the most by the pandemic, declined 15% for the quarter and is down 5% through June 30. As the world has begun to gradually reopen, we've seen improving transaction and volume metrics leading to improving revenue performance.
In fact, we closed the quarter with Acceptance internal revenue down just 2% in June and in July returned to positive growth. As you've heard, we are seeing improving business trends in the segment. Clover GPV has improved steadily from April through July and Clover units shipped are back in positive territory ending June, up 9% year over year. Total e commerce transactions were up 26% in the quarter and omni channel transactions gained even more steam. Some of the key deals in the quarter include sale of e comm solutions to our in store card processing for California DMV, along with e comm solutions for 6 new regional grocers, including 2 more in the top 10.
Among the number of wins globally, we added both card present and card not present solutions for McDonald's in Germany and omni channel solutions to Burger King in the U. K. Adjusted operating income in the Acceptance segment decreased 47% to $223,000,000 in the quarter on an adjusted revenue decline of just over $300,000,000 And adjusted operating margin declined 9.50 basis points to 19.1%. Year to date adjusted operating income was $506,000,000 and operating margin was down 700 basis points to 20.2%. A combination of sharp COVID revenue decline and associated expenses negatively impacted 2nd quarter margin by nearly 800 basis points.
The timing of network assessment fees in the quarter, which is expected to reverse in the second half of the year, was an almost 300 basis point headwind. These two factors alone, which totaled roughly 1100 basis points of negative margin impact, more than offset the substantial and sustained positive impact of cost synergy actions in both the Q2 year to date. You will also recall that Q2 is the anniversary of the BAM's deferred revenue item, so it will no longer be a headwind in the second half of the year. We expect Acceptance segment adjusted operating margin to improve significantly over the remainder of the year to a level above last year's pre COVID results, with the majority of the gain coming in Q3. This improvement is expected to be driven by improving merchant volumes and revenue, cost synergy actions ramping over the remainder of the year and the reversal of the network assessment timing headwind.
We now expect Acceptance segment adjusted operating margin to be up sequentially at least 800 basis points to more than 28% for the second half of the year. As Jeff mentioned, the BAMF dissolution was successfully completed as of July 1. We have realigned our cost structure as expected, which will reduce our expenses run rate below the proportional level within the joint venture. Importantly, the dissolution moves a significant amount of scale and the resulting revenue to our small business, middle market and enterprise client books. As a result, the size of our direct e commerce and digitally oriented revenue has grown meaningfully and should lead to future growth and expansion given the macro characteristics of these attractive markets.
The FinTech segment internal revenue declined 1% for the quarter as growth in high quality recurring processing revenue was offset by lower periodic revenue such as license and termination fees, largely due to the pandemic. Year to date, internal revenue is in line with prior year. Revenue in this segment tends to be quite resilient due in large part to the mission critical nature of the solutions and is much less susceptible to variation due to macroeconomic impacts. In addition to the 17 new core comp processing wins in the quarter, we are seeing even more demand for our broad array of digital solutions. Mobility ASP subscribers increased 6% in the quarter to more than 9,300,000 and Architect, our single digital platform, had growth of 56% to 3,000,000 users.
Adjusted operating income was up a very strong 14% in the quarter to $252,000,000 and is up 8% year to date to $456,000,000 Adjusted operating margin was up significantly in the quarter, increasing 5 20 basis points to 35.4% and a combination of cost synergies and operational effectiveness, offset somewhat by lower periodic revenue. Year to date, adjusted operating margin was up 2 80 basis points as we deliver client value across the scale business with increasing efficiency and effectiveness. The Payments and Network segment internal revenue declined by 3% in the quarter. COVID impacts pressure our global credit issuer processing, prepaid and biller businesses and were partially offset by growth in card services and output solutions, in part benefiting from revenue synergies. Internal revenue through June 30 is comparable to the prior year.
Revenue in this segment tends to be driven by transactions and or accounts and tends to be fairly resilient in the typical recessionary periods, but this pandemic has been different. For example, debit oriented transactions, which have historically been very resilient, were impacted much more than prior recessionary periods and have solidly improved consistent with the reopenings since the trough in early April. Debit transactions were down low single digits in the quarter, improving from down 20% early in April to being up mid single digits in the second half of June and through July. Conversely, we are seeing strong growth in solutions such as account to account transfers and P2P, which is up nearly double the prior year's quarter and up 20% sequentially. The number of clients live on Zelle has further accelerated, increasing more than 5 fold compared a year ago and is up 31% sequentially.
We continue our bullishness on the role of electronic money movement and Zelle specifically as the pandemic pressures legacy ways of moving money. Adjusted operating income for the segment improved 1% to $558,000,000 in the quarter and is up 5% to $1,100,000,000 through June 30. Adjusted operating margin was up a very strong 2 20 basis points to 42% in the quarter and is up 250 basis points to 41.6% year to date. The positive impact of revenue synergies, operational efficiency and strong cost synergy performance is driving current results with continuing runway for future expansion. The adjusted corporate operating loss in the quarter improved 5% to $106,000,000 in Q2 and is 7% better to $200,000,000 year to date, primarily due to cost synergies.
The adjusted effective tax rate in the quarter improved to 20.5%, primarily due to the benefit of geographic mix of earnings and discrete tax items. Our adjusted effective tax rate is 19% through June 30 and we now expect our full year adjusted effective tax rate to be just below 22%, in line with the prior year and modestly better than previously expected. We continue to allocate capital to build shareholder value, repurchasing 5,700,000 shares for $550,000,000 in the quarter and 14,300,000 shares for $1,400,000,000 year to date. As you will recall, we began repurchasing shares much earlier than originally anticipated given the strength of free cash flow even while meeting our debt commitments. As of June 30, we had 6 70,000,000 shares outstanding and about 7,500,000 shares remaining authorized for repurchase.
We repaid $100,000,000 of debt in the quarter and total debt outstanding, which is now 85% fixed rate, amounted to $21,900,000,000 Debt to adjusted EBITDA was 3.9 times as of June 30, and we remain committed to achieving our leverage target by the second half of twenty twenty one. We expect to repay more than $1,500,000,000 in 2020 and therefore will allocate a large part percentage of our free cash flow to debt repayment for the balance of the year. Finally, let me call your attention to our Q2 earnings slides available in the Investor Relations section of our website. Page 9 provides a summary of the financial integration milestones we have achieved in the 1st year as a combined company, some of which Jeff highlighted in his remarks. Even in the face of this global pandemic, we have taken actions that have locked in
more than
$1,100,000,000 of run rate pre tax earnings, well ahead of our original objectives and have much more opportunity ahead. While we are pleased with the integration performance today, we remain committed to unlocking the potential we have in Fiserv to deliver even more differentiated value for our clients as well as you, our shareholders. With that, let me turn the call back to Frank.
Thanks, Bob. We believe one of the most important aspects of the transformational acquisition of First Data was the commitment to allocate an incremental $500,000,000 to support innovation. This commitment is unique to Fiserv, and we expect this program to create differentiated value incremental growth for our shareholders. We'll provide a detailed update on our priorities and progress at our December Investor Day. Based on our strong performance and sales momentum in the first half of the year, coupled with the trends we are seeing in our end markets, we are providing new 2020 financial outlook.
For adjusted earnings per share to grow at least 10% over last year's level, adjusted for divestitures or at least $4.33 per share for the full year. Our 2020 outlook does not contemplate a sweeping second wave of shelter orders or other circumstances, which creates significant economic duress in the second half of the year. We are pleased with our financial performance in the midst of pandemic uncertainty. We returned to positive internal growth in July and expect to achieve our 35th consecutive year of double digit adjusted earnings per share growth. The combination of market momentum along with the $1,100,000,000 of actions we have already taken give us increased confidence in delivering strong results in 2021 and beyond.
Diversity and inclusion have long been core principles of our award winning people platform. At the same time, we are addressing the significant societal changes, which we believe will have a lasting impact on both life and business as we know it. Through listening and acting upon what we are learning, we are confident we will build a stronger and even more highly committed team. Back in June, we launched our Back to Business program, which supports minority and black owned small businesses in the areas that have been hardest hit by the pandemic and social unrest. Working directly with local chambers of commerce, we've committed at least $10,000,000 in grants along with our best talent to help these businesses succeed and thrive.
We are on the ground in Brooklyn and Queens and will also expand to other markets such as Atlanta, Chicago, Miami and Oakland. We have already brought business coaching and payment solutions to hundreds of businesses and expect to help multiples more as that program expands. Last, let me thank our more than 40,000 talented associates around the world for their commitment and courage each day as we stand together to deliver value for clients, our colleagues and U. S. Shareholders.
With that, let's open the line up for questions.
Thank you. We would now like to open the phone lines for questions. Our first question is from David Togut from Evercore ISI. Your line is open.
Thank you. Good to hear your voices, Jeff, Frank and Bob. Encouraging to see the return to internal growth in the Merchant Acceptance business in July. Could you talk about the sustainability of that organic growth continuing specifically for merchant in the back half of the year? And any thoughts you have on underlying drivers would be helpful.
Yes. So we feel very strong about that sustainable growth. What you hear us talk about, if you look at that business in total, we think the investments that we've made over time have really paid off. You hear us talk about the wins we have in e com. So that's a tailwind for us.
You look at the double digit growth we talked about in our ISV business. You look at the GPV running through Clover right now that we've talked about and the growth of it. And then we have talked about the 162 bank merchant synergy sales, which actually have no economics in our numbers yet, but you should expect that to continue. That's a very, very integrated solution that premise that we would bring together core processing clients and bank merchant and help them grow that business for their institutions. And then I think if you think about the diversity of our client base, you hear us talk about what went on in those omnichannel transactions for the QSRs where we have a leading position.
And then you also think about the geographic diversity that we have, which really we think is somewhat unparalleled. So our client diversity, our geographic diversity, and then our integrated solutions. We think we have the broadest and best solution set in the industry. And with all of that, we see very, very strong opportunity as the trough was deep, but to be back to IRG and the type of GPV we talk about with Clover really, really gives us high confidence about the future.
Great. And just a quick follow-up, if I could. Reinstating the 2020 guide is very encouraging. Could you talk through dimensioning of expectations for Q3 versus Q4?
Yes, David, it's Bob. Just real quick back on your other question too. I'll point out that the return to growth was beyond our merchant business, total company return to growth. So we feel quite good about the progressive improvement we saw throughout the quarter. And in fact, to your second question, that leads us to have confidence to give the guidance of at least 10% EPS growth.
In particular, we'll see a nice improvement, as I mentioned in my prepared remarks, in our merchant margin. The majority of that 800 basis points improvement second half over first half, the sequential improvement will come in 3rd quarter. So we'll see a nice pickup from one of our largest segments in the business. And as revenue comes back in those other two businesses, that's some nice scale opportunity. So we're looking forward to really overall having a strong second half.
Got it. Just a quick final question on Virgin Atlantic since that seems to be in the news quite a bit. Could you dimension your financial exposure to Virgin Atlantic as they go through their bankruptcy proceedings?
Yes. I can't give you an overall number, but I can tell you absolutely that we've been working closely with them like all of our client partners in terms of supporting them as they restructure their business as one of their creditors and the filing the Chapter 15 filing you saw yesterday was part of that overall process. But bottom line is we feel we're in good shape. I don't see any issue. We continue to process for them and feel comfortable about our position overall.
Understood. Thanks very much.
Thank you. Next, we have Dave Koning from Baird. Your line is open.
Yes. Hey, guys. Great job.
Thanks,
David. Yes. I guess, my first question, a little bit like David's question too. How sustainable are the growth in the other two segments? It seems like if the total company returned to growth and merchant did, it seems like the other 2 probably did 2 in July.
And maybe along with that, how big was the periodic impact in the Financial Tech business? I know that's the highly sustainable and highly recurring business. Maybe just so we can understand if that grew in Q2 on a core basis.
Yes. So I think when you look at the sales numbers we're talking about and how the company is coming together, it's beyond the expectations we had. We always viewed that we had this opportunity to come together in the client office. And if you think about we talk about we've had more than 340 total synergy sales And then we also just have the general growth you heard, you hear about the architect business up 56%. So in the totality of what we're doing here, we actually believe that this company has very good growth in the second half relative to the trough that we saw.
And so I think there you should feel that it's all elements of the company will be growing. You heard us talk about those credit wins and we had ones prior to that in the e comm wins, so across the board.
And then David, in terms of your question about the periodic revenue, the FinTech segment would have grown had we not had the headwind from periodic revenue, call it, really high single digit headwind. And some of that was absolutely driven by what we think is COVID impact, particularly in the license side of that.
Got you. No, that's helpful. And I guess my follow-up with the BAMs JV being disassembled now, how are you going to start including those revenues back in your revenue? Or are you going to continue to exclude them the way? Just kind of understand the accounting behind it going forward.
Yes. So from a standpoint and first of all, they're in our numbers. They're not included in our growth rate or internal revenue growth rate. The adjustment that we started making as the dissolution took effect, we essentially will follow our standard practice for acquisitions and divestitures and exclude it for 1 year forward and then pull it back in.
Got you. Great. Well, thanks and great job.
Thanks.
Thank you. Next, we have Darrin Peller from Wolfe Research. Your line is open.
All right. Thanks guys. If we hit on the some of the digital areas that you're growing so well in like Clover up 32%, you mentioned e comm, I think you said over 20% or 26%. But when you combine that with omni and digital banking, can you talk to us about if we could hit on all the areas that you think are really performing well given the pandemic, maybe accelerated, and where you come out on the other side of this? What are the areas of your business that you're taking share in as a result?
And then maybe just talk a little more about Clover for a minute because the growth rate there 32% with I think in the 90,000,000,000 annualized GPV, was obviously a strong number. So just I'm curious to hear what the strategy there is and if you can sustain those kinds of growth rates?
Well, I think, 1st of all, if you look across the businesses and this will go across all of it, we have had a deep bent in digital. We've invested heavily in digital. And that's why you see us win those type of deals like Atlanticus and Genesis because of that. You see architects really winning in the market in some ways. You see us being selected by many as their digital provider, right?
And so we believe the sustainability is high relative to it. We think in some cases acceleration will occur given the amount of investment we've put into it. I think and we think about it in global nature too. We have a lot going on in Latin America where you'll see some classic innovative solutions where we take all of our capabilities and bring it to the client. I think if you look at the during this pandemic, we have invested into it.
So you don't see us doing anything other than adding resources in the areas like Clover and ISV. And you watch that whole integrated solution come together, only adding resources in our credit processing group and not pulling back on anything. We use the synergy opportunity to save money and that acceleration has come through well. But we consider Clover to have more growth opportunity than you see right now, even at that set of numbers you heard. And we think our core banking platform has it, as does our card processing.
And then if you think about what we're going to do with the potential of this ecosystem, as we bring in Zelle and our other mobility assets, our ability for the clients benefit is going to be very, very strong. And those are one of the things Jeff and I talked about when we started and why we're playing the $500,000,000 into innovation ultimately to be able to continue that sustained drive, Darrin.
Okay. That's really helpful. I just want to actually ask one follow-up on the capital allocation strategy of the company. Just I know during the pandemic, there's a lot of considerations, but you bought back some stock this quarter. Looking forward, obviously, especially with the transition from Jeff to you, Frank, should we consider 2021, 2022 still years where the legacy strategy for Pfizer both capital allocation and share buyback is similar still?
Thanks guys.
Yes. I wanted to limit it to 2021 2022 maybe is what I would say is, one of the things I signed up here and one of the great things I loved about how Jeff had brilliantly led the company was the capital allocation strategy. And I
think we owe it to our
priority in every dollar we spend. And so I would consider that tried and true strategy just flow through, I mean, 100%, and I don't think it's a 'twenty one issue or a 'twenty two issue that's tried and true forever.
Next, we have Matt O'Neill from Goldman Sachs.
Yes. Hi. Thank you guys for taking my call or my question. I asked a similar question about FIS previously, so I figured it fair to ask you as well. I think there's an understanding that coming out of the pandemic, the secular acceleration on things like electronification of payments is well understood.
However, part of the thesis that I think is equally compelling here is the newfound desire from your bank customers to potentially incrementally outsource to modernize their digital and mobile footprints and possibly reallocating investment dollars away from things like branches or ATMs or otherwise. And so
would you say
that there's a newfound enthusiasm from your customer base for a lot of the incremental services that you're able to provide and the pipeline is maybe as robust as ever along those lines?
Yes. Well, I think the pandemic has accelerated everything people thought about digital. Maybe what people thought would take 5 years, it will take 2 years or less than that. I mean, you watched us build capability in digital much faster than maybe we would have thought it would have taken before. And our clients are fully engaged.
And so I think speed matters and clients are completely committed to being digital first and we're committed to delivering digital first for them.
Thanks, Frank. And just as a quick follow-up point I believe what I heard on the capital allocation front for the remainder of the year was a focus on debt pay down, which is certainly reasonable. But can you just confirm that that's correct? And then presumably once the leverage gets down to the targeted range next year, the share repurchases will really kick in earnest?
Yes. Matt, I would say, we've demonstrated an ability to do both. We've done that over the years. We've done that since the merger. When we first announced the transaction, we suspended share repurchase pending the deal closing.
We made commitments on our ability to delever. We're well down that path. At the same time, we repurchased $1,400,000,000 in shares while paying down some debt. To get to our targeted leverage mid next year. There'll be some debt pay down absolutely, and I mentioned that in my opening remarks.
We'll also see EBITDA growth that helps create that deleveraging point. So you should absolutely expect us to continue to allocate capital both in terms of investing in our business and then free cash flow is split between M and A activity when appropriate, but all through the eyes of a share repurchase and that debt delevering. We've got a really nice glide path to achieve what we set out to achieve by second half of next year. And share repurchase has been part of the transaction since and will continue to be going forward.
Very fair. Thank you very much.
Thank you. Next, we have Ramsey El Assal from Barclays. Your line is open.
Hi, thanks so much for taking my question today. I wanted to ask a little bit about the BAM JV dissolution. And I guess first, can you sort of dimensionalize the magnitude and kind of cadence of the expense savings coming out of that? Is that a contributor I didn't think I heard you mentioned that it was a contributor to the large increase in margins in merchant quarter? And then also just in terms of the merchants you selected in that JV, are there any is there is the time with Bank of America and or the pandemic creating any additional kind of like attrition or retention concerns around those merchants?
No, I'd go back
to if you go
back to last July when we talked about how this would perform and where we are today, we feel great about our partnership with the bank. We feel great about probably one of the largest solutions you've seen in an industry with 0 friction than extending a processing agreement for 5 years beyond our current processing for them. The bank has just been a great partner through it and we feel as good as we did ever. So I just start with that and we think ultimately both parties end up with a very, very strong good situation. But ultimately, we do see cost take out and we do see growth opportunity as we talked about maybe better than we talked about last July.
I will let Bob take you through a couple of more deeper details. But I would start at the highest level that this dissolution was usually successful for both institutions. Yes.
Just to add, Ramzi, to your specific question. I did point out that as of July 1 with the dissolution completed, we do see our overall expenses below the level of proportionate share that we had back when the JV was in place. And so we will see a lift in margins because of that in the second half of this year. Not all of that is yet behind us, but a big chunk of it is with the effectiveness of dissolution on July 1.
Okay. And the second part of the question was just around any type of attrition characteristics around the merchants that you've basically pulled from the JV, whether there's anything that changes in the equation in terms of not having the Bank of America connection or maybe the pandemic or anything like that? Or are these merchants expected to perform on that metric very similar to your other the rest of your book effectively?
Yes. No, we feel very good about it all. We feel very good about it all.
I'd certainly expect them to experience similar characteristics to the rest of our client base.
Okay. All right. Perfect. I'll leave it there. Appreciate it.
Thanks so much.
Thanks, Ramsey.
Thank you. Next, we have Tien Tsin Huang from JPMorgan. Your line is open.
Thanks. Hope you can hear me. My self-service is really bad where I'm at. Just a follow-up on Randy's question, the BAM's merchants, anything to share in terms of type of merchant or it's the geographic mix of it? I'm just curious how that piece is different than maybe some of your other JV merchants because I still think the market somewhat under appreciates the mix of what you have inside those JVs.
I mean, if you look at it, there are some fabulous names. Actually, the fact of the matter is many of those names were contributed by the original company, and we took those back and they're just fabulous household institutional names that we feel so good about as did the bank itself. And then the geographic diversity would be exactly what remember, this was a U. S. Business that was really fundamentally what it was.
And at the SMB level, there's a large clover base on both sides. So remember, these were large clover consumers that generate very, very good returns and who we actually believe we will do more with as we go forward as we bring out even the functions you heard like virtual terminal and order ahead and other capabilities. So I'd say great geographic diversity, great reach from small to tall, some of the largest investment names you'll hear, and many of them were long standing deep relationships with the predecessor company.
Yes. Tien Tsin, I'd say overall, we're quite pleased with how that overall selection process went. We're very happy with the 120,000 merchants or so that we picked up. And also remember, we're still the processor for Bank of America's clients going forward.
Yes. Yes, caught that with the 5 year extension. Got it. And then just my quick follow-up. Just I know you'll share a lot more investor data.
I don't want to either preview that too much. But just the $500,000,000 I'm curious how much of that could we expect to allocate towards maybe modernizing some of the platforms? I know there's a lot of discussion around modern versus traditional or older platforms. And I'm just curious if that's going to be part of the road map with the $500,000,000
Yes. We haven't thought of the $500,000,000 in that manner. We actually have been doing that over the past year in a very deep and aggressive manner and been hugely successful at it. On that $500,000,000 we're really talking about next generation opportunities, whether it be in data, whether it be in fraud, whether it be in decisioning. So you should expect us to modernize the place away from the $500,000,000 and it's in your run rate today.
Got it. Okay. That's good to know. Thanks. And Jeff, hope to see you there in person.
Me too. Thanks.
Hey, Matt, if
you will. 100%.
Thank you. Next, we have Ashwin Srivijikar from Citi. Your line is open.
Thank you. Hi, Jeff. Hi, Frank. Hi, Bob. Good to hear from you and good job in these circumstances, shed incremental color on sort of 3Q versus 4Q, sort of by segment.
Are there any specific periodic or one time impacts to watch out for? It's great that you're not expecting any periods of duress like you mentioned, but are you incorporating periods of perhaps plateau performance up and down? Any incremental color would be great.
Yes. Ashwin, I would say,
off the top of
my head, there's no really big one timer, so to speak, or items in the second half that would color Q3 versus Q4. I would expect to continue to see kind of the monthly progress that we've seen through the Q2 and into July. So August gets a little bit better, September gets a little bit better, October, November and hopefully maybe by the end of the year we get back to whatever normal used to be. I can't remember what that looked like. It was so long ago.
But we still have progress to go. And I at this point, we're kind of counting on or expecting relatively steady progress through the balance of the year. So growth a little bit stronger in 4th quarter. But as we see the volume come back in Q3, as I mentioned, we'll expect margins to bounce pretty nicely in Q3.
Got it. And then the follow-up question is on bill payment where you guys obviously have sort the leading franchise. Can you talk a little bit about the impact of the crisis on that segment given a lot of people find it difficult to pay bills and whatnot? What are you seeing in that segment? What's the volume dependency of maybe stimulus or anything like that, that one might expect there?
Yes, I would treat it like it was a very small impact, not a large impact. And stimulus has a little effect, but those clients and we have a fantastic franchise there and with our financial institutions also, those clients are pretty have been very, very durable during this process. I would say, Ashwin, that one of
the things we saw particularly stimulus coming in, movement in Zelle. We saw some nice lift with that, some real growth come through and sustained. So it wasn't a one time sort of a thing. And as you heard us talk, Zelle has been quite positive both in terms of number of transactions, number of clients signing up, number of clients going live, that continues to be a very nice driver for us in our Payment segment.
Got it. Thank you. See you guys in December and maybe hopefully even in November.
Thanks, Ashwin. Thanks.
Thank you. Next, we have Brian King from Deutsche Bank. Your line is open.
Hi, guys. Just wanted to get a clarification on the margins in Acceptance. The magnitude of the drop, I think, was kind of surprising and below expectations or at least our expectations. But I'm almost equally surprised that the bounce back in the margins being that quick. So I get the network assessments plus and minus there.
But just thinking about volume and what that means for margins, does that explain a lot of it? And how much your synergy is involved here on this bounce back in the margin as well?
Yes. So Brian, the network assessment fee, as I mentioned, is 300 basis points. Overall volume being down 15% in a business that's got some good sized fixed costs really does impact quite substantially. And as those volumes come back, you'll see that lift return. The advantage on the network assessment fees is not only does the headwinds subside, but actually becomes a tailwind.
And so you see a nice recovery there. And then the last item that kind of is a change first half to second half is the BAM's deferred revenue. The headwind ceases because that lapsed Q2 of last year. So you don't have to compare in Q3. In terms of synergies, we'll continue to generate cost synergies.
That segment has seen nice progress like the entire company and that will continue into the second half of the year. But I would definitely point to the network assessment fees and timing and as well as just overall volume being a real part of it.
Got it. And then just on the other segments, are synergies driving some of the massive improvement we're seeing in FinTech and Payments as well?
Yes. More so in the Payments, but yes, all three of our segments plus the corporate expenses, are seeing some real benefit. Where we are driving cost out of our technology, largely through our vendor discussions, you see the benefit across all three of the business segments. Our Payments segment is the area where the businesses overlap the most, And so you get the more natural takeout other than the corporate functions in that segment. FinTech, definitely seeing some benefit on the technology side.
They've also been quite successful in what we used to call operational effectiveness or general productivity and taking cost out of that business. Okay, great.
Congrats on the execution.
Sure. The key, Brian, I think is these are permanent costs out. This is cost synergy. This is not temporary actions in response to COVID that will naturally snap back. You have an artist announced furloughs or employee pay cuts.
This is our effort to drive synergies a little bit faster than maybe we would have otherwise, maybe not, but definitely our permanent cost set that won't snap back as you have to put those costs back into the business.
Got it. Helpful. Thanks, guys.
Thank you. Next, we have Lisa Ellis from MoffettNathanson. Your line is open.
Hi. Good afternoon. Thanks for squeezing me in. I was hoping to get a little bit more color on the 38% increase in sales in the quarter, 20% year to date. Can you just talk a little bit about where you're seeing that uptick in demand through the pandemic and how sustainable and more secular is it versus some temporary things related there?
Just a little bit more color there. Thank you.
Yes. I think first of all, where they're 38% sustainable, you can be quite clear that the year to date number has large sustainability to it. And when Jeff and I put the companies together, one of the phrases we use is how we would come together in the client's office. In those competitive takeaways like Atlanticus or Genesis, those are July numbers. And we talked about the $50,000,000 of synergy wins in the quarter.
It's across the board. It's the full demand, the suite. I mean, we this digital nature that people would like from us is very strong and that's why we talk about architect and how we're delivering that. I think you'll continue to see us this bank merchant really has yet to turn into anything in our P and L yet, although you would see that in 2021. But I mean the sustainability and the durability of our sales efforts are very, very high.
Okay. And then my follow-up, we just come circle back again to the Clover number because I think that was a pretty fantastic number, up 32% in July, 24% in June. Can you that must mean that you've got a whole bunch of new merchants coming on to Clover in the middle of the pandemic. Is that right? Is that the right interpretation of that?
And kind of how and why and where and what segments or through what channels are they coming in, like what's driving that?
Yes. I think first of all, if you think about it, we always had growth. This has continued to grow. And now we have virtual terminal out there. We have order ahead out there.
So we will, when we're bringing e comm into Clover, when we're bringing virtual terminal, when we're bringing order ahead, yes, we are selling more merchants also. But I want you to think also about how the acceptance levels of Clover are much higher than where we were at a different point in time. So it's more merchants, more functionality and more desire for the product by clients. I think that's how I
think about it. And Lisa, I'd just add one other data point we mentioned was unit shipments were up 9% in June. So we are getting more units out there that are helping that.
Okay, great. Thank you. Thanks, guys.
Thank you. Next, we have Vasu Govil from KBW. Your line is open.
Thank you very much for taking my question. I think Bob touched on it for just a second, but maybe if you could talk a little bit more about your appetite for M and A in the near term and what type of assets would be most interesting to you here?
So, first of all, we feel very, very good. After we put these 2 companies together and how it's all coming together, both in the client's office and in our ability to invest and build ourselves. You hear a lot about things that we've built in terms of capabilities, right? And look at everything we're going to do is going to be against share repurchase because of our capability. So will there be a moment where there may be something that makes sense, but we feel that our hand is completely flowing capability and we have a deep belief in our technology prowess and the ability to build things and scale them up in a tremendous way, things like Clover, things like Architec, what we're doing with Zelle.
So but if you wanted to go to the backdrop, the backdrop is a filtered lens against share repurchase.
Got it. And just a quick follow-up, really good growth metrics on e commerce and Kroger and omni channel type solutions. I'm just wondering if you could give us some color on how big these pieces of the business are today as a percentage of the dual immersion segment.
First of all, our e comm business has been thriving and winning and taking market share away. And when you look across the company, we always thought that it was a large it was a fair amount. When you look at what we're doing in omni channel, that's new. That's new. But we're creating new total addressable market with it.
It wasn't like that was that all those order ahead capabilities for QSRs existed before. But when you think about $50,000,000 transactions, you're thinking about a tremendous growth engine that we're going to leverage across the world and across multiple verticals as order ahead has become a way of life for many. So I think when you think about it, these are pretty strong growth engines for us for a long time to create shareholder value for a long time where we've already built it and we've already demonstrated our prowess.
Yes. I think bottom line is, they're good and growing every day and, might be a topic of conversation for you at Investor Day coming up in December.
Great. Thank you.
Sure.
Thank you. And our last question is from Jason Kupferberg from Bank of America. Your line is open.
Hey, guys. I appreciate the opportunity here. So I just wanted to come back to the comment around the internal revenue growth turning positive in July. I mean, I'm guessing that's maybe low single digit up. And so if that's the case, it sounds like you really don't need to see acceleration of those July levels to get to that rough target of flat for the full year.
Am I thinking about that right?
So Jason, I mentioned this earlier, I think. As we said, we are positive. Yes, it's relatively small positive, and we expect that to continue to step up into August, September, October into the balance of the year. And that's certainly what we've seen over the last 3 months now back in the depths of April, successfully every month. In fact, every week has pretty much been a nice steady improvement.
We'll see whether that continues. The cost synergy actions in getting some revenue growth over our fixed costs certainly helps the case.
Right, right. I guess, yes, I guess the point I was trying to make is it almost seems like you don't need to see the acceleration off July levels to still get to the neighborhood of flat. And if you do see that, you would probably be up a little bit for the year, if I've got the math right there.
I would expect to see a bit of acceleration or continued increase in order to get to that flat plus or minus that I've talked about in my comments.
Okay, got it. And just one clarification to wrap up. I think, Frank, you had mentioned that the year to date bookings growth is sustainable. So just to put a finer point on that, does that mean that something in the neighborhood of 20 percent is in your line of sight for the second half of the year?
Yes. Yes. I mean, you heard us talking about some good wins in July. And I expect continue. While we've got a very strong pipeline and very, very, very, very receptive client demands, I mean, our clients have commented to us at the highest level relative to how we're serving them during this pandemic.
Okay. Well, great. I appreciate the comments.
Okay.
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