Next session here, and keep everybody on schedule. We are very excited to have Bob Hau from Fiserv here, Chief Financial Officer, who many of you know. Bob, thanks for being here.
Thanks for having me. Appreciate it.
Got a lot of stuff we want to kind of hit on with you because there's always a lot of stuff going on at Fiserv, and tends to be good stuff.
Good.
We like those conversations. I wanted to start, you know, kind of big picture on some of the data that you guys tend to put out monthly. You've got your Small Business Index, and you've got your Spend Trend Report. If we look at what you guys have shown since the beginning of the year, at least through February, pretty healthy numbers, I would say overall. I mean, seasonally adjusted, it seems like there's stability is kind of the trend. At the same time, there's been a lot of fresh debates in recent weeks about the macro and the tariff uncertainty, and some airlines are cutting guidance, right? All kinds of moving parts. Just anything you can share in terms of what you guys are seeing more recently on the merchant side of the business, volumes, transaction growth?
Yeah. You pointed to the, I guess, the one key one I would reference is the Fiserv Small Business Index, which is an index we've been publishing for a little more than a year now that tracks the health of the U.S. small businesses. This is a wide swath of data that we use. It's not a survey. It's actual data that we have available to us through our variety of merchant channels looking at debit card, credit card, cash spending, etc. We saw good growth in January, up about just under 5% year over year. January to February, month over month, was essentially flat. February over February last year was up about 2%. Slow, on a year over year basis, had slowed a bit, but still generally in line with our expectations.
Certainly a lot of news these days, but a lot of news, not necessarily a lot of movement. Some of the airlines you talked about were guiding to a lower outlook versus actually saying it's lower today, sort of thing. And some of the retailers, a little bit of a mix.
Right.
Right now, you know, I think if you watch your local news channel or your favorite business news channel, lots and lots of conversations about tariffs on, tariffs off. At the end of the day, right now, there's an increase in tariffs to China, and I think an aluminum tariff in place. Other than that, everything has been kind of stayed. That's causing some uncertainty in the market, and the market doesn't like uncertainty. So far, I would say consumer continues to spend at maybe a slightly lower pace than certainly what we saw in January.
Okay. Okay. All right. Yeah, definitely a lot of noise. Sometimes we got to separate the noise from the facts. That is all helpful.
Yeah. The one thing I would point to is, you know, for our business in particular, given the breadth of reach that we have, obviously both in the U.S., but globally, we like to say, you know, we touch nearly 100% of all U.S. households. We have a broad reach, but also a broad distribution, meaning roughly half of our merchant acquiring business is discretionary spending. The other half is non-discretionary spending. There is some inherent balance within the company. We think over the last 40 years of our existence, we've shown a pretty good resilience and the ability to deliver in any economic environment.
Yep.
Last year was.
The pandemic.
That's right. Last year was our 39th consecutive year of double-digit EPS growth. That's a lot of really good cycles and a lot of pretty tough cycles.
For sure. For sure. Maybe just remind us about some of the other considerations for Q1. I mean, you know, there is leap day, of course. Everyone has to kind of grow over. There are some Argentina dynamics for Fiserv. Just if you want to put a finer point on any of that, just as people start to firm up their first quarter numbers.
Yeah. It's actually something we pointed out when we gave original guidance for the year back in early February during our fourth quarter earnings call. You know, we gave a full year guide for top line growth of 10-12% organic growth, operating margins expanding at least 125 basis points, and earnings per share growing 15-17%. That we would expect to see that organic growth ramp through the course of the year. There is really a number of key factors that are playing there. First and foremost, as you pointed out, Argentina. In 2024, we saw transitory benefit of extraordinary inflation and interest rates in Argentina for the year at about 11%. That waned throughout the course of the year. It started out much higher. First quarter last year was a 22% benefit.
That eased so that when we closed out the year fourth quarter, I think it was about 6%. That's to the merchant organic growth line.
Right.
That eased pretty considerably. By the time we closed out fourth quarter, both inflation and interest had returned to more normal levels such that we will not see the transitory benefit of that in 2025. Very tough comparison. Q1 levels off or eases through the balance of the year such that we finish the year at 11%, which is why you see the growth for the full year at that 10-12% organic. Second thing is there is a number of new products, new contracts, new clients coming on board throughout the year. Things like Cash Flow Central that will go live in second quarter and ramp through the year. A number of large issuing contracts going live with Target and Verizon, the two largest ones that we talk pretty regularly about. Target actually went live earlier this week over the weekend.
Congratulations.
Verizon will go live very late third quarter, early fourth quarter. You have things like the ADP partnership continuing to ramp, rolling out Clover in three new geographies in Brazil, Australia, and Mexico. Brazil, we are live, formal official launch and now selling. Australia, we did that official launch party in early December and now selling that in 2025. The launch party in Australia is at the end of this month, and Mexico will follow behind. That ramps over the course of the year. We feel quite good about the visibility into those programs. They are either launched or launching very quickly, and we will see growth accelerate through the year.
Just one follow-up on the tariffs. I mean, anything indirect we need to think about? I mean, I don't know how much of your merchant business is in places like Canada or Mexico or anything in terms of point of sale devices. Do you source any of those from China or anything like that?
Yeah. So I would say, you know, no direct impact for all practical purposes. Yes, we have business in Mexico. We have it in Canada and everywhere else around the globe.
Sure.
It's not a tariff import-export dynamic. It's what happens to the local economy.
Yeah. Exactly.
The indirect aspect, whether it's one of the many foreign countries that may or may not be impacted or may not be impacted, but also, of course, what happens to the U.S.
Right.
You know, at the end of the day, very modest inflation is good for our company because higher volumes mean higher revenue. However, it's got to be modest. When you see extraordinary inflation, you see the secondary impact to the consumer.
Yeah. Yeah. That's what I think we're all watching and probably what happened.
Yeah. Exactly right. Correct.
Okay, great. Mike Lyons, CEO elect. He's got some big shoes to fill, but pretty exciting for your company. He's been on the job, I don't know, a month and a half or so, I think. I mean, are there any parts of the strategy you think he might tweak a little bit? I mean, certainly his initial comments suggest there's not going to be any, you know, major wholesale changes coming, which makes sense. Any tweaks, you know, maybe we should be on the lookout for?
Yeah. I think this is, if I remember correctly, this is about week eight for him right now. You know, one of the things I've heard him say multiple times, both internally and externally with our own employee base, but also with clients, you know, don't expect the big unveil is the term he uses.
Right.
You know, he came to the company, first of all, knowing the company quite well.
Yeah. Sure.
He's been a client of Fiserv for, you know, more than a decade. He likes to say, you know, at PNC, where he was president prior to joining us, he used 92 Fiserv products. So he knows the company quite well. And he believes in the product. He believes in the company. He believes in the capability and, you know, where we've been and where we're headed. No big change in direction. Obviously, you know, Mike's not Frank. Nobody is Frank. He'll put his own touches on the market, or excuse me, on the business. It's been an incredibly easy/smooth transition. I think I said to some folks last week, you know, he started on a, we announced him on a Thursday. He started Monday morning, and his first day on the job was an all-day management committee meeting, which we do once a month.
He jumped right in and was engaged right up front. I think it was something like, you know, 10 days into his tenure, Frank declared transition over. You know, we're now running the company together. Quite honestly, you've seen this physically take place inside the office where on day one, the two of them were inseparable. On day two, inseparable. Day five, day seven, day ten.
Yeah.
To this point, you know, there's a little bit of a divide and conquer. That transition has been quite smooth. Having the two of them around for, you know, eight weeks now has allowed for what has been quite a smooth transition and ultimately, you know, officially turn the keys over and we'll move on.
Sounds good. Sounds good. I mean, Fiserv obviously has a number of attractive businesses, but most people, you know, certainly consider Clover to be your crown jewel. I mean, it's approaching, I think, 15% of total company revenue. It's growing almost 30% still, obviously at scale. We'd like to get your current assessment of Clover's competitive environment. Any changes maybe you've seen or evolution there, particularly, you know, at least starting in the U.S. when we think about the three main verticals that Clover's really focused on?
Yeah. Yeah. I mean, obviously, Clover is a big product. It's one of what I would consider several crown jewels of a company. One of the unique characteristics or benefits of Fiserv is, you know, we have lots and lots of products. And even within a product like Clover, there's lots of elements of Clover.
Yeah.
To your point, you know, we guided back in actually March of 2022 for the first time, we indicated we expect to get to $3.5 billion in revenue by the end of 2025. We updated that in our November of 2023 Investor Day to reaffirm the $3.5 billion for this year and add a 2026 goal of $4.5 billion, essentially a 29% CAGR from March of 2022 to now really the end of 2026.
Yes.
We're right on track for doing that. 29% growth in 2024. We also provided an outlook for value-added services, part of the key growth elements of the Clover solution, with an expectation that value-added service penetration would hit 25% this year and 27% next year. We're right on track. We added three percentage points last year, went from 19% to 22%, got to add another three percentage points this year.
Yep.
We get to ease into only two points after that. Of course, that's off a much bigger number.
Exactly.
We feel quite good about the track record and our ability to deliver on that. Some of the keys to that growth is those three new international verticals.
Yep.
Building out additional value-added services. We continue to implement and deliver new software solutions. We launched five new hardware products last year. We continue to invest in that product and bring new capabilities to market and have a very broad distribution channel that continues to grow. We've seen a pretty significant renewal of interest in the FI channel.
Okay.
Selling merchant services, signing up a number of new banks. That was one of the early synergies of the Fiserv First Data merger. We did quite well, signing up hundreds of new financial institutions. Over the last six or nine months, we've seen some really significant acceleration of that, really around the solution that we launched last year, we refer to as the Small Business Integrated Suite of software. Something that small businesses around the country, around the globe, will benefit from and something that we're seeing our financial institution partners seeing as quite valuable in order for them to not only generate revenue through revenue-sharing agreements, but also deepen their relationship with an important client base of theirs, their own small businesses.
Right. Right. Right. Yeah. I want to come back to dive into some of these incremental drivers that get you to those 2025 and 2026 targets. Before I forget, I actually want to come back to the ADP-Clover relationship. I know you highlighted that briefly. I mean, it really does seem like a very natural cross-sell opportunity between the two customer bases. Tell us a little bit more about the rollout plans, anything you can share on the economics of the relationship and, you know, whether or not it's exclusive. You know, do you think it starts to move the needle a little bit this year on revenue?
Yeah. The partnership you were referring to, we launched late last year in where we are essentially selling each other's solutions to small businesses. ADP obviously has an extensive network of existing clients and new clients where they are selling payroll and human resources solutions, which we obviously don't have. And, you know, offering those types of capabilities to our small businesses, again, deepens our relationship with our small businesses. It expands the offering that we can bring to a small business and vice versa. They don't have a merchant acquiring or a Clover solution. We are now essentially selling each other's products to each other's clients on a referral basis. We're quite excited over the partnership. We think it's a very natural link. The two companies, you know, get along quite well. We're encouraged on early signs, but it's early signs.
Yeah. Yeah.
You know, is it going to move the needle? It depends on how fine a needle you want to look at.
Yeah.
At the end of the day, you know, we're going to do, you know, $20 billion-$21 billion of revenue this year with roughly half of that, call it $10 billion in merchant acquiring.
Right.
ADP is helping with that, no doubt about it, and vice versa.
Yeah.
We're excited about the partnership.
Yeah. No, it does sound super, super interesting. Let's come back to some of these incremental sources of growth for Clover. I want to talk about the VAS piece. I guess when we think about VAS today, we think of Clover Capital as being the biggest piece of that. Correct me if I'm wrong. I'm just curious how you guys are thinking about underwriting and credit there. You know, with the macro becoming a little shakier, do you think anything different about it?
Yeah. Clover Capital is not the largest, but it's one of the largest value-added services, most definitely. I would say, you know, it's, excuse me, it's a different sort of, it's not a loan. We have very, very good visibility. It's essentially an advance against receivables. We have very good visibility into the merchant acquirer's, you know, cash flow.
You got the hand in the cash register basically, right?
Exactly. In fact, are in the payment flow. You know, if you look at our financial disclosures, continue to see good growth in Clover Capital. Any reserves or losses are remaining quite steady. I still feel very good about our ability to continue to offer that and generate good margins and good returns.
Have you guys seen any different kind of loan sizes in Clover Capital? Or is there, what is the average loan size?
No, it's relatively small, both in terms of dollars and in terms of term or length.
Okay.
I would say, I don't think we've seen any change in dynamic there one way or another. I don't think we've seen any big shift in demand. Certainly something that we'll watch for. So far, relatively stable and steady.
Okay. Let's turn to some of those newer geographies, you know, Brazil, Mexico, Australia. I know, again, some of this is pretty nascent, but just if you're looking out, whatever, 12, 18, 24 months, is there a view in terms of, you know, which of those geographies can actually drive the most incremental revenue? Maybe just talk a little bit about distribution strategy in the respective regions.
Yeah. I think, so a couple of keys there. One is from a distribution strategy, very similar to what we have globally today, a variety of different distributions, direct channel through partnerships, through bank partnerships. Important to note that as we expand Clover into these new geographies, the three, Brazil, Australia, and Mexico, they're not new geographies for us. They're new geographies for Clover.
Sure. True. Right.
We have merchant acquiring capability in all three of those today. We're, you know, well known in the market, well known through the distribution channels and have good local presence. One of the things that Fiserv has done for, you know, five years post-merger is we are organized, we don't have an international division. We have really four regions, North America slash the U.S., Latin America, EMEA, and Asia-Pac. Each of those regions are run by local leaders that report directly into Frank slash Mike.
Yeah.
That local presence really makes a big difference. The fact that we are expanding Clover into local markets for us, we're not entering a market we're not familiar with. It's not a market that is new to us by any stretch of the imagination. We feel quite good about our ability to make good headway and grow nicely. I would anticipate this year all three of those regions ramping and continuing to add to the, is one of the many ways we'll achieve the $3.5 billion of revenue for 2025. I would anticipate, and this is somewhat size of market as well as pacing or timing, you know, we're first to launch in Brazil, next is Australia, and then Mexico. I think you'll see that in terms of growth trajectory.
Okay. Yep. Makes sense. Makes sense. The, you know, the backbook also comes up sometimes as a Clover driver. I think originally at the Investor Day, you guys had said, oh, backbook maybe contributes 10%.
Right.
I think that's more or less been your experience since the time of the Investor Day. As we look out at your 2026 target, does that 10% get a little bit bigger?
Yeah. The 10% you're referring to is a number actually we've been seeing for several years. I can tell you for the last five years that I've been associated with the merchant side of our business.
Yeah.
That's been the case. And what that is, is roughly, excuse me, roughly 10% of the Clover growth is driven by backbook conversion. Or said another way, 90% of new Clover revenue growth is from clients that are new to Fiserv from a merchant acquiring standpoint. That's been very consistent for the last five years. I would expect that to kind of hang in there for this year. That's what we're seeing right now. I expect to see the balance of this year. What we said during Investor Day back in November is, you know, as we hit 2026, 2027, 2028, you know, we'd expect that to modify a little bit. It's not something that, you know, we don't need that to go to 50% to get to the $4.5 billion. At some point in time, it would make sense to more proactively address that backbook.
You know, in November of 2023, 2026 looked like a time that we'd probably want to do that.
Yeah. Yeah. No, that would certainly, that would certainly make sense. All right. We are going to move on to Financial Solutions. I wanted to talk about pipeline on the issuer processing side of the business because you've had a number of big wins. You touched on a couple of them briefly, like Verizon and Target, there was Tangerine. What's the state of play right now in the pipeline now that you landed some big contracts?
Yeah. I, you know, still good pipeline, good growth. One of the areas in particular we see real opportunities internationally. This is a global business for us. We see some real opportunities, obviously Tangerine up in Canada, the largest credit union consortium up in Canada. I mentioned Target is now live. Verizon will go late third quarter, early fourth quarter. We actually expect Tangerine to be in 2026. In December of 2020, one of, and we had an investor conference, one of the key messages we delivered there was we had, and I think this number is right, it was many years ago now, $120 million worth of new issuer wins in the previous 12 months that we expected to go live. In November of 2023, which was our next Investor Day, we recapped that 121st. They were all live.
Secondly, it turned out to be more than $120 million, i.e., natural growth of those products, excuse me, of those clients. Then announced another $125 million or so of new wins as of November 2023 that would go live. That is the Target and the Tangerine and whatnot you see now going live. You know, we continue to see good pipeline and good level of interest. We got a terrific product. We continue to invest in that product, bringing more capabilities to that. We are quite encouraged about the growth that we are seeing from that group of wins we had back in November of 2023 starting to go live, as well as new wins that we are seeing. Part of that, of course, is now the hot term embedded finance, which we have been participating in for a number of years.
We didn't call, didn't used to call it embedded finance. In that November 2023 Investor Day, you know, one of the examples we used is Walmart. Didn't realize that was embedded finance. We just thought we were providing additional services to a very large client of ours. Today that's embedded finance. Of course, at the end of kind of the second half of last year, we announced the DoorDash win, a large embedded finance win that is now live. I think we announced that in early fourth quarter. It's live and at "full ramp." Still growth opportunity, but we've converted the dashers, as they call their drivers. We've now got, you know, a few million accounts open on that system. We'll continue to see growth in that space as DoorDash grows, as well as as they look to add additional capabilities to their program.
Yeah. I'm glad you brought up DoorDash because I was going to get there. Maybe for people who are a little less familiar with the relationship, maybe just say a few words about how it actually works in practice and, you know, kind of the benefit to the dashers.
Yeah. Yeah. If you're not familiar with DoorDash, every time a delivery takes place, their drivers are paid instantaneously. If a driver is making 10 deliveries, they're getting 10 paychecks that day. If they're making 20 deliveries, they're getting 20 paychecks that day. Obviously, they're not checks. We are the processor for those payments. We provide the program management. We provide the debit processing. Finxact is the ledger that they're running that system on.
Great. Great. I want to come back to CashFlow Central, then the small business bundle. You know, it would be helpful, I think, if you just kind of go through some of the key aspects of those products and the rollout timelines. I know the CashFlow Central is kind of part of the bundle.
That's right.
Just unpack that for a bit.
Yeah. The Small Business Integrated Suite that you're referring to is a set of products that we are bringing to a market that enable a small business to better operate their small business. It is a variety of different solutions. It obviously starts with Clover at its heart from an operating system standpoint. It adds CashFlow Central, which will go live in the second quarter, which is an AP/AR solution that enables a small business to better manage their cash flow that we all know is the heart and soul of the success of a small business. We have Experience Digital or XD, which is our digital banking software. You can access that Small Business Integrated Suite through XD, through your digital banking solution. Therefore, financial institutions are a key part of the distribution channel for the Small Business Integrated Suite.
It's things like ADP or SpendTrack, which is a credit card control and reporting system. A lot of different capabilities that come in an integrated suite that you can either access through XD, again, your digital banking solution, or through the Clover dashboard, depending on how you want to access all of that capability. A lot of that is in place today and deepening the integration of that capability. Some of that, like Cash Flow Central, will go live later this year.
How many banks are signed up so far?
From a Cash Flow Central standpoint, by the end of last year, end of 2024, we had 39 financial institutions.
All right.
Of course, continue to sign up new ones this quarter and have a tremendous pipeline.
Okay. We'll look forward to hearing more about those. I wanted to spend a couple of minutes on the core banking business, which, you know, obviously post the merger with First Data, became a smaller piece of overall Fiserv, but it's been a very long-term business for you guys. How would you assess the competitive landscape there? I mean, I think of Fiserv as, you know, playing across various aspects of that market. Just how you've seen that evolve and, you know, how you feel about Fiserv's overall positioning.
Yeah. You know, first and foremost, I feel great about where we stand in that overall market. You know, core banking is one of the three business lines within our Financial Solutions segment. As you may or may not recall, Fiserv has got two segment reports. One is the Merchant Solutions, the other Financial Solutions, roughly 50% of the revenue in each of those two. In that Financial Solutions segment, there are three business lines that roughly represent a third of the revenue of that segment, call it $9 billion-$9.5 billion of revenue last year. Banking is where we see our core, as well as digital banking, XD, for example, reported in. You know, overall, the Financial Solutions segment has seen good accelerated organic growth. We did 6% last year. We had guided the segment to be 5%-7%. We did 6%.
Guidance or outlook for 2025 is that segment will grow at 6%-8%. In banking in particular, we indicated, you know, that would be below that average, that 6% for last year and 6%-8% this year, given the nature of that segment. You do not have lots of banks changing cores on a regular basis. Over the last several years, that growth rate is up pretty meaningfully from what used to be "mid-single digits," but we battled to get to 3% or 4%. Now to be at 6% is an accelerated growth. XD is a tremendous digital banking solution. DNA, Finxact are two very strong core account processing systems. We have a variety of different solutions depending on the bank and the credit union and what works for your bank or credit union. Over the last several years, you have seen our solution kind of grow.
We're now participating in much larger banks. If you had talked to me seven, eight years ago, I would have told you kind of the heart of our offering was in a bank size or credit union size, call it $5 billion to $10 billion typically. That's moved up quite meaningfully. DNA and Finxact in particular, we have now, you know, multiple banks well in excess of $100 billion in assets.
Wow.
The other thing that's changed quite meaningfully is 10 years ago, the secret sauce to Fiserv was sell a core and then add surrounds to it.
Yeah.
Today, we can start those relationships with the financial institution in a lot of different ways. It might be selling debit processing, or it might be selling digital banking or whatnot, and then add the core where 10 years ago as you had to be the core.
Yeah. Right.
Now we can lead with a lot of different solutions. Of course, having both that Financial Solutions and that Merchant Solutions capability and being able to go to a bank and talk about a Small Business Integrated Suite, which allows them to sell a solution to what really is a pretty important element of their customer base and deepen their relationships with their clients, as well as generate revenue through our revenue sharing agreements, is quite meaningful.
If we think about, you mentioned the guidance for Financial Solutions this year. It is calling for a little bit of acceleration. I think it's a little bit back half loaded. I think there are some genuine drivers for that. Just, you know, hone in on kind of the points of visibility that you have into that acceleration.
Yeah. This is generally a, overall Fiserv, but in particular on the Financial Solutions, a pretty high recurring revenue business. What drives that growth rate as it accelerates into the second half of the year is things like CashFlow Central launching, some of the new issuer programs going live. Continue to see good growth in both the digital payments and digital banking solutions, the other two large business lines within that segment. We got a great debit business. We got a great credit issuing business. Debit is both debit processing as well as Star and Accel, essentially the third largest debit network in the United States. Continue to see growth in that space. We're quite enthused over our ability to accelerate revenue again into 2025. We essentially hit the bottom end of that range last year.
Right. The second.
Given the things like CashFlow Central and new implementations on Experience Digital or digital banking solution, the new issuer wins and whatnot, we feel quite good about the visibility into recovering on that.
Basically, you're talking about a point right at the midpoint.
That's right.
It'd be one point of acceleration.
That's right. Exactly.
Okay. You're going to have Target for three quarters and Verizon for what?
Third quarter, you got DoorDash for a full year instead of just a quarter. Even in the fourth quarter, it was ramping. There's real.
Right. The pieces are all there. Yeah. Okay. Okay. Good. That's a good caller. I wanted to touch on the Pay by Bank initiative at Walmart, where you guys are obviously an important part of that. I wanted to get a sense of just, you know, is that moving into production? Just curious on timing there. When you guys talk to other large merchants that obviously you have deep relationships with, are you getting the sense that there's interest from others as well? Pay by Bank?
Yeah. Yeah. I definitely would say there's some real interest. Obviously, the pilot that we did with Walmart last year garnered some interest with Walmart, but also with other large clients of ours. You know, it's still early stages on how that plays out. You know, we are in, have been and continue to be and expect to be into the future, offering a variety of different payment solutions for our clients and enable them to pay and get paid in whatever form they want to get paid. Pay by Bank is yet another solution we're bringing to market.
Yeah. Okay. It sounds like one to watch, but still early days.
Yeah. Yeah.
Let's talk about operating margins. You know, you guys are calling for at least 125 basis points of expansion, I think, in both segments as well as, you know, obviously total company. You guys have really done a fantastic job on margins, you know, probably even more so since the merger. I wanted to hear about kind of the levers that you have to drive, you know, incremental margin expansion and all this ongoing efficiency because, you know, again, margins are up, you know, hundreds of basis points, you know, since the merger.
Yeah. Since merger, margins are up just under 1,000 basis points. As you said, our outlook and guidance for this year is at least 125 basis points this year. We expect both of our segments to contribute towards that growth. You know, this is really something that is the heart and soul of Fiserv. It's also what I sometimes refer to as the natural cycle of the company. As we accelerate growth, this will be 2025 with a 10%-12% outlook, would be our fifth consecutive year of double-digit organic revenue growth. We like to talk about 39 consecutive years of double-digit earnings growth. We're now looking at, we did four years, this will be the fifth year of double-digit top line. That organic growth of the company falls through at better than company average margin. It's a very scaled business.
Right. Right.
It is a virtuous cycle of growth. Our investments in the company last year, the year before, the year before drive that 10%-12% growth this year. That 10%-12% growth comes through at better than company average, better than the 39% margin, and therefore allows us to take some of that, reinvest into more growth for next year and following years. We will see margin expand. It is something that we have been doing for a lot of years since before the merger, but obviously accelerated meaningfully as the growth of the company accelerated pretty meaningfully. When we started making those investments and started talking about, you know, high single-digit, low double-digit organic growth, I think a lot of people were looking at saying, "Okay, you are going to make the investments or you are going to actually deliver the growth.
Right.
We have absolutely done.
How can you do both? Right.
That's right.
Yeah.
You've seen a pretty significant increase in our CapEx. In 2020, we spent about $900 million in CapEx. The last three years, I think we've averaged $1.5 billion. We're just over $1.5 billion last year. That brings that long list of new products that are now going into market: Cash Flow Central, five new pieces of hardware in Clover, new software for our focused verticals around retail, restaurants, and services in Clover. Number of new products that are coming into market drive that growth and allow us to continue to expand margin.
Yeah. It's nice.
Something we see growing for, you know, a number of years. This won't be the last.
Yeah. Yeah. No, it's a great flywheel, right?
Yeah. Yeah.
I guess, is mix helping with ongoing margin expansion too? I mean, if I think about, for example, the outsized growth in Clover?
Yeah. I think mix within the business lines, mix within the products, and even within the products. One of the key elements of growth of Clover is that deeper value-added services penetration.
Exactly.
That software sale obviously is a much higher margin than selling a basic terminal or processing solution, payment processing. Therefore, that allows that margin expansion most definitely. You know, there's reasons for the investments we're making and where we're making them that's better margins.
Is there still a focus on outright cost takeout too, or do you feel like you've realized most of that?
I think depending on how deep you want to look, yes. Ultimately, it's growing at better than company margins. And so, you know, an incremental dollar of revenue or 5% revenue growth doesn't bring 5% cost growth.
Right.
You know, you'll see our expenses will grow in 2025.
Sure.
2024 was above 2023. 2025 will be above 2024.
Sure.
At well less than the growth rate of the top line.
Yeah.
Now, in individual specific areas, there's cost management or cost takeout. Generally, our costs are growing just at a much slower rate than revenue is.
The economy's a scalar or a beautiful thing, right?
Yeah.
I wanted to talk about free cash flow. This has also been a pretty bright spot of the story. Anchor guiding to $5.5 billion for this year. I think that would put you pretty close to the 100% conversion target. That's actually better than, I think, 90% is what you talked about at the investor day, right, that you were aiming for in 2025 and 2026. It looks like you're actually outperforming a little bit. Just curious, you know, what's driven the outperformance? Is it just, you know, the margins coming in better or other factors?
Yeah. I think, you know, margins coming in better is part of it. I think there's also, and we talked a little bit about this in fourth quarter when we provided the full year 2024 results. We did $5.2 billion last year, which was above what we were guided and above what people had expected. That really was driven by a pretty meaningful project around working capital management. That's both accounts payable and accounts receivable, better managing both the cash in and the cash out in a systemic way.
Right.
It wasn't.
Flocking and tackling.
Exactly right.
Yeah.
It was not, "Oh geez, I got a big receivable. Let's make five phone calls and beg for that money." It really was changing the way the cycle of how we generate invoices, where those go out, how we follow up, and managing terms and managing communication. A lot more electronic delivery of invoices, better predictability of accounts payable that enables you to get different terms. Where if a vendor knows they're going to get paid in 60 days, they're willing to take a 60-day payment. Where if they were at 45 and you paid them sometimes in 30 days, sometimes in 55 days, that visibility where they actually can see that the payment's been approved, that sort of a thing.
A wide variety of pretty significant working capital projects, again, both on the AR and AP side, paid off in a bigger way in fourth quarter than we had anticipated. It is a sustainable systemic change that we expect to continue into the future.
Optimization, right?
Yeah.
That was tied, like you said, the payables and the receivables.
Absolutely.
Yeah. Good old-fashioned working capital management, which is great. Let's talk about M&A. I mean, obviously, you guys buy back a lot of stock pretty much every year. There is some balance in your capital deployment strategy. You've not been, you know, shy about doing deals historically.
Yeah.
If I think about just since First Data, obviously, I mean, they've obviously been smaller transactions. But, you know, now with kind of the changing of the guard, CEO, do you expect anything to materially change there or maybe just any characterization of the current M&A pipeline that you'd want to share?
I wouldn't point to a changing of the guard that will drive a change of outcome. You know, we've always been quite interested in acquisitions and done dozens of them over the last several years. To your point, the last couple of years, they've been typically smaller in nature. Really what's driven that is not an appetite, but a value. We have always been very much a value driver. If we see an opportunity to acquire a company or a capability that is value accretive for our shareholders, we'll absolutely address that. I would tell you, we have a very active M&A group that looks at dozens and dozens and dozens of properties, both in terms of our own random interest on companies that aren't necessarily available, but we'd love to find a way to do something with, but also, you know, ones that are in a process.
At the end of the day, as I've been known to say, I'm a willing buyer at a specific price. The challenge is finding a willing seller at that same price. You know, for a while, we thought we were seeing valuation expectations improve and ease. We haven't gotten to the point where, you know, we're doing lots of deals. We actually did close, we announced to the end of last year to close them this year. We got a couple of first quarter deals done, relatively small. I think a combined, call it $300 million, give or take.
Okay.
Not a significant amount of capital being deployed. But, you know, we continue to look. And if we see a nice opportunity, we're more than happy to do that. We have the strength of the balance sheet. We've got a great balance sheet, great cash flow. So we're absolutely willing, but it's got to be value accretive to the company.
Yeah. With your organic growth, you can afford to be disciplined.
Exactly.
All right, great. We got to leave it there. We're out of time. Thanks so much. Really appreciate it.
Appreciate it, Jason. Thank you.
Take care.
Thanks, everyone.
We're going to have one more session, and that's with Flywire beginning in five minutes. Thank you.