Fiserv, Inc. (NASDAQ: FISV) Q2 2022 earnings call dated Jul. 26, 2022
Corporate Participants:
Shub Mukherjee — Senior Vice President, Investor Relations
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Robert W. Hau — Chief Financial Officer
Analysts:
Dave Koning — Baird — Analyst
Lisa Ellis — MoffettNathanson — Analyst
Tien-Tsin Huang — JPMorgan — Analyst
Darrin Peller — Wolfe Research — Analyst
Ramsey El-Assal — Barclays — Analyst
Jason Kupferberg — Bank of America — Analyst
James Faucette — Morgan Stanley — Analyst
Vasu Govil — KBW — Analyst
Presentation:
Operator
Welcome to the Fiserv 2022 Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today’s call is being recorded. At this time, I would like to turn the call over to Shub Mukherjee, Senior Vice President of Investor Relations at Fiserv.
Shub Mukherjee — Senior Vice President, Investor Relations
Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now over to Frank.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Thank you, Shub. And thank you all for listening in as we share our results for the quarter and highlight the progress against our growth agenda. As you know, we serve as the operating system for commerce and money movement across our client base of banks, credit unions, fintechs and businesses, ranging from SMBs to mid-market or large enterprises. We help our clients grow by extending our platform to capture new services and new money flows. Our relentless pursuit of innovation for our clients yet again won us several accolades in the quarter. Fiserv was named a leader among merchant payment providers for the Carat operating system by Forrester Wave. Fiserv was also awarded the prestigious Webby Award for our Developer studio, a platform, which provides rich and expansive API integrations. Now moving to our second quarter results.
We delivered a strong 12% total company organic revenue growth, once again exceeding the 7% to 9% guidance range we provided for the year. The terrific performance on the top line resulted in 14% adjusted EPS growth to $1.56, bringing our year-to-date adjusted EPS growth to 17%, at the high end of the 15% to 17% guidance range provided for the full year. We attained $180 million of actioned revenue synergies in the quarter, reaching $700 million since the merger, exceeding the increased commitment of $600 million two years ahead of our original commitment. The impact of high inflation and our continued investment in the business resulted in adjusted operating margin of 33.5%, down 40 basis points from second quarter last year. We continue to see opportunities to innovate for our clients. through our recent acquisitions, such as Ondot, BentoBox and Finxact, as well as organic investments across our portfolio.
Additionally, these investments and accelerated revenue growth resulted in higher capital expenditures and working capital, leading to free cash flow of $658 million for the quarter and $1.3 billion year-to-date. Looking into the remainder of the year, our year-to-date organic revenue growth outperformance of 11% puts us in a very good position to beat our prior organic revenue growth guidance for the full year. Given the strength in the first half of the year, we are raising our full year organic revenue growth outlook to a range of 9% to 11%, up from 7% to 9% previously. The low end of this revised growth outlook assumes a macro slowdown in the second half versus the first half of the year. With this higher organic revenue outlook and the year-to-date adjusted EPS performance of 17% growth, we are raising the lower end about full year adjusted EPS guidance range by $0.05 to a new range of $6.45 to $6.55, representing growth of 16% to 17% over 2021.
Given the elevated inflation environment, unfavorable foreign exchange and our plans to continue to invest in innovation for our clients. We now expect our full year adjusted margin expansion to be at least 100 basis points. Now turning to the business strategy. Fiserv solutions are geared towards merchants and financial institutions, including fintechs. Starting with merchants, we are transforming from selling merchants individual point solutions to offering operating systems: Clover for small- to medium-sized merchants and Carat for large enterprises. This operating system approach expands the size of our total addressable market and makes us more valuable to our customers. We grow and create value in three ways: First, attracting more merchants to our operating systems; second, expanding the relationship we have with our merchants by encouraging adoption of more software and services modules; and third, benefiting from the growth of our existing customer base. Turning to our financial institution clients.
We remain committed to continuously innovate for our clients and broaden our total addressable market. Since we closed the acquisition of Finxact, a leading developer of cloud-native banking solutions in early April, we have been focused on three key areas: Integrating our existing digital surrounds into Finxact; selling Finxact to our existing clients as an innovation platform or sidecar core; and winning new logo sales on the Finxact solution. The feedback from both existing and new clients has been very positive. Now let’s dive deeper into our performance in the quarter by business segment. Let me start with merchant acceptance. We posted very strong organic revenue growth of 17% for the quarter. Merchant volume and transactions grew 10% and 7%, respectively. Our global active merchant accounts grew 5% in the second quarter, continuing the positive trend since the start of 2021. Results were strong across all regions.
North America was led by the strength in SMBs, particularly within the restaurant vertical as well as strength in enterprise verticals, such as travel and petro. Our international regions also had very strong performance on a local currency basis, in part offset by unfavorable foreign exchange. Spending across the EMEA region accelerated during the quarter, driven by strength in hospitality, restaurant and retail verticals. Our merchant business in Latin America was very strong in the quarter as we continue to make significant progress in the Argentina market. And in Brazil, onboarding merchants throughout exclusive merchant-acquiring mandate from Caixa. We are also expanding our presence rapidly in Mexico and Colombia. Spending trends in APAC were strong, driven by a rebound in the economic activity across nearly all markets, as well as new wins and implementations. Moving to our merchant operating systems.
Clover and Carat both continue to gain significant traction with clients. Clover global revenue grew 24% in the quarter, driven by volume growth of 27%, as well as growth in software and services penetration to 15%, up over 350 basis points. Clover’s vertical-focused strategy continues to deliver in market with BentoBox now fully integrated into Clover for all e-commerce payments. When Bento and Clover are sold together, we see an over three times increase in average revenue per user versus a Clover-only restaurant. In addition, UberEats was launched in the second quarter as another integrated delivery partner for our restaurant merchants. Carat, our omni-commerce operating system for enterprise clients, grew revenue 22%. We saw a broad-based growth across verticals, including petro and quick service restaurants. In the quarter, Carat made several strides in further strengthening its positioning within the petro vertical.
Among the notable wins include a contract with Wawa, a large chain of convenience stores and gas stations. Additionally, we expanded our relationship with a long-standing client to introduce a customized dealer settlement and reporting platform supporting over 10,000 retail locations in North America. In keeping with Carat’s mission to continuously innovate for our clients, Carat launched pay by plate, enabling our petro partners to facilitate transactions based on license plate recognition for customers that opt in, replacing the need for a physical card. Carat continues to capture new payment flows and has made significant progress across digital payouts and EBT online, with transactions growing 69% and 54%, respectively, in the quarter. Further bolstering its capabilities, Carat launched new payout options in the quarter to include digital checks, prepaid cards and crypto wallets. We also had some notable wins within our enterprise business in North America during the quarter.
We expanded our partnership with Walmart to facilitate onetime digital payouts to consumers and won a contract with Sodexo, a leading global facilities management company, to digitize consumer and employee payouts. Turning to our international merchant business. We continue to show strong momentum with the following highlights in the second quarter. In EMEA, Fiserv signed a deal with Abu Dhabi Commercial Bank, one of the largest banks in the region with over $115 billion in assets and a significant presence across the retail, corporate and SMB space with over 24,000 POS terminals deployed today. Fiserv will be providing it’s acquiring as a service suite of solutions, including our automated onboarding solution and omnichannel acceptance platform, with SoftPOS-enabled deployment. The bank will also benefit from Fiserv’s enhanced risk, real-time broad management solutions, our merchant portal and reporting capabilities.
In APAC, we went live with Sportsbet, the market leader in online sports betting across Australia; and boarded 10,000 submerchants from MYOB, a leading provider of digital business accounting services to small businesses in Australia. Moving to the Payments and Network segment. Organic revenue grew 8% in the quarter. This growth was enabled by a variety of drivers across our business lines. Our North American credit active accounts on file grew 14% versus Q2 of last year. This growth was driven by both new business onboarding and a favorable credit environment. As a reminder, in the second quarter, we completed the onboarding of Bread Financial, formerly ADS, the largest of the three top 25 credit issuing wins we announced in 2020. Bread was the third of the three wins to onboard, completing the $120 million in annual revenue related to new wins we announced at our last investor conference.
Looking forward, our current implementation and sales pipeline remains very robust. Our international issuing business grew strong double digits, driven by macroeconomic improvement as well as onboarding of new clients. Our debit business continues to post solid growth, driven by new client wins on our debit networks, STAR and Accel, even as debit transaction growth continues to normalize industry-wide following the stimulus-driven high debit volumes last year. Our market-leading digital solutions, including CardHub and SpendTrack, have become key differentiators in our new business pursuits and serve to drive more cards into our debit network, more opportunities for Fiserv to offer risk, fraud, digital banking and account processing solutions, demonstrating an attractive flywheel effect. We continue to see growth in digital payments driven by Zelle, which posted transaction growth of a strong 35% in the quarter.
Our 1,000th Zelle client went live during the quarter, a feat we accomplished in under four years of commencing Zelle implementations. And we expect this momentum to continue with line of sight into doubling our Zelle client base over the next two years. Fiserv recently won a competitive bid to support the state of California’s middle-class tax refund program. Fiserv will manage the program and distribute prepaid debit cards to qualified program recipients. This win reinforces our position as a leading provider of government programs, an area of expanding opportunity. We had a notable win in the student loan processing space which will considerably extend our position as a provider of choice to student loan servicers.
We continue to win credit processing mandates globally. In the second quarter, we expanded our relationship with a U.K.-based financial services company, NewDay, to provide processing and other services as they relaunch the John Lewis Partnership card, one of the U.K.’s most popular retail rewards credit cards. Moving to the Financial Technology segment. We posted another strong quarter with organic revenue growth of 7%, driven by strength in our account processing and digital activity as well as the timing benefit of periodic revenue. We had seven core wins in the quarter, including four competitive takeaways. Sales of digital surround solutions continue to grow at a healthy clip, driven by our 3-pronged approach.
Our proprietary online and digital banking solutions with integrated surround solutions, such as CardHub, Zelle and SpendTrack, offer a leading modern banking experience for our clients and users. In keeping with our open sourced approach to serving our clients, we are also pre-integrating third-party digital solutions into our cores and making these solutions discoverable to clients their our app marketplace. Last but definitely not least, we are making our platform attractive to the developer community by exposing our microservice APIs through our Developer Studio with the goal of becoming the destination of choice for the embedded finance ecosystem, including card issuing and processing, merchant and core banking integrations.
And Finxact further cements our lead in next-generation banking. Our Finxact product was selected by Colorado-based National Bank Holdings to utilize Finxact’s modern core to pursue an SMB-focused digital-only greenfield initiative called 2UniFi as part of their initial modernization effort. As an example of cross-selling Finxact into Fiserv’s existing core clients, Massachusetts-based Martha’s Vineyard Bank will utilize Finxact’s open APIs to deliver innovative new products and services across all channels, including highly personalized experiences for its customers. The combination of Finxact’s technology and Fiserv’s size and scale, ecosystem of digital surrounds and knowledge of banking, is winning over other competing offers in the market. Together, we are delivering value to our clients by accelerating their modernization journey.
Now let me pass the discussion to Bob for more detail on our financial results.
Robert W. Hau — Chief Financial Officer
Thank you, Frank, and good morning, everyone. If you’re following along on our slides, I will cover additional detail on total company and segment performance, starting with our financial metrics and trends on slide four. We had a strong second quarter thanks to our execution across the business and our broad portfolio of products and services. Total company organic revenue growth was 12% in the quarter with strong growth across all segments. Notably the Merchant Acceptance segment, which grew 17%. Year-to-date, total company organic revenue grew 11%, also led by the Merchant Acceptance segment, which grew 18%.
Second quarter total company adjusted revenue grew 10% to $4.2 billion and adjusted operating income grew 8% to $1.4 billion, resulting in an adjusted operating margin of 33.5%, a decrease of 40 basis points versus the prior year. For the first half of the year, adjusted revenue grew 10% to $8.1 billion and adjusted operating income increased 10% to $2.7 billion, resulting in adjusted operating margin of 32.7%, consistent with the first half of last year. The adjusted margin was impacted by a combination of factors, including: First, cost inflation for both labor and material, including point-of-sale terminals for our Merchant Acceptance segment and paper and plastic for our Payments segment; second, investments related to new acquisitions, including BentoBox and Finxact; and third, continued reinvestment into the business, including wrapping up of the Fiserv-First Data integration projects. As we previously indicated, these began ramping down late in the second quarter and into the third quarter.
This will lead to improved margins as we complete the spending and as the benefits of those projects materialize in the second half of the year, particularly in Q4, leading to a strong exit rate for 2023. Second quarter adjusted earnings per share increased 14% to $1.56 compared to $1.37 in the prior year. Through June 30, adjusted earnings per share increased 17% to $2.96, at the high end of the 15% to 17% guidance range which we provided for the full year. Free cash flow came in at $658 million for the quarter and $1.3 billion for the first six months of the year. Free cash flow conversion was 65% to adjusted net income this quarter and year-to-date. The free cash flow conversion was driven by a combination of:
First, increased capital expenditures, particularly in the areas of innovation and integration of newly acquired capabilities; second, increased working capital investment, driven by the very strong revenue growth, including growth in anticipation revenue in Latin America; third, increased inventory to minimize any potential impact to our clients given the risk of supply chain disruption; and fourth, continued investment in software and application development to drive sustainably higher growth across the business. As we look forward, we expect the free cash flow conversion to improve meaningfully to end the year at 90% to 95%, which is slightly below our previous outlook of 95% to 100%.
We are focused on serving our clients with innovative solutions and sustainably stepping up our growth rate for the company to high single digits or even better this year from historic levels of mid-single digits. Now looking to our segment results, starting on slide five. Organic revenue growth in the Merchant Acceptance segment was a strong 17% in the quarter and 18% year-to-date. Adjusted revenue growth in the quarter was 14% and 16% for the first half. Merchant volume and transactions grew 7% and 5%, respectively. When excluding the loss of a processing client mid last year, which we will fully cycle through in the third quarter, merchant volume and transactions grew 10% and 7% in the quarter, respectively. Clover, our operating system for small and medium-sized businesses, continues to build on the strength of its product offering to attract and retain more merchants and expand relationships with them.
Clover posted a strong 24% revenue growth for the quarter and 30% year-to-date. Quarterly Clover GPV was $58 billion or $233 billion on an annualized basis, up 27%. Our ISV volume in the quarter through Clover Connect grew 39% and 44% year-to-date. We signed 45 ISVs this quarter, bringing our total signed to 89 year-to-date. Carat, our omnicommerce operating system for enterprise clients, grew revenue 22% in the second quarter. Adjusted operating income in the Acceptance segment increased 13% to $593 million in the quarter, and adjusted operating margin was down 20 basis points to 31.2%. This was driven by inflation and continued investments in the business for growth. Year-to-date adjusted operating income improved 17% to $1.1 billion and adjusted operating margin grew 20 basis points to 29.9%. We expect adjusted margin in the Merchant Acceptance segment to improve in the second half of the year as we see the benefit of lower inflation, continued strength in revenue and productivity.
Turning to slide six. The Payments and Network segment posted organic revenue growth of 8% in the quarter, at the high end of the 5% to 8% medium-term guidance range. Notable growth drivers in this segment include active accounts on file in our North American credit processing business; the output solutions business; our debit networks, STAR and Accel; and Zelle, led by an increase in the number of clients and transaction growth. We expect the momentum in this segment to continue through the rest of the year, resulting in the full year organic revenue growth rate to come well within our medium-term outlook of 5% to 8%. Adjusted operating income for the segment was up 5% to $668 million, and adjusted operating margin was down 80 basis points to 43.8%, driven by a combination of inflation and investments in the quarter.
Year-to-date, adjusted operating income was up 6% to $1.3 billion and adjusted operating margin was up 20 basis points versus last year at 43.2%. Moving to slide seven. The Financial Technology segment organic revenue grew at 7% in the second quarter, resulting in 6% growth for the first half, at the high end of our 4% to 6% medium-term guidance range. As Frank mentioned, we added seven new core account processing clients in the quarter, including four competitive takeaways. The combination of Finxact’s modern core and Fiserv’s leading digital surrounds is winning in the client’s office. Adjusted operating income was up 3% in the quarter to $281 million and up 7% to $556 million year-to-date.
Adjusted operating margin in the segment decreased 120 basis points to 35% in the quarter, driven by investments in Finxact, which we acquired early in the quarter; as well as increased organic investments in the business.For the first half, the segment’s adjusted operating margin grew 30 basis points to 35.2%. The adjusted corporate operating loss was $125 million in the quarter and $247 million year-to-date. The adjusted effective tax rate in the quarter was 21% and was 19% for the first half. We continue to expect 2022 adjusted effective tax rate to be approximately 21% for the full year. Total debt outstanding was $21.5 billion on June 30, and debt to adjusted EBITDA ratio was 3.0 times, in line with our target leverage.
In June, we increased our bank revolver to $6 billion from $3.5 billion previously and extended the maturity to June 2027. The new revolver provides additional capacity and flexibility. During the quarter, we continued our disciplined capital allocation strategy, repurchasing 5.1 million shares for $500 million. We had 32 million shares remaining authorized for repurchase at the end of the quarter. Additionally, we have had nearly $400 million of share repurchases so far in July. We are fully committed to our long-standing capital allocation strategy, which includes maintaining a strong balance sheet, repurchasing shares and pursuing high-value and innovative acquisitions.
With that, let me turn the call back to Frank.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Thanks, Bob. I’m very proud of the results we’ve accomplished, with another quarter of double-digit growth in both adjusted revenue and adjusted EPS. In the second quarter, we published our 2021 CSR report, which included a number of key enhancements to add disclosures and respond to new reporting standards on environmental impact and corporate governance. We are proud to share our ESG journey as we continue to optimize the business while generating value to shareholders and communities. In June, we expand our back-to-business program in Nebraska. In addition to a $10,000 grant, businesses receive access to innovative business management technology from Clover, ongoing community support and small business resources.
Our program in Nebraska is expected to award $1 million in grants for small diverse businesses. We are incorporating green building design principles as a priority for our offices and facilities. In the second quarter, Fiserv received LEED Gold green building certification for our Downtown Manhattan location. And we are working toward LEED status at the completion of our Berkeley Heights, New Jersey and Dublin, Ireland hubs. Finally, before I turn it over to the operator for Q&A, I’d like to thank Shub for her terrific work as our Head of Investor Relations for the last 18 months. Shub is taking on a new assignment as our Head of Strategy, and I look forward to continuing to work with her. I’m pleased to welcome Julie Chariell, who is with us today, as our new Head of Investor Relations. Welcome, Julie. I will close by thanking our more than 40,000 hard-working Fiserv associates around the world for working relentlessly to serve our clients and you, our shareholders.
With that, operator, please open the line for questions.
Questions and Answers:
Operator
[Operator Instructions] For our first question, we’ll go to the line of Dave Koning from Baird. Please go ahead.
Dave Koning — Baird — Analyst
Yeah, hey guys, Great results across the board.
Robert W. Hau — Chief Financial Officer
Thanks, Dave.
Dave Koning — Baird — Analyst
Yes, I thought one of the most interesting things, volume up 10% in merchant. Yield must be up 7%. I think that’s the biggest in maybe ever that we’ve seen. Is that primarily — you called out mix of SMBs, but there could be pricing components or just more services to the merchants. Is there any one or two of those that’s more prevalent? And how sustainable is that?
Robert W. Hau — Chief Financial Officer
Yes, Dave, thanks. As you heard us say over the last couple of quarters, we don’t necessarily — like to necessarily track yield. And the fact is we’re not managing for yield, we’re managing for revenue growth and overall margin. There’s always quarter-to-quarter fluctuations. This quarter, last quarter are two examples where both yield is positive. As we continue to sell more value-added services, as we see more revenue per merchant, obviously, we see the benefit of yield. And yes, we see that it — we believe our overall revenue growth is sustainable, and we’ll continue to see good growth in the business. Some of that will be “yield” because of more value-added services. Some of that will be more transactions.
Dave Koning — Baird — Analyst
Great. And then just as a follow-up, just on margins. I know you called out investments and inflation impacts. But as we look in the back half, I think it has to be up about 200 bps in the back half, 200 bps year-over-year. Is Q3 or Q4 above or below that? Like maybe the cadence just of the two quarters remaining.
Robert W. Hau — Chief Financial Officer
Yes. I think you should expect the margin to improve into Q3 and more so into Q4. The combination of — we do anticipate inflation to subside a bit from the very high levels we saw in the first half of the year. Additionally, as we’ve talked about in the prepared remarks as well as last quarter, we have this carryover work that we have going on from an integration standpoint. Last year, we dialed those costs out. We added them back to adjusted earnings. Beginning in January one of this year, we stopped dialing that back out. And therefore, you see those costs hit in Q1. In Q2, they started to ease. In the latter part of Q2, they will continue their easing rate. So those costs go away. In addition, you get the benefit or the productivity out of that integration work. And so you’ll see a bigger improvement in fourth quarter than you do in third, and second half stronger than the first half.
Dave Koning — Baird — Analyst
Great, Great Job, Guys, Thanks.
Operator
Next, we’ll go to the line of Lisa Ellis from MoffettNathanson. Please go ahead.
Lisa Ellis — MoffettNathanson — Analyst
I good. After. good morning. I guess. Thanks guys. I think I’ll start with actually the follow-on question to Dave’s question. Same question for you, Bob, on the free cash flow bridge throughout the remainder of the year. Conversion running 65% year-to-date, you’re now expecting 90 to 95% for the full year. Can you just help us with what gives you confidence in the improvement in conversion in the second half?
Robert W. Hau — Chief Financial Officer
Yes. Lisa, so I think a couple of things there. One, we definitely see the improvement in inventory in the back half of the year. We have been buying significant amounts of inventory, both in terms of point-of-sale devices, but also in paper and plastic for our Payments segment, our output solutions business payments. We see that easing into the second half of the year. That was done not only the case of actual point-of-sale devices, but some components to protect our clients from having hardware available. And we see that easing in the second half of the year so we’ll see an improvement there. Overall, I believe working capital will improve into the second half as well as some improvement in capex from a timing standpoint. And then, finally, as we see improved margins, a bit more productivity to get more cash flow.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Yes, I would just add. We’ve had tremendous opportunity for greater product build-out, organic opportunities and market opportunities. We didn’t look at it — I now look at Finxact, Bento and Ondot as three examples where I think we are very, very pleasantly surprised by the opportunity to have a much larger footprint on those. Finxact would be a perfect example. We’re building into industrial strength at a much faster speed. And I think one of the other items I highlight is we have increased our speed of execution. You see in our revenue numbers, it does affect our capex number also. But if you look at the speed at which we implement, the size and scope of which we operate, it’s been a very, very good, strong trajectory, increased speed and execution.
Robert W. Hau — Chief Financial Officer
And Lisa, I think those two last elements that Frank pointed out is really at the heart of why we’ve taken our full year outlook down from the 95% to 100%, now 90% to 95%. Continue to see those opportunities, and we want to work those opportunities.
Lisa Ellis — MoffettNathanson — Analyst
Okay. Good. And then my second one is more of a strategic question related to Zelle because you had a number of Zelle-related call-outs this quarter: 35% transaction growth, 54% client growth. Can you just remind us how big Zelle is as a contributor to Payments and Networks? Like how we should think about the monetization model of Zelle and its contribution to both, I guess, size and growth of that segment?
Robert W. Hau — Chief Financial Officer
Yes. I think overall, it’s a relatively small piece. It’s, call it, roughly 2% of the Payment segment. We’ve obviously seen good growth there and is part of the growth driver of the business. And as that continues to ramp, now we have a number of financial institutions, and therefore the number of users, as we see more and more ubiquity of that capability of that tool, i.e., more consumers making more payments, we’ll continue to see good growth and so. perfect, thank you.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Thanks, Lisa.
Operator
Next, we’ll go to the line of Tien-Tsin Huang from JPMorgan. Please go ahead.
Tien-Tsin Huang — JPMorgan — Analyst
Thanks and good morning and Congrats to Shub on the new role. I’m excited for her. On the — I just want to upfront ask on the visibility side, if you don’t mind. Just any interesting trends in July to call out? Are volumes and new sales ramping as expected? And same thing on the cost side. You have better visibility now on the cost to support this better revenue growth.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Yes, I’d say first of all, look at July volume. It’s getting in line with Q2. The consumer remains resilient, fundamentally in line in volume and transaction standpoint also. So although the month’s not over, this month seems to be continuing in the fashion. And visibility on the expense side is very, very clear. We have clear line of sight. Obviously, we made a bunch of decisions to grow this business, probably at a level that is where we like it. And we continue to see that opportunity, but we do see the opportunity to take down expenses on a run rate basis relative to margin, or productivity opportunity to put our productivities in front of us. Probably don’t have to — we know how to get it very well.
Robert W. Hau — Chief Financial Officer
And Tien-Tsin, as I pointed out, and obviously, we expect inflation to subside a bit. We have the productivity of completing those integration projects. Those have been ramping down as of the kind of middle to end of second quarter. You see clear line of sight to see that continuing into Q3. And we see good opportunities to continue to invest, focused on sustainably growing this business much faster than it has in the past, taking our revenue guidance up this year from previously 7% to 9% to now 9% to 11%. And those opportunities that Frank talked about to increase our speed of execution and drive innovation not only is an impact to cash flow, but margin. And therefore, you saw us lower margin a bit even though we took up EPS given stronger growth.
Tien-Tsin Huang — JPMorgan — Analyst
Got it. Overall encouraging for sure. Just my quick follow-up, just with your target leverage now. You bought a lot of stock, it sounds like, in July. Curious on the appetite to continue with the buybacks versus doing deals. It seems like there are some payment fintech properties for sale out there. So just curious if there’s any change in thinking.
Robert W. Hau — Chief Financial Officer
No. I would say no change in thinking. The strength of our balance sheet and our cash flow gives us the opportunity to both buy back shares and look for value-accretive acquisitions, and we’ll continue to do that. If you look, we did about $1.4 billion through yesterday or so, through July so far. But we also completed a number of acquisitions. And in fact, what, over the last call it, 15, 18 months, seven different acquisitions for about $2 billion while we’re also buying back shares. So we’ll continue to do both. As you know, we’re in the market regularly. We clearly believe there’s real opportunity in the value of our stock, so we’ll buy back. But we also look for value-accretive acquisitions.
Tien-Tsin Huang — JPMorgan — Analyst
It thank you.
Operator
Next, we’ll go to the line of Darrin Peller from Wolfe Research. Please go ahead.
Darrin Peller — Wolfe Research — Analyst
Thanks guys. Could we revisit the revenue growth strength we saw? I mean, really across all three segments, but if we hone in on merchant for a minute. Again, I mean, this kind of 17% growth was definitely well above what anyone, anybody expected. And when we look at the sustainability to that, is there something — anything anomalistic in growth in this segment in the quarter, or for that matter either of the other two segments, that wouldn’t be sustainable in your mind? And maybe medium term, is this a sign of things to come in terms of elevated growth, first? And then just to revisit again the spread between revenue and volume. You talked about value-added services, I think, and again, SMB. But is that kind of a spread? Really, do you expect revenue to outperform volume consistently now?
Frank J. Bisignano — Chairman, President and Chief Executive Officer
I’d start on merchant. We purposely had investor conference to talk about how we saw it over the longer haul. And obviously, we do believe in driving up our penetration rate of software services. You saw that go up 350 basis points. at 15%. We talk about moving that over the longer haul to 25%. So ARPU is clearly a focus of ours. Our ability to also continue to expand in markets. You hear us talk about Colombia, Argentina, Mexico, along with our vertical of — and we feel very, very strong about our capabilities we’re going to build out over the long haul in the restaurant vertical and then move into the services verticals. So we feel our partnerships continue to grow.
We believe we’re the partner of choice in that business. And what you see in there, obviously, we had a couple of points of inflation in there. But what you really see is the strong growth of the investments we’ve made, the businesses we’ve bought and integration capability of the total franchise. I mean, I do believe that we get leverage from our bank partners and other partners in a way that only we can. And of course, Clover and Carat are two leading products in the industry that we continue to invest heavily. And so I think the sustainability, minus inflation, is right in front of us. And we’ve been driving this for a long time and I have talked about for a long time, and you’re seeing the fruits of the labor.
Darrin Peller — Wolfe Research — Analyst
Okay. And Bob, just a quick follow-up on the yield again, if you don’t mind.
Robert W. Hau — Chief Financial Officer
Sure. Yes. So obviously, very positive yield this quarter, was last quarter. There’s always variability quarter-to-quarter, and so we try not to get too myopically focused on that calculation within a given quarter. We think it kind of evens out over time. As we continue to provide value-added services, we’ll continue to see improvements. We are very focused on adding merchants to our portfolio, i.e., signing up more merchants. We’re very focused on selling more products to those merchants. That lifts our PO and drives revenue and margins for the company.
Darrin Peller — Wolfe Research — Analyst
Okay. Guys, just very quickly, the free cash and margin profile. I mean, the business is obviously growing notably faster. So should we expect maybe a more moderate margin story going forward, or free cash conversion, just to support this kind of growth? Or is it just the anomaly-stic items around inventory build and restructuring, and either way, you should get back to that 95% longer term?
Robert W. Hau — Chief Financial Officer
Yes. I’m not ready to update our medium-term or long-term outlook. Obviously, the crystal ball these days is a little bit fuzzy in what ’22, ’23, ’24, ’25 is going to look like. Look, at the end of the day, we’re focused on driving sustainable growth in our revenue. We’re up significantly from where we’ve been historically. We took up this year — we said the merchant business, the medium-term outlook was 9% to 12% in our last full investor conference at the end of 2020. In March of this year, we actually took that up and extended it. So we went out to 2025 and said we believe we’ll be at 11%. So we’re driving for sustainable growth. That obviously helps the top line. It’s growing the bottom line. We took our EPS growth up this quarter for the full year and we’ll continue to look for those opportunities to drive overall value by growing the top line, bottom line and generating great free cash flow.
Darrin Peller — Wolfe Research — Analyst
Okay, all right. Nice job, guys, thanks.
Robert W. Hau — Chief Financial Officer
Thanks.
Operator
Next, we’ll go to the line of Ramsey El-Assal from Barclays. Please go ahead.
Ramsey El-Assal — Barclays — Analyst
Hi, thanks for taking my question. Today, I wanted to ask about the competitive environment. And along the lines of it’s sort of hard to argue, over the past few years, we haven’t seen a lot of profitless, irrational competition. Are you seeing or do you expect to see any improvement in the competitive environment? I guess primarily driven by fintechs who maybe have a harder time raising capital to compete with you with.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
I mean, the way I think about it is we run a large enterprise. We have competition in every country. We have competition in every business. I think our solutions are world-class and leading. And I think ultimately, this is about how we provide our clients an opportunity to grow their businesses, whether it’s a small business, a community bank or large enterprise. So I don’t really look at it as anything other than our job is to be the best and provide the best. And from a competition standpoint, there’s a lot of great competitors out there, but we feel when you look at our numbers and you look at what’s going on, that we’re gaining market share.
Robert W. Hau — Chief Financial Officer
And Ramsey, maybe the thing I’d add to punctuate is, at the end of the day, we believe profitable, scaled businesses will perform over time. And competition comes and goes. We’ll continue to execute, we’ll continue to perform for our clients, and we’ll continue to win.
Ramsey El-Assal — Barclays — Analyst
Got it. Okay. Follow-up for me is, I was wondering if you could give us an update on how mix is trending in your acceptance segment. And I mean that from both an online, off-line as well as credit versus debit? And I guess the broader question is, do you think the mix in your business has sort of stabilized at this point? Or is there still some sort of post-pandemic readjustments that need to occur in order to get back to that stabilized place?
Frank J. Bisignano — Chairman, President and Chief Executive Officer
I think from a debit, credit, it’s stabilized. I think it’s been stabilized. Maybe there’s a percentage point, two, delta from when we started pre-pandemic to now in that credit, debit mix. But I think we’re at a normalized rate there. And obviously, we keep driving e-comm, we keep driving car, and that trends up. But we do have a very large footprint globally, so those move in small increments relative to the size of our merchant business.
Ramsey El-Assal — Barclays — Analyst
Great. And online, offline, same story?
Frank J. Bisignano — Chairman, President and Chief Executive Officer
Yes.
Ramsey El-Assal — Barclays — Analyst
Okay, great. Thanks a lot. Appreciate it
Operator
Next, we’ll go to the line of Jason Kupferberg from Bank of America. Please go ahead.
Jason Kupferberg — Bank of America — Analyst
Good morning, guys. Just wanted to start on the revenue side. Obviously, nice to see the upside there and the raise in the outlook. Can you give us just a little more detail on how to think about the segment level outlook for the year? I think I heard you say, for payments that you’d be comfortably within the 5% to 8%. Just a little bit more color across the board there would be great.
Robert W. Hau — Chief Financial Officer
Yes, Jason, thank you. If you look at the three segments, obviously, we’ve lifted the full company from 7% to 9% previous outlook to 9% to 11%. So we’re above the year — we’re above the midpoint of the — excuse me, above the medium-term outlook that we’ve given in the past. In the payment segment, as you pointed out, we said during the prepared remarks that we think it’s well within the range of a 5% to 8%. Merchant, we had previously guided or provided an outlook of 9% to 12%, which is in line with our medium-term outlook. At this point, obviously, given we’re 18% year-to-date, we’re off to a good start in the third quarter with volumes in July continue to be in line. So we expect that to be above the guidance range or above that 9% to 12% outlook. And fintech at 4% to 6%, we’re 6% year-to-date. I would expect that to be in the range for the full year basis. There are obviously some ebbs and flows with periodic revenue. But overall, we feel good about the growth rate of all three of our segments to be at or better than our previous outlook.
Jason Kupferberg — Bank of America — Analyst
Okay. And just a follow-up on costs. Can you just comment on your ability to pass some of these inflationary items on the labor material side on to your customers, perhaps with some sort of lag? It seems like that’s probably the biggest driver of the 50 basis point reduction in the margin outlook for the year.
Robert W. Hau — Chief Financial Officer
Yes. I think — so it varies by segments and varies by business within that segment. If you think about the overall impact of inflation, Obviously, we’ve got some revenue growth or revenue growth driven by that inflation, but bigger impact from an expense standpoint. We do see that flowing down for the balance of the year. So both a little bit less benefit on the top line but a little less hit on the expense side. So we’ll see some margin improvement into the second half of the year. That is the large driver of that, combined with those investments that we’re seeing, are driving the reduced growth in our margin. Still up 100 basis points over the prior — at least 100 basis points over the prior year, but inflation and those investments are certainly driving some of that.
Jason Kupferberg — Bank of America — Analyst
Okay, thank you.
Robert W. Hau — Chief Financial Officer
Thank you.
Operator
Our next question comes from James Faucette from Morgan Stanley. please go ahead.
James Faucette — Morgan Stanley — Analyst
Thank you very much. Thanks for all the color and detail. You mentioned the cloudy crystal ball right now. Can you just Give us a little bit of insight of how you’re thinking about kind hof macro assumptions and what you’re seeing maybe right now that’s influencing those in terms of how you’re formulating outlook for the rest of this year?
Frank J. Bisignano — Chairman, President and Chief Executive Officer
What — if you go back to how we’ve guided. Really at the low end, you’d have to think — you heard the comment I had made that, that assumes some macro slowdown, and that would be 400 basis points deceleration in the second half. Now I just gave in July quarter to — month-to-date which isn’t exactly showing that yet. But that look is a look of really caution relative to going on both in inflation, what’s happening in the workforce dynamics, where we see interest rates. Obviously, that’s the low end. If you go to the high end of that, it’s continuing the way we’re continuing right now. We’re not looking for anything go much better, We think and we do believe that we have a great opportunity with the M&A coming out, getting the benefit to that, and improved productivity, having put in the merger behind us, where in fact you go back in. So those are really the assumptions inside here from a macro standpoint. Bob, anything you’d like to add?
Robert W. Hau — Chief Financial Officer
James, obviously, if you read the Wall Street Journal or pick up any news report with interest rates and inflation and, obviously, a headwind. Unemployment is quite low, that’s remarkably resilient. The consumer balance sheet is quite strong. So overall, we feel pretty good about the visibility near term. It’s the ’23, ’25, we’re just kicking off our 2023 budgeting cycle. At the end of the day, I think one of the keys to think about is the demonstrated resilience of this company in every cycle. So if we were to hit a recession, which I think some people believe we’re technically in right now, how deep does that recession go? How long does it last? What’s the overall input? Is it a job-full recession?
All of that creates some of that murkiness. But at the end of the day, we have proven to be incredibly resilient throughout those cycles. We’ve got levers we can pull right now. We are making a decision given the strength of the top line, the ability to invest, and make sure that we are providing continued innovation for our clients. A little bit lower in margin, but actually raising EPS, we think, is the right near term, midterm and long-term decision. But if things were to suddenly go very soft, we’ve got levers to pull, we’ll drive productivity and we’ll continue to deliver.
James Faucette — Morgan Stanley — Analyst
Appreciate that. And quickly for you, Bob, just with that rising interest rates are recapturing the impact — potential impact on your interest cost appropriately? Or is anything that you would call out that we should keep in mind there?
Robert W. Hau — Chief Financial Officer
Yes. I think two things there. One, we’re about 85% fixed debt, 15% variable. The — look, by far, the biggest chunk of that is commercial paper, and there’s a balance of commercial paper both in U.S. dollar and euro. Obviously, that’s going up, but that is quite a bit lower than fixed rate debt. So we’re in good shape there. And of course, as a company, we have a bit of a natural hedge. We have interest with variable rate debt, but we also have float revenue. So we have cash on the balance sheet that actually generates interest that roughly offsets that variable rate. So overall, rising interest rates, net-net, are actually good for us within reason, given that we’re naturally hedged. And higher interest rates are good for our financial institution clients and therefore provide opportunity for us.
James Faucette — Morgan Stanley — Analyst
Thanks for that. Bob
Robert W. Hau — Chief Financial Officer
Thanks, James.
Operator
And our final question comes from Vasu Govil from KBW. please go ahead.
Vasu Govil — KBW — Analyst
Hi, thank you very much. I think most of my questions were answered. I just wanted to get more color, and Bob, you alluded to it a little bit in the last answer. But just as we think, market’s is obviously worried about macro concerns, so maybe you could help remind us how each of your segments would behave in a recession? Where you expect to feel most pressure, where you would see more resiliency. And then also on the margin front, what kind of cost levers you have going into a potential recession.
Robert W. Hau — Chief Financial Officer
Yes. I think if you look at the three segments kind of in order of what might see impact in a meaningful downturn: Merchant first, followed by payments, followed by fintech. Overall though, we think we proved quite resilient. Obviously, even in 2020, which was a very difficult year by all accounts, we managed to well flat revenue, grow earnings per share double digits, up 12%. And so to the earlier comment I made, we have levers to pull, we have investments, we can mitigate and manage the overall bottom line. This is the 37th year of double-digit earnings, assuming we deliver on our guidance for the year, which obviously we fully expect to do. That’s through lots of different cycles, both good and bad. And so we believe broadly that we’ll do quite well. If we see a sudden shock, go back to Q2 of 2020, obviously, at the height of pandemic, everybody took a hit, and we sustained quite well overall. So we feel good about our opportunities to weather storms.
Vasu Govil — KBW — Analyst
Excellent. And just one quick modeling one on FX. Obviously, FX headwinds are trending a little bit worse. Can you update us on what the expectation on that is for the year?
Robert W. Hau — Chief Financial Officer
Yes. We’ve previously had been expecting about 100 basis points headwind on revenue from FX. That’s now up to 200 basis points, clearly driven by euro and Lat Am, Latin America, largely Argentine peso conversion. But in general, certainly a headwind that everybody is facing.
Frank J. Bisignano — Chairman, President and Chief Executive Officer
I’d like to thank everyone for their time, and we look forward to talking to you. Appreciate it. Have a great day.
Operator
[Operator Closing Remarks]