Thermo Fisher Scientific Raises 2024 Guidance After Strong Q2 Results

Thermo Fisher Scientific (TMO) Q2 2024 Earnings Call Transcript | The Motley Fool

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2024 second quarter conference call. [Operator instructions] I would like to introduce our moderator for the call, Mr. Rafael Tejada, vice president, investor relations. Mr. Good morning, and thank you for joining us. On the call with me today is Marc Casper, our chairman, president and chief executive officer; and Stephen Williamson, senior vice president and chief financial officer. Please note this call is being webcast live and will be archived on the investors section of our website, thermofisher.com, under the heading News, Events and Presentations until August 7, 2024. A copy of the press release of our second quarter 2024 earnings is available in the investors section of our website under the heading Financials. So before we begin, let me briefly cover our safe harbor statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q, which are on file with the SEC and available in the investors section of our website under the heading Financials SEC filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our second quarter 2024 earnings and also in the investors section of our website under the heading Financials. So with that, I'll now turn the call over to Marc. Marc N. Casper -- Chairman, President, and Chief Executive Officer Raf, thank you. Good morning, everyone, and thanks for joining us today for our second quarter call. As you saw in our press release, we had great results for the quarter. We're making excellent progress to deliver differentiated results for the year. I'm proud of our team as they execute at a very high level to enable our customers to make the world healthier, cleaner and safer. This continued success is a result of our proven growth strategy and our PPI Business System. So first, let me recap the financials. Our revenue in the quarter was $10.54 billion. Our adjusted operating income was $2.35 billion. Adjusted operating margin increased in Q2 to 22.3%. And we delivered another quarter of strong adjusted EPS performance, achieving a 4% increase year over year to $5.37 per share. Our performance in the second quarter is allowing us to raise our guidance once again and continues our track record of delivering differentiated results. Turning to our performance by end market. In the second quarter, underlying market conditions played out as we'd expected. Our team's excellent execution drove share gain in the quarter, and we delivered a sequential improvement in growth in all four of our end markets. Let me provide you with some additional context. Starting with pharma and biotech. We declined in the low single digits for the quarter. The vaccine and therapy revenue runoff resulted in a four-point headwind for this customer segment. Performance in the second quarter was led by our biosciences and clinical research businesses. In academic and government and in industrial and applied, we grew in the low single digits during the quarter. In both these end markets, we delivered strong growth in our electron microscopy business. Finally, in diagnostics and healthcare, we declined in the low single digits. As a reminder, the reported growth in this end market is impacted by the runoff of COVID-19 testing-related revenue. During the quarter, the team delivered good core revenue growth, highlighted by our transplant diagnostics and immunodiagnostics businesses, as well as our healthcare market channel. As I reflect on our performance during the quarter and on a year-to-date basis, I feel very good about the progress we've made at the halfway point of the year. Our end markets are playing out as we expected, and our team's execution has been excellent. I'll now turn to an update on our growth strategy. As a reminder, our strategy consists of three pillars: high-impact innovation, our trusted partner status with customers and our unparalleled commercial engine. Starting with the first pillar. It was a fantastic quarter of innovation as we launched a number of high-impact new products across our businesses. I'll begin with the new technologies we launched at the American Society for Mass Spectrometry Conference, further strengthening our industry-leading position in analytical instruments. At the conference, we introduced the Thermo Scientific Stellar mass spectrometer, which extends our leadership in proteomics. The Thermo Scientific Stellar is used to validate biomarker candidates. It offers unprecedented analytical capabilities for targeted quantitation, enabling the insights needed by researchers to advance their work. It's a perfect complement to our groundbreaking Thermo Scientific Orbitrap Astral used for protein discovery that we launched last year. It was incredibly exciting to hear the customer testimonials sharing the power of the Orbitrap Astral. To date, we've had more than 40 publications that incorporated the impact of this breakthrough, and we're really just getting started. Also, at ASMS, we launched three new build-for-purpose additions of the Thermo Scientific Orbitrap Ascend Tribrid Mass Spectrometer. Tailored to specific applications for multiomics, structural biology and biopharma. These instruments continue to elevate our industry-leading Thermo Scientific Orbitrap portfolio by offering enhanced speed and sensitivity to detect and characterize the most difficult protein samples, including complex biologics. This quarter, we also launched products to help our customers meet their own sustainability goals. In our bioproduction business, we introduced a first of its kind bio-based film for our single-use technologies. These new bioprocess containers use plant-based material rather than fossil fuel materials to provide lower carbon solutions for the manufacture of biologics. And in our Laboratory Products business, we launched a new line of ENERGY STAR-certified Thermo Scientific TSX Universal Series ULT Freezers that deliver industry-leading performance, energy efficiency to help labs meet their sustainability goals. Turning to the highlights of our second and third pillars of our growth strategy. During the quarter, we continue to strengthen our industry-leading commercial engine and the trusted partner status we've earned with our customers. Our customers rely on us to help accelerate their innovation, increase their productivity and advance their important work. I spent a lot of time connecting with customers to understand their near- and long-term priorities so that we can enable their success. As a result of these unique relationships, we continue to advance our capabilities to be an even stronger partner for our customers. Let me give you a couple of examples from the second quarter. We expanded our leading clinical trial supply services with a new ultra-cold facility in Bleiswijk in the Netherlands to offer pharma and biotech customers tailored end-to-end support throughout the clinical supply chain for high-value therapies, including cell and gene therapies, biologics, antibodies and vaccines. We also opened a state-of-the-art innovation lab at our site in Center Valley, Pennsylvania to showcase our innovative solutions for global clinical trial supply, including new packaging solutions, real-time tracking and tracing and enhanced clinical trial set up and planning. In addition, we advanced partnerships and collaborations with our customers during the quarter. Let me give you a couple of examples in the Asia Pacific region. To support Indonesia's growing investments in healthcare, scientific research and renewable energy, we further expanded our presence and capabilities in the country. We are collaborating with the National Battery Research Institute to advance battery technology and energy storage, as well as with the Mandaya Hospital Group to help advance stem cell research and cell therapy development. In Singapore, we announced a collaboration with the National University Hospital and Mirxes, a local RNA technology company, to develop and clinically validate advanced next-generation sequencing genomic testing solutions specifically made to address the needs of the Southeast Asian population. So another strong quarter of executing our growth strategy. Let me now turn to our PPI Business System, which enabled excellent execution during the quarter. PPI engages and empowers all of our colleagues to find a better way every day. During the quarter, I had the opportunity to see the PPI efforts to further improve manufacturing of our lab equipment products, and I came away incredibly impressed with the progress to drive operational efficiency in this business. It's also great to see how PPI has been adopted in our clinical research business, where it is driving meaningful improvements in our efficiency and customer allegiance. Ultimately, you see the positive impact of our PPI Business System in our Q2 results, reflected in strong profitability and cash flow that we delivered in the quarter. We also advanced our corporate social responsibility priority score in the quarter. As a mission-driven company, we help to make the world a better place by enabling the important work of our customers. We also created a positive impact by supporting our communities and being a good steward of our planet. We continue to make progress on our environmental sustainability road map in Q2. As part of our commitment to safeguarding the world's natural resources, we have set targets for 2025, which include zero waste certification for 30 manufacturing and warehouse sites. During the quarter, three more of our sites achieved zero waste certification, and we're on track to achieve our goals. You can learn much more about our progress in our 2023 corporate social responsibility report, which was published during the quarter. The report provides a transparent account of our journey as we fulfill our commitment to society and all of our stakeholders. Let me now give you an update on capital deployment. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of M&A and returning capital to our shareholders. Fully after the quarter ended, we completed our acquisition of Olink, and it was great to welcome our new colleagues to the company earlier this month. As you know, Olink is a leading provider of next-generation proteomic solutions. The addition of Olink's proven and transformative technology is highly complementary to our industry-leading mass spectrometers. Olink further advances our leadership as it is a great addition to our differentiated protein research ecosystem. Our world-class commercial engine will enable us to bring this technology to scientists around the world. By increasing the use of next-gen proteomics and providing industry-leading data quality at scale -- excuse me, data quality at scale, we're in a great position to further enhance the understanding of human biology and meaningfully accelerate scientific breakthroughs. So as I reflect on the quarter, I'm proud of what our team accomplished and grateful to their contributions for our success. Let me now turn to our guidance. Given our strong performance in the second quarter, we're raising our 2024 guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion and adjusted EPS to be in the range of $21.29 to $22.07 per share. Stephen will take you through the details in his remarks. So to summarize our takeaways from Q2, we delivered another quarter of strong results driven by our proven growth strategy and PPI Business System. We continue to enable our customer success, and this reinforces our trusted partner status and industry leadership. Our strong results in Q2 allowed us to raise our guidance again for the year. We're well positioned to deliver differentiated performance in 2024 as we continue to create value for all of our stakeholders and build an even brighter future for our company. With that, I'll now hand the call over to our CFO, Stephen Williamson. Stephen? Stephen Williamson -- Senior Vice President, Chief Financial Officer Thanks, Marc, and good morning, everyone. I'll take you through an overview of our second quarter results for the total company then provide color on our four business segments. And I'll conclude by providing our updated 2024 guidance. Before I get into the details of our financial performance, let me provide you with a high-level view on how the second quarter played out versus our expectations at the time of our last earnings call. As Marc mentioned in the quarter, market conditions were as we expected. We had another quarter of excellent execution, and this enabled us to deliver Q2 financials ahead of what we'd assumed in our prior guidance. Starting with the top line. Core organic revenue growth was a little over 0.5 percentage point ahead of what we'd assumed in the prior guide for Q2. That translates to approximately $60 million of revenue, which is partially offset by slightly higher FX revenue headwind. Turning to the bottom line. Adjusted EPS was $0.25 ahead of what we assumed in the prior guide for Q2. $0.08 was from strong operational performance, $0.06 was from favorable FX and timing of discrete tax planning benefits within the year and $0.11 was from the beat -- was from lower net interest expense. In my prior guidance, I took a prudent approach to the Olink transaction from a financing cost standpoint. We're also executing well on free cash flow generation. Year-to-date free cash flow is 68 % higher than the same period last year. So we'll continue to deliver strong performance, and we're well positioned at the halfway point of the year. Let me now provide you with some additional detail on Q2, beginning with the earnings per share. In the quarter, adjusted EPS grew by 4% to $5.37. GAAP EPS in the quarter was $4.04, up 15% from Q2 last year. On the top line, in Q2, reported revenue was 1% lower year over year. The components of our Q2 reported revenue change included 1% lower organic revenue, a 1% headwind from foreign exchange and a slight contribution from acquisitions. We delivered another strong sequential improvement in core organic revenue growth this quarter. And in Q2, core organic revenue growth rounded up to flat on a year-over-year basis. In the quarter, pandemic-related revenue was approximately $115 million. This was mainly from vaccines and therapies. This represents a 3% headwind to organic revenue growth. Turning to our organic revenue performance by geography. In Q2, North America declined mid-single digits, Europe grew low single digits. And Asia Pacific grew mid-single digits, which includes China, which also grew mid-single digits. With respect to our operational performance, we delivered $2.3 billion of adjusted operating income in the quarter. And adjusted operating margin was 22.3%, 10 basis points higher than Q2 last year and 30 basis points higher than Q1 2024. Total company adjusted gross margin in the quarter came in at 42.1%, 110 basis points higher than Q2 last year. In the quarter, we continued to deliver very strong productivity, reflecting our continued focus on cost management, as well as the carryover benefit from the cost actions put in place last year. This enabled us to more than offset the impact of lower volumes, while appropriately funding investments to further advance our industry leadership. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 16.6% of revenue. Total R&D expense was $340 million in Q2, reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue was 7.1% in the quarter. Looking at our results below the line. Our Q2 net interest expense was $59 million, which is $89 million lower than Q2 2023 due to high cash and investment balances. Our adjusted tax rate in the quarter was 10%. And average diluted shares were 383 million in Q2, approximately 5 million lower year over year driven by share repurchases, net of option dilution. Turning to free cash flow and the balance sheet. Year-to-date cash flow from operations was $3.2 billion. Year-to-date free cash flow was $2.6 billion after investing $630 million of net capital expenditures. We ended the quarter with $8.8 billion in cash and short-term investments and $35.4 billion of total debt. Our leverage ratio at the end of the quarter was 3.3 times gross debt to adjusted EBITDA and 2.5 times on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 11.8%, reflecting the strong returns on investment that we're generating across the company. Now, I'll provide some color on our performance of our four business segments, starting with Life Sciences Solution. Q2 reported revenue in this segment declined 4%, and organic revenue was 3% lower than the prior year quarter. Growth in this segment was led by our biosciences business. That was more than offset by the impact of the pandemic. Q2 adjusted operating income for Life Sciences Solution increased 6%. And adjusted operating margin was 36.7%, up 350 basis points versus the prior year quarter. During Q2, we delivered exceptionally strong productivity, which was partially offset by unfavorable volume pull-through. The team continues to do an excellent job to appropriately manage the cost base and deal with the unwind of the pandemic. In the Analytical Instruments segment, reported revenue grew 2%, and our organic growth was 3% higher than the prior year quarter. We continue to deliver very strong growth in our electron microscopy business. In this segment, Q2 adjusted operating income increased 1%. And adjusted operating margin was 24.6%, 10 basis points lower year over year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable mix and strategic investments. Turning to Specialty Diagnostics. In Q2, both reported and organic revenue were 1% higher than the prior year quarter. In Q2, we continue to see strong underlying growth in the core led by our transplant diagnostics and immunodiagnostics businesses, as well as in our healthcare market channel. Q2 adjusted operating income for Specialty Diagnostics increased 1%. And adjusted operating margin was 26.7%, which was flat compared to Q2 2023. During the quarter, we delivered good productivity, which is offset by strategic investments. And finally, in the Laboratory Products and Biopharma Services segment, both reported revenue and organic growth decreased 1% in Q2 versus the prior year quarter. This is driven by the runoff of vaccines and therapies revenue. Growth in this segment in Q2 was led by our clinical research business. Q2 adjusted operating income declined 10%. And adjusted operating margin was 12.9%, which is 120 basis points lower than Q2 2023, flat sequentially to Q1 2024. In the quarter, we delivered strong productivity, which is more than offset by unfavorable volume mix and strategic investments. Turning now to guidance. As Marc outlined, given our strong performance in Q2, we're raising our 2024 full year guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion and adjusted EPS to be in the range of $21.29 to $22.07. The improved revenue guidance does not change the core organic revenue growth rounding of the year, so we still continue to assume core organic revenue growth will be in the range of minus 1% to positive 1% for 2024. And we continue to assume that the market declines low single digits this year. Our proven growth strategy and PPI Business System execution will enable us to continue to take share once again. Our 2024 updated guidance range assumes an adjusted operating income margin between 22.5% and 22.8%, slightly higher than the prior guide. Our PPI Business System is continuing to enable excellent execution, manage costs appropriately and fund the right long-term investments to enable us to further advance our industry leadership. We now expect net interest cost to be in the range of $380 million to $400 million for the year. And the raise to our adjusted EPS guidance range reflects a $0.15 increase on the low end and a $0.05 increase on the high end, which results in an increase in the midpoint by $0.10. So another strong quarter of execution, enabling an increase in the guidance outlook for the year. We remain really well positioned to continue to deliver differentiated performance. I thought it'd be helpful to remind you of some of the key underlying assumptions behind the guide that remain unchanged from the previous guidance. In 2024, we're assuming just under $100 million of testing revenue and $300 million to $400 million of vaccines and therapy-related revenue. In total, this represents a year-over-year headwind of $1.3 billion to $1.4 billion or 3% of revenue. We see that FX would be roughly neutral year over year to both revenue and adjusted EPS. And we're assuming that the $0.03 FX-adjusted EPS beat that we saw in Q2 is offset for the remainder of the year, leading to no change for the year as a whole for FX versus the prior guidance. We continue to expect adjusted income tax rate will be 10.5% in 2024. And for the year, we're assuming between $1.3 billion and $1.5 billion of net capital expenditures and free cash flow in the range of $6.5 billion to $7 billion. In terms of capital deployment, we're assuming $3 billion share buybacks, which were already completed in January. We expect to return approximately $600 million of capital to shareholders this year through dividends, and we deployed $3.1 billion to acquire Olink shortly after the Q2 close. Full year average diluted share count is assumed to be approximately 383 million shares. Finally, I wanted to touch on quarterly phasing to help you with your modeling. Relative to the midpoint of the guide, I recommend modeling Q3 organic revenue growth 1% higher than we delivered in Q2. Also, good to model core organic revenue growth in Q3 1% higher than we delivered in Q2. And in terms of adjusted EPS in Q3, I recommend modeling it to be just over 24% of the full year. So to conclude, we continue to deliver on our commitments. And at the halfway point, we're in a great positioned to deliver differentiated performance for all our stakeholders in 2024. With that, I'll turn the call back over to Raf. Rafael Tejada -- Vice President, Investor Relations Operator, we're ready for the Q&A portion of the call. Operator [Operator instructions] Our first question is from Michael Ryskin with Bank of America. Michael, your line is now open. Please go ahead. Michael Ryskin -- Bank of America Merrill Lynch -- Analyst Great. Thanks for taking the questions guys. Congrats on the quarter. Marc, a high-level one for you to start off maybe. At our Vegas Healthcare Conference in May, you made some initial comments about 2025 market expectations. I think you said that you expect the tools market next year would be just below the four to six level it has historically been, just given the way the year is playing out, how you're exiting 2024, entering 2025. It's been a couple of months since then. You've got, hopefully, your view of how '24 is going to play out. So given where you sit now, do you have more confidence in that 2025 market assumption and maybe how Thermo can deliver differentiated performance above that? Marc N. Casper -- Chairman, President, and Chief Executive Officer Mike, thanks for the question. It was a pleasure to be in -- with you earlier in the quarter. So let me start actually one level out, just kind of just frame a few of my general thoughts, and I'll talk about 2025. So when I think about Q2, team executed really well. Really good financial performance. It was ahead of our expectations. It allowed us to raise our guidance. The other aspect of the performance is the actual performance as opposed to relative to expectations. Clearly, very differentiated and very strong. It was good to see that core has now elevated to -- it's now flat, which is great, 4% adjusted EPS growth and expansion of margins. So I feel very good about the performance. And when I think about the market, they were in line with our expectations. So it's good to see the visibility that we've enjoyed for decades as returns in terms of how the market is playing out. And when I think about our own performance within the markets, it was good to see that all four of our markets, we had sequential improvement in our growth across all four. So really a very positive development. PPI Business System is really delivering outstanding impact and ultimately feel good about the performance. Capital deployment has been active and good. We've deployed over $6 billion of capital through the first half of the year, half of it on return of capital and half of them a very exciting acquisition of Olink. And we're very well positioned at this point to deliver strong results. When I think about 2025, I think the way I would just think about it is we're going to give you that in January of 2025 when we have the benefit of the year behind us, and we're focused on delivering a great year. We'll be able to give you a view of not only our performance, but how we saw the underlying market conditions. The year is progressing as we expected. So we expect that the market will continue to improve modestly in the back half of the year, this quarter being a little better than the quarter before. And -- but our performance will also continue to step up, and that will give us momentum going into '25. And the details we'll give you that -- we'll give you in a few months' time. Michael Ryskin -- Bank of America Merrill Lynch -- Analyst OK. Fair enough. And then, for my follow-up, I want to focus on China. I think if I heard correctly, you called out that it grew mid-single digits in the quarter. I want to make sure I heard that right, but if so, that's a bit surprising. Anything you can say in terms of what you're seeing there? Is that also ahead of your expectations? And is this just a temporary bump in the quarter or something onetime? Or are you seeing some real traction here, and you think that can continue into your end? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes, your hearing is excellent. So yes, we delivered mid-single-digit growth in the quarter. Team did a nice job, really good execution. Comparison was relatively easy in the quarter. So -- and I would still characterize the conditions as muted in terms of the environment, but a nice job by the team to deliver a very solid Q2 results. Thanks, Mike. Operator Thank you very much. Our next question is from Jack Meehan. Jack, your line is now open. Please go ahead. Jack Meehan -- Analyst Thanks. Good morning, guys. I wanted to start by asking about LSS. So this had some nice sequential improvement in the growth rate. I heard biosciences led the growth. Can you talk about the relative improvement you're seeing there, also genetic sciences and bioprocessing. And any updates on where you think your customers stand in terms of feedstock? Marc N. Casper -- Chairman, President, and Chief Executive Officer Sure, Jack. Thanks for the question. When I think about probably the most important points on our Life Science Solutions segment, nice to see the growth in our biosciences business. That's every lab every day, really nice adoption in the pharma and biotech segment there. So that was very -- a nice, positive development terms there. And maybe I'll dive a little bit into bioproduction, which is always an area of great interest to our investors. The business is actually progressing really exactly as we expected, really nice quarter of performance. So when I think about the most salient facts around bioproduction, sequentially, really nice revenue growth in Q2. When I look at orders, we had really nice sequential growth in orders. We had year-over-year growth in orders, and we had a favorable book-to-bill, so progressing well. And when I look at others that have reported, I feel very good about our performance. So when I think about the Life Science Solutions segment, those are two of the drivers. And then, you've seen some announcements in the previous few months about important companion diagnostics. Our clinical sequencing business is doing quite well. So Jack, thanks for the question on LSS. Jack Meehan -- Analyst Excellent. OK. And then, wanted to rotate to AI. So this also came in a bit better than I was expecting. Can you talk about how the book-to-bill was in the segment in the quarter and just updates on customer spending patterns? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes. So when I think about Analytical Instruments, it was nice to see the 3% growth in the quarter and very positive. Yes, I would say the market conditions also are playing out pretty much as we expected and not at the normal levels yet, and we certainly see the impact of the muted conditions in China. We have really excellent momentum in those differentiated products that we have where innovation matters, on orders, as well as on revenue. When you look at electron microscopy, you look at the Orbitrap Astral, just the cutting-edge work, you've seen incredibly strong momentum there. So that's where the highlights are, and I would say in the more routine-ish aspects of the portfolio, you see more muted conditions. Thanks, Jack. Operator Thank you. Our next question is from Rachel Vatnsdal with J.P. Morgan. Rachel, your line is now open. Perfect. Hi. Good morning, guys. Thanks so much for taking the questions. Wanted to follow up on some of the China comments. You mentioned that China grew mid-single digits, partly due to the comp there. Can you just walk us through what are you seeing from China stimulus? We heard that this first tranche of funding was released earlier this quarter. So have you seen any orders related to China stimulus? Do you think that you'll benefit from this first tranche? And then, also, have you seen any customers holding back spending related to the stimulus program? Kind of getting at this like air pocket that we've heard some of your peers talk about. Thanks, Rachel, for the question. It's an important question. So let me start at the sort of high level and then get down to the stimulus and then try to provide as much transparency as I possibly can. First of all, I think the world was surprised at how weak China was economically as this year unfolded. The stimulus programs announced early in the year was a sign that the government wanted to get the economy going, which is a good thing, right, in terms of sort of what is the macro backdrop in terms of a tough economic environment. When I think about stimulus in our industry and what we're seeing, tremendous amount of activity with our customers actually to help them with figuring out what to apply for. And so, we know there's quite a bit of interest in our products from a stimulus perspective, and we're helping our customers in that process. When I think about how do I expect it to play out, my expectation is that it's largely going to show up in revenue in 2025 and likely to have some small effect in the fourth quarter of 2024 as well. I did ask the question about air pocket to the team, and I'm actually heading off to China in a couple of weeks' time. So I'm looking forward to that. Our team didn't highlight any air pocket or anything like that. So it's kind of muted conditions, and customers are working on looking at the investments associated with the additional government funding. So we didn't see any pauses in the activity, and I'm proud of the team's mid-single-digit growth in the quarter. Rachel Vatnsdal -- JPMorgan Chase and Company -- Analyst Great. And then, just as a follow-up here. On the CRO, you called out clinical research was an outperformer this quarter that drove some of the growth. So we've seen a few volatile prints from your peers. So can you walk us through what have you seen from an RFP standpoint and book-to-bill in the quarter for PPD? And then, have we turned the quarter on emerging biotech funding and kind of how is that flowing through the model as well? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes. So Rachel, team has done a really nice job executing very well in our clinical research business. And when I think about our performance, we delivered positive organic revenue growth despite a really substantial headwind from the runoff of vaccines and therapies in that activity. So team is doing a nice job. Commercial execution was very strong in the quarter, right? And customers value our capabilities. And when I sort of went under the details of the commercial performance and looked at some of the underlying trends, it was very clear that in Q2, we really did see some of the biotech funding activity that we talked about is a green shoot in Q1 that would give us confidence that the year in aggregate across our business would be improving from a market perspective. We saw that in Q2 actually translate into an acceleration of authorizations in our biotech customer base. And that really does bode well for that. And as you know well this business, that really translates more into revenue in '25 and '26 in terms of how long it takes to get the clinical trials up and going, but the authorization momentum very encouraging in the quarter. Thank you, Rachel. Operator Thank you. The next question is from Doug Schenkel with Wolfe Research. Doug, your line is now open. Please go ahead. Doug Schenkel -- Analyst OK. Thank you and good morning, everybody. Marc, when we look at two-year stacks and calculate CAGRs going back pre-pandemic, it seems like most business lines within Thermo continue to trend positively. I think your commentary is consistent with that on the call this morning. With that in mind, I think one of the key questions is, what's going to be the pace of improvement from here? So with that in mind, two questions. First, where is the recovery occurring more quickly than you may have expected? Where are things lagging? And I'm kind of thinking about this both in terms of how you guided for the year, but also just based on what you've seen through previous cycles. So that's one question. And then, the second would be just keeping in mind your assumption that this market grows 4% to 6% on a normalized basis, is it fair to assume that recognizing you're making progress here, but just seeing what the pacing is, is it fair to assume that the move back into that range is going to be gradual versus a snapback? And essentially that this move into the 4% to 6% range, it's going to take several quarters? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes. So Doug, there's a lot in that question. It's a good question. So let me just start with I think the things that are around the market and our performance which is important to our investors, right? Pre-2023, holding aside some of the amazing market and our performance in the pandemic period, a very predictable, visible market without a lot of volatility and really a great underlying set of growth, right? So there's never debates about market growth sort of pre-pandemic or even in the early parts of the pandemic. So -- and then obviously, a difficult year for the industry in 2023, comparisons and a lot of other factors related to the pandemic directly and indirectly. So when I think about what we're seeing in the industry now for three quarters in a row, the visibility is pretty good. Like we have a good feel for what's going on. It's playing out as we expected. There's always things a little better, a little worse, also irrelevant on the margin. They're all in the factor of the aggregate. So I feel very good about the progression. What's embedded in our guidance in the market, right, is that for the full year is that it continues to step up a little bit more in Q3 and further in Q4. And when I think about what we've assumed in the market growth and back in the January time frame when we gave our guidance is we said the market was going to be down low single digits. But when you looked at sort of the phasing implied, it probably is flattish, maybe up slightly in the fourth quarter in terms of the market progression. That's -- we don't have a perfect crystal ball, but that's sort of what's implied in there. And so, it's progressing well. When I think to how it's going to progress exactly each quarter thereafter, when we get to January, I will have a much better feel for it. But I think what's really relevant is how do I feel about the 4% to 6%, right? And I'm looking forward to investor day. I feel great about the long-term 4% to 6%. That doesn't mean I can predict it to a quarter or the specific year, but when talking a three- to five-year time frame, and do I believe that the market growth is going to be 4% to 6%, 100% confidence in that. But underlying scientific drivers are phenomenal in terms of our industry, what's going on in pipelines, our customer base, fantastic, right? So I don't lose any sleep over that. And I always question it because it's important. It's not like just take it from a dramatic standpoint, but from a fact and underlying drivers, I feel great about it. And then, the other thing that's important to me, important to our 125,000 colleagues and actually quite important to our investors is our customers meaningfully choosing us more often than their other choices. And the ability to grow 2% faster than the market, I feel great about. And we have an incredible track record this quarter, at least looking at what we've seen so far, once again delivered on that. So hopefully, that puts it in the context of my enthusiasm. And we'll provide you transparency as the year wraps up to what do we see as a reasonable assumption for the next year. OK. And Marc, if I can ask one more high-level follow-up. Over the years and in working with you and following Thermo, one of the neat things has been in these tougher periods in the market, Thermo and you specifically have -- you've played offense when others have played defense. Recognizing every cycle is difficult and different, I would say the last year and a half has been maybe tougher than normal even for Thermo. As things start to improve a little bit, but again, it's gradual, do you feel you're in a position now to maybe get even more aggressive like you have in previous cycles when it comes to capital deployment, evolving the business and other initiatives? Are you feeling more comfortable, more confident in making those moves that we've seen in prior cycles? Marc N. Casper -- Chairman, President, and Chief Executive Officer Doug, thanks for the question. When I think about the company's strategy and the trusted partner status that we've earned with our customers over many, many years, we're able to take a long-term perspective while holding ourselves accountable for delivering excellent long-term results. And I love periods where not everybody is performing at the same level. It creates opportunities. I love during the fact that the pandemic, we were able to accelerate our investments in innovation. Well, I mean, I talked probably for five of my 15 minutes today on innovation. And I had to truncate it because the list was so long. It is super cool. And our job is to differentiate our competitive position to deliver superior organic growth to the others and translate into great results. And I'm very excited about our ability to continue to do that and further differentiate our industry leadership going forward. So thanks for the question, Doug. Operator Thank you very much. Our next question is from Tycho Peterson. Tycho, your line is now open. Please go ahead. Tycho Peterson -- Analyst Thanks. Marc, a question on operating margins or maybe for Stephen. Lab products and services, obviously, you felt the headwinds from the vaccine and therapy roll off, but it was effectively at a two-year low. So just curious about how you think about margin for lab products going forward? And then, as we think about 2025, if TPD and Patheon can grow above the corporate average, do you still have the ability to drive 40 to 50 bps of margin expansion or potentially could be higher or lower? Stephen Williamson -- Senior Vice President, Chief Financial Officer Tycho, thanks for the question, and good to hear from you again. So in terms of the margin profile in the quarter, we're going through largely the impact of the transition of the vaccine-related capacity in sterile fill finish and translating into other modalities. So that's probably the biggest factor that you see there. And I think about the margin profile for our businesses, I feel good about the ability to drive strong margin expansion as we -- the top line growth comes back in certain parts of the business where we've appropriately adjusted the cost base down and where volumes have come down. And as those volumes come back, we're going to get some good pull-through that comes from that. So look forward to giving the details on '25 when we get to the January call. But yes, in terms of the margin profile and kind of the mix of business, I feel good about the ability to expand our margins. Tycho Peterson -- Analyst OK. And then, one follow-up on CDMO capacity. You doubled fill finish over the last couple of years. Just curious, Marc, how you think about additional capacity expansion, how you think about capacity utilization in the industry and how actively you may look at some of the capacity that could get freed up from some of the recent M&A or potentially around biosecure in the U.S? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes. So Tycho, when I think about our pharma services business and our capacity, where we play, I feel very good about our position. We've had very strong demand for our sterile fill finish abilities, which is our largest activity, and we're doing well there. We've been expanding the number of lines we have at our sites, and demand has been strong for that. So I feel good about that outlook. In the clinical trials, supplies, which is the other really large portion of our business and where we really have an unparalleled position, I highlighted a couple of examples of capabilities we're expanding. Effectively, we make sure that our capacity lines up with our forecasted demand. So it's not really an overcapacity viewpoint. And then, on the other parts of the business, I feel OK about our position and nothing of note there. So that's pretty positive. And what we're going through right now, as a reminder, is we're transitioning a lot of the COVID-related activities to the normal therapies. And the team is doing a good job. It certainly impacts our growth in terms of headwind in 2024, but it becomes better in '25 and '26 as the new therapies and the tech transfers are complete and new lines come on place. So pretty good times ahead. Thank you. Our next question is from Puneet Souda with Leerink Partners. Puneet, your line is now open. Please go ahead. Puneet Souda -- Analyst Hi. Thanks. Mark and Stephen, thanks for taking the question. So Marc, a higher-level question for you, maybe with your -- when you have conversations, the C-suite conversation with therapeutics teams out there, what are you seeing and hearing from your larger biopharma customers, and maybe to some extent, these mid-cap ones as well versus the smaller and earlier-stage customers? How much of a divergence are you seeing within these groups? And when can that divergence narrow? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes. So Puneet, thanks for the question. So when I think about the things that jump out to me the patterns, if you will, and I see lots of customers, and I'm looking forward to being back on the road tomorrow, seeing our customers is a great thing. In our larger customers, which -- and these will be the companies with many products that are both commercial and in their pipeline, you're seeing a few things. One, they're focused on resiliency of their supply chain. So where maybe historically pre-pandemic, they would have had single site in-house manufacturing, you're seeing much more of the second site, leveraging our capabilities. And that's great in terms of just making sure that they can meet their customer demand, if you will, for medicines. You're also seeing the desire for how do we help them be more innovative and productive. And you basically fund all of the exciting things in their pipeline by just helping them really prioritize the most important work and do that in the most effective way. So it's really about helping them do more to maximize the impact of what's in their pipeline. When I think about the smaller customers because we had gone through a period in 2023 where funding was challenged, right, a lot of the tone was around how do they get through the period. When I think about the first six months of dialogue, much higher confidence, right? Funding is happening, but also the confidence that funding will be available really at a very different spot. And you're seeing that really translate into the earliest indicators of that, which is authorizations of new clinical trials and new activity. But I would expect that that would sort of flow through the rest of the types of work we do as the year continues to unfold and as we get into '25. So I think that's a very positive development. Puneet Souda -- Analyst OK. Great. And just a follow-up for Stephen. On the EPS beat, it was about $0.25 at the midpoint and -- but you raised the guide only by $0.10. So just wondering how much of that is a reflection of the end market versus what's within your control in terms of cost management? Or is there anything specific that you would point out to? Stephen Williamson -- Senior Vice President, Chief Financial Officer Yes. So Puneet, so $0.06 of the beating in Q2 is really timing-related. When I think about the FX rates and kind of the outlook for the rest of the year, $0.03 of that $0.06 could be offset in the second half. And then, from a tax standpoint, we're not assuming the change in the overall rate for the year. That's timing with that. So that $0.06 is good beat in Q2, but it's net neutral for the year as a whole. And then, with the rest, we've raised the low end $0.15, and we raised at the high end $0.05. And I think that's a strong raise at this point and think it's appropriate and enables us to be better positioned for the second half of the year. And I wouldn't really read anything else into that. It's just -- I think that's just appropriate at this point. Thanks, Puneet. Operator, we have time for one more question. Operator Our next question is from Dan Arias with Stifel. Dan, your line is now open. Please go ahead. Daniel Arias -- Analyst Hi, guys. Thank you. Marc, where do you think the academic markets are headed here? Some mixed data points there, and AH budget isn't particularly robust this year. So curious what expectations we should have for the second half and then into the next cycle? Marc N. Casper -- Chairman, President, and Chief Executive Officer Yes. I was encouraged by what I saw in academic and government in Q2. We had low single-digit growth, a relatively challenging comparison. So the team did a good job. What I'm seeing is on the high-end differentiated products, customers are getting money. I mean, if I think through, consumers get money for the really great innovation. And given our track record on innovation, we're seeing strong demand for the Orbitrap Astral. And I know that there's a lot of excitement around the Thermo Scientific Stellar mass spectrometer and the series. These are really -- or series. These are really, really positive developments. And so, I think it's good. I always think long term academic and government globally, it was kind of a low single-digit growth market, sometimes a little better than that. And for -- our performance is playing out in line with that right now. Daniel Arias -- Analyst OK. And then, if I -- just as a follow-up on your comments on China stimulus and the ability to see money gets spent there. Do you see that as primarily just a function of time, customers need time to have it flow and get to them? Or are there sort of discrete triggers and specific things that need to happen in order to have demand to actually make its way to you? Thanks. Marc N. Casper -- Chairman, President, and Chief Executive Officer I mean, the process is they have to apply, and there's a central government funding and matched by their other funding sources, usually provincial or it could be local depending on the institution. So they're going through that process. As it gets approved, they then have the ability to go out and place the order. So that's the view. I think because these institutions are funded by the government in all times, whether it's stimulus or not, I think they have a mechanism to understand what's likely to happen. So this is not giant mystery to them. I think they're working through it and is kind of normal from that perspective. And what we're doing is reminding them of the importance of the important instrumentation that we've launched and the relevance of it. So that they prioritize their funding request to support our instrumentation. Dan, thanks for the question, and I'll turn to just wrapping up. So thanks, everyone, for joining us on the call today. Pleased to deliver another strong quarter, well positioned to deliver differentiated performance as we continue to create value for all of our stakeholders, and we'll build an even brighter future for our company. We're looking forward to talking about that bright future at our upcoming investor day on September 19 in New York and updating you on our third quarter performance in October. As always, thank you for your support of Thermo Fisher Scientific.

Thermo Fisher Scientific Inc. (TMO) Q2 2024 Earnings Call Transcript

Rafael Tejada - Vice President Investor Relations Marc Casper - Chairman, President and Chief Executive Officer Stephen Williamson - Senior Vice President and Chief Financial Officer Good morning, ladies and gentlemen and welcome to the Thermo Fisher Scientific 2024 Second Quarter Conference Call. [Operator Instructions] I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President Investor Relations. Mr. Tejada, you may begin the call. Rafael Tejada Good morning, and thank you for joining us. On the call with me today is Marc Casper, our Chairman, President, and Chief Executive Officer and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investor section of our website thermofisher.com, under the heading News, Events, and Presentations until August 7, 2024. A copy of the press release of our second quarter 2024 earnings is available in the investor section of our website under the heading financials. So, before we begin, let me briefly cover our Safe Harbor Statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities and Livigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our second quarter 2024 earnings and also in the investor section of our website under the heading financials. Raf, thank you. Good morning, everyone and thanks for joining us today for our second quarter call. As you saw in our press release, we had great results for the quarter. We're making excellent progress to deliver differentiated results for the year. I'm proud of our team as they executed at a very high level to enable our customers to make the world healthier, cleaner, and safer. This continued success is a result of our proven growth strategy and our PPI business system. So first, let me recap the financials. Our revenue in the quarter was $10.54 billion. Our adjusted operating income was $2.35 billion. Adjusted operating margin increased in Q2 to 22.3%. And we delivered another quarter of strong adjusted EPS performance, achieving a 4% increase year-over-year to $5.37 per share. Our performance in the second quarter is allowing us to raise our guidance once again and continue our track record of delivering differentiated results. Turning to our performance by end market, in the second quarter, underlying mark conditions played out as we'd expected. Our team's excellent execution drove share gain in the quarter, and we delivered a sequential improvement in growth in all four of our end markets. Let me provide you with some additional context. Starting with pharma and biotech, we declined in the low-single-digits for the quarter. The vaccine and therapy revenue runoff resulted in a 4 point headwind for this customer segment. Performance in the second quarter was led by our biosciences and clinical research businesses. In academic and government and in industrial and applied, we grew in the low-single-digits during the quarter. In both these end markets, we delivered strong growth in our electron microscopy business. Finally, in diagnostics and healthcare, we declined in the low-single-digits. As a reminder, the reported growth in this end market is impacted by the runoff of COVID-19 testing-related revenue. During the quarter, the team delivered good core revenue growth highlighted by our transplant diagnostic and immunodiagnostics businesses, as well as our healthcare market channel. As I reflect on our performance during the quarter and on a year-to-day basis, I feel very good about the progress we've made at the halfway point of the year. Our end markets are playing out as we expected, and our team's execution has been excellent. I'll now turn to an update on our growth strategy. As a reminder, our strategy consists of three pillars. High impact innovation; our trusted partner status with customers; and our unparalleled commercial engine. Starting with the first pillar, it was a fantastic quarter of innovation as we launched a number of high impact new products across our businesses. I'll begin with the new technologies we launched at the American Society for Mass Spectrometry Conference, further strengthening our industry leading position in analytical instruments. At the conference, we introduced the Thermo Scientific Stellar Mass Spectrometer, which extends our leadership in proteomics. The Thermo Scientific Stellar is used to validate biomarker candidates. It offers unprecedented analytical capabilities for targeted quantitation, enabling the insights needed by researchers to advance their work. It's a perfect complement to our groundbreaking Thermo Scientific Orbitrap Astral, used for protein discovery that we launched last year. It was incredibly exciting to hear the customer testimonials sharing the power of the Orbitrap Astral. To-date, we've had more than 40 publications that incorporated the impact of this breakthrough, and we're really just getting started. Also at ASMS, we launched three new build-for-purpose editions of the Thermo Scientific Orbitrap Ascend Tribrid Mass Spectrometer tailored to specific applications for MultiOmics, Structural Biology and BioPharma. These instruments continue to elevate our industry-leading Thermo Scientific Orbitrap portfolio by offering enhanced speed and sensitivity to detect and characterize the most difficult protein samples, including complex biologics. This quarter we also launched products to help our customers meet their own sustainability goals. In our bioproduction business, we introduced a first of its kind bio-based film for our single-use technologies. These new bioprocess containers use plant-based material rather than fossil fuel materials to provide lower carbon solutions for the manufacturer of biologics. And in our laboratory products business, we launched a new line of Energy Star certified Thermo Scientific TSX universal series ULT freezers that deliver industry-leading performance and energy efficiency to help labs meet their sustainability goals. Turning to the highlights of our second and third pillars of our growth strategy, during the quarter we continue to strengthen our industry-leading commercial engine and the trusted partner status we've learned with our customers. Our customers rely on us to help accelerate their innovation, increase their productivity, and advance their important work. I spent a lot of time connecting with customers to understand their near and long-term priorities, so that we can enable their success. As a result of these unique relationships, we continue to advance our capabilities to be an even stronger partner for our customers. Let me give you a couple of examples from the second quarter. We expanded our leading clinical trial supply services with a new ultra-cold facility in Bleiswijk in the Netherlands to offer pharma and biotech customers tailored end-to-end support throughout the clinical supply chain for high-value therapies, including cell and gene therapies, biologics, antibodies, and vaccines. We also opened a state-of-the-art innovation lab at our site in Center Valley, Pennsylvania to showcase our innovative solutions for global clinical trial supply, including new packaging solutions, real-time tracking and tracing, and enhanced clinical trial setup and planning. In addition, we advance partnerships and collaborations with our customers during the quarter. Let me give you a couple of examples in the Asia Pacific region. To support Indonesia's growing investments in healthcare, scientific research, and renewable energy, we further expanded our presence and capabilities in the country. We are collaborating with the National Battery Research Institute to advance battery technology and energy storage, as well as with the Mandaya Hospital Group to help advance stem cell research and cell therapy development. In Singapore, we announced a collaboration with the National University Hospital in Mirxes, a local RNA technology company to develop and clinically validate advanced next generation sequencing genomic testing solutions specifically made to address the needs of the Southeast Asian population. So another strong quarter of executing our growth strategy. Let me now turn to our PPI business system, which enabled excellent execution during the quarter. PPI engages and empowers all of our colleagues to find a better way every day. During the quarter, I had the opportunity to see the PPI efforts to further improve manufacturing of our lab equipment products, and I came away incredibly impressed with the progress to drive operational efficiency in this business. It's also great to see how PPI has been adopted in our clinical research business where it is driving meaningful improvements in our efficiency and customer allegiance. Ultimately, you see the positive impact of our PPI business system and our Q2 results reflected in strong profitability and cashflow that we delivered in the quarter. We also advanced our corporate social responsibility priorities during the quarter. As a mission driven company, we helped to make the world a better place by enabling the important work of our customers. We also create a positive impact by supporting our communities and being a good steward of our planet. We continue to make progress on our environmental sustainability roadmap in Q2. As part of our commitment to safeguarding the world's natural resources, we have set targets for 2025, which include zero waste certification for 30 manufacturing and warehouse sites. During the quarter, three more of our sites achieve zero waste certification, and we're on track to achieve our goals. You can learn much more about our progress in our 2023 Corporate Social Responsibility Report, which was published during the quarter. The report provides a transparent account of our journey as we fulfill our commitments to society and all of our stakeholders. Let me now give you an update on capital deployment. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders. Shortly after the quarter ended, we completed our acquisition of Olink, and it was great to welcome our new colleagues to the company earlier this month. As you know, Olink is a leading provider of next generation proteomic solutions. The addition of Olink's proven and transformative technology is highly complementary to our industry leading mass spectrometers. Olink further advances our leadership as it is a great addition to our differentiated protein research ecosystem. Our world-class commercial engine will enable us to bring this technology to scientists around the world. By increasing the use of next-gen proteomics and providing industry-leading data quality at scale, excuse me, data quality at scale, we're in a great position to further enhance the understanding of human biology and meaningfully accelerate scientific breakthroughs. So as I reflect on the quarter, I'm proud of what our team accomplished and grateful to their contributions for our success. Let me now turn to our guidance. Given our strong performance in the second quarter, we're raising our 2024 guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion and adjusted EPS to be in the range of $21.29 to $22.07 per share. Stephen will take you through the details in his remarks. So to summarize our key takeaways from Q2, we delivered another quarter of strong results driven by our proven growth strategy and PPI business system. We continue to enable our customer success and this reinforces our trusted partner status and industry leadership. Our strong results in Q2 allowed us to raise our guidance again for the year. We're well positioned to deliver differentiated performance in 2024 as we continue to create value for all of our stakeholders and build an even brighter future for our company. With that, I'll now hand the call over to our CFO, Stephen Williamson. Stephen? Stephen Williamson Thanks, Mark and good morning, everyone. I'll take you through an overview of our second quarter results for the total company, then provide color on our four business segments. And I'll conclude by providing our updated 2024 guidance. Before I get into the details of our financial performance, let me provide you with a high level view on how the second quarter played out versus our expectations at the time of our last earnings call. As Mark mentioned in the quarter, market conditions were as we'd expected, yet another quarter of excellent execution, and this enabled us to deliver Q2 financials ahead of what we'd assumed in our prior guidance. Starting with the top line, core organic revenue growth was a little over 0.5 percentage point ahead of what we'd assumed in the prior guide for Q2. That translates to approximately $60 million of revenue, which is partially offset by slightly higher FX revenue headwind. Turning to the bottom line, adjusted EPS was $0.25 ahead of what we'd assumed in the prior guide for Q2. $0.08 was from strong operational performance; $0.06 cents was from favorable effects and timing of discrete tax planning benefits within the year; and $0.11 was from the beat -- was from lower net interest expense. In my prior guidance I took a prudent approach to the Olink transaction from a financing cost standpoint. We're also executing well on free cash flow generation. The year-to-date free cash flow is 68% higher than the same period last year. So we're continuing to deliver strong performance and we're well positioned at the halfway point of the year. Let me now provide you with some additional details on Q2. Beginning with the earnings per share. In the quarter adjusted EPS grew by 4% to $5.37. GAAP EPS in the quarter was $4.04, up 15% from Q2 last year. On the top line, in Q2 reported revenue was 1% lower year-over-year. The components of our Q2 report of revenue change included 1% lower organic revenue, a 1% headwind from foreign exchange, and a slight contribution from acquisitions. We delivered another strong sequential improvement in core organic revenue growth this quarter. And in Q2, core organic revenue growth rounded up to flat on a year-over-year basis. In the quarter, pandemic-related revenue was approximately $115 million, this was mainly from vaccines and therapies. This represents a 3% headwind to organic revenue growth. Turning to our organic revenue performance by geography, in Q2 North America declined mid-single-digits, Europe grew low-single-digits, and Asia Pacific grew mid-single-digits, which includes China, which also grew mid-single-digits. With respect to our operational performance, we delivered $2.3 billion of adjusted operating income in the quarter, and adjusted operating margin was 22.3%, 10 basis points higher than Q2 last year and 30 basis points higher than Q1 2024. Total company adjusted gross margin in the quarter came in at 42.1%, 110 basis points higher than Q2 last year. In the quarter, we continue to deliver very strong productivity, reflecting our continued focus on cost management, as well as the carryover benefit from the cost actions put in place last year. This enabled us to more than offset the impact of low volumes, while appropriately funding investments to further advance our industry leadership. Moving on to the details of P&L, adjusted SG&A in the quarter was 16.6% of revenue. Total R&D expense was $340 million in Q2, reflecting our ongoing investments in high impact innovation. R&D as a percent of our manufacturing revenue was 7.1% in the quarter. Looking at results below the line, our Q2 net interest expense was $59 million, which is $89 million lower than Q2 2023, due to higher cash and investment balances. Our adjusted tax rate in the quarter was 10%. And average diluted shares were 383 million in Q2, approximately 5 million lower year-over-year, driven by share repurchases net of option dilution. Turning to free cash flow and the balance sheet, year-to-date cash flow from operations was $3.2 billion. Year-to-date free cash flow was $2.6 billion after investing $630 million of net capital expenditures. We enter the quarter with $8.8 billion in cash and short-term investments and $35.4 billion of total debt. Our leverage ratio at the end of the quarter was 3.3 times gross debt to adjusted EBITDA and 2.5 times on a net debt basis. Including my comments on our total company performance suggested ROIC was 11.8%, reflecting the strong returns on investment that we're generating across the company. Now provide some color on our performance of our four business segments, starting with life sciences solutions. Q2 reported revenue in the segment declined 4% and organic revenue was 3% lower than the prior year quarter. Growth in this segment was led by a biosciences business that was more than offset by the impact of the pandemic. Q2 adjusted operating income for life science solutions increased 6% and adjusted operating margin was 36.7%, up 350 basis points versus the prior year quarter. During Q2, we delivered exceptionally strong productivity, which was partially upset by unfavorable volume pull through. The team continued to do an excellent job to appropriately manage the cost base and deal with the unwind of the pandemic. In the analytical instrument segment, reported revenue grew 2% and organic growth was 3% higher than the prior year quarter. We continue to deliver a very strong growth in our electron microscopy business. In this segment, Q2 adjusted operating income increased 1% and adjusted operating margin was 24.6%, 10 basis points lower year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable mix and strategic investments. Turning to specialty diagnostics, in Q2 both reported and organic revenue were 1% higher than the prior year quarter. In Q2, we continued to see strong underlying growth in the core, led by our transplant diagnostics and immunodiagnostic businesses, as well as in our healthcare market channel. Q2 adjusted operating income for specialty diagnostics increased 1% and adjusted operating margin was 26.7%, which was flat, compared to Q2 2023. During the quarter, we delivered good productivity, which was offset by strategic investment. And finally, in the Laboratory Products and Biopharma Services segment, both reported revenue and organic growth decreased 1% in Q2 versus the prior year quarter. This is driven by the runoff of vaccines and therapies revenue. Growth in this segment in Q2 was led by a clinical research business. Q2 adjusted operating income declined 10% and adjusted operating margin was 12.9%, which is 120 basis points lower than Q2 2023, flat sequentially to Q1 2024. In the quarter, we delivered strong productivity, which is more than offset by unfavorable volume mix and strategic investments. Turning now to guidance, as Mark outlined, given our strong performance in Q2, we're raising our 2024 full-year guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion, and adjusted EPS to be in the range of $21.29 to $22.07. The improved revenue guidance does not change the core organic revenue growth rounding for the year, so we still continue to assume core organic revenue growth will be in the range of minus 1% to positive 1% for 2024. And we continue to assume that the market declines low-single-digits this year. Our proven growth strategy and PPI business system execution will enable us to continue to take share once again. Our 2024 updated guidance range assumes an adjusted operating income margin between 22.5% and 22.8%, slightly higher than the prior guide. Our PPI business system is continuing to enable excellent execution, manage costs appropriately and fund the right long-term investments to enable us to further advance our industry leadership. We now expect net interest costs to be in the range of $380 million to $400 million for the year. And the raise to our adjusted EPS guidance range reflects a $0.15 increase on the low end and a $0.05 increase on the high end, which results in an increase in the midpoint by $0.10. So another strong quarter of execution, enabling an increase in the guidance outlook for the year, we remain really well positioned to continue to deliver differentiated performance. I thought it would be helpful to remind you of some of the key underlying assumptions behind the guide that remain unchanged from the previous guidance. In 2024, we're assuming just under $100 million of testing revenue and $300 million to $400 million of vaccines and therapies related revenues. In total, this represents a year-over-year headwind of $1.3 billion to $1.4 billion, or 3% of revenue. We assume that FX would be roughly neutral year-over-year to both revenue and adjusted EPS, and we're assuming that the $0.03 FX adjusted EPS beat that we saw in Q2 is offset for the remainder of the year, leading to no change for the year as a whole for FX versus the prior guidance. We continue to expect adjusted income tax rate will be 10.5% in 2024, and for the year we're assuming between $1.3 billion and $1.5 billion in net capital expenditures and free cash flow in the range of $6.5 billion to $7 billion. In terms of capital deployment, we're assuming $3 billion of share buybacks, which were already completed in January. Expect to return approximately $600 million of capital to shareholders this year through dividends and we deployed $3.1 billion to acquire Olink shortly after the Q2 close. Full-year average diluted share count is assumed to be approximately 383 million shares. Finally, I wanted to touch on quarterly phasing to help you with your modeling. Relative to the midpoint of the guide, I recommend modeling Q3 organic revenue growth 1% higher than we delivered in Q2. Also good to model core organic revenue growth in Q3 1% higher than we delivered in Q2. And in terms of adjusted EPS in Q3, I recommend modeling it to be just over 24% of the full-year. So to conclude, we continue to deliver on our commitments. And at the halfway point, we're in a great position to deliver differentiated performance for all our stakeholders in 2024. Operator, we're ready for the Q&A portion of the call. Thank you. [Operator Instructions] Our first question is from Michael Ryskin with Bank of America. Michael, your line is now open. Please go ahead. Michael Ryskin Great. Thanks for taking the questions, guys. Congrats on the quarter. Marc, a high-level one for you to start off maybe, at our Vegas Health Care Conference in May, you made some initial comments about 2025 market expectations. And you said that you expect the tools market next year would be just below the 4 to 6 level it has historically been. Just given the way the year is playing out, how you're exiting 2024, entering 2025. It's been a couple months since then. You've got hopefully a clearer view of how 2024 is going to play out. So given where you sit now, do you have more confidence in that 2025 market assumption and maybe how Thermal can deliver differentiated performance above that? Marc Casper Mike, thanks for the question. It was a pleasure to be in with you earlier in the quarter. So let me start actually one level off. Just kind of frame a few of my general thoughts and I'll talk about 2025. So when I think about Q2, team executed really well, really good financial performance. It was ahead of our expectations. It allowed us to raise our guidance. The other aspect of the performance is the actual performance as opposed to relative to expectations. Clearly very differentiated and very strong. It was good to see that core has now elevated to it's now flat, which is great. 4% adjusted EPS growth and expansion of margins. So I feel very good about the performance and when I think about the market they were in line with our expectations, so it's good to see the visibility that we've enjoyed for decades, as returned in terms of how the market's playing out. And when I think about our own performance within the markets, it was good to see that all four of our markets, we had sequential improvement in our growth across all four. So really very positive development. PPI business system is really delivering outstanding impact and ultimately feel good about the performance. Capital deployment has been active and good. We've deployed over $6 billion of capital through the first-half of the year, half of it on return of capital and half of it on a very exciting acquisition of Olink, and we're very well positioned at this point to deliver strong results. When I think about 2025, I think the way I would just think about it is we're going give you that in January of 2025. When we have the benefit of the year behind us and we're focused on delivering a great year, we'll be able to give you a view of not only our performance, but how we saw the underlying market conditions. The year is progressing as we expected, so we expect that the market will continue to improve modestly in the back half of the year, each quarter being a little better than the quarter before and that our performance will also continue to step up and that will give us momentum going at '25 in the details. We'll give you back -- we'll give you in a few months' time. Michael Ryskin Okay, fair enough. And then for my follow-up, I want to focus on China, I think if I heard correctly, you called out that it grew mid-single-digits in the quarter. I want to make sure I heard that right. But if so, that's a bit surprising. Anything you could say in terms of what you're seeing there? Is that also ahead of your expectations and is this just a temporary bump in the quarter or something one-timey or are you seeing some real traction here and you think that can get you into your end? Thanks. Marc Casper Yes, your hearing is excellent. So yes, we delivered mid-single-digit growth in the quarter. Team did a nice job, really good execution. Comparison was relatively easy in the quarter, so and I would still characterize the conditions as muted in terms of the environment, but a nice job by the team to deliver a very solid Q2 result. Thanks, Mike. Thank you very much. Our next question is from Jack Meehan. Jack, your line is now open. Please go ahead. Jack Meehan Thanks. Thanks. Good morning, guys. Wanted to start by asking about LSS, so this had some nice sequential improvement in the growth rate. I heard biosciences led to growth. Can you talk about the relative improvement you're seeing there, or also genetic sciences and bioprocessing? And any updates on where you think your customers stand in terms of e-stock? Marc Casper Yes, Jack, thanks for the question. When I think about probably the most important points on our life science solutions segment, nice to see the growth in our biosciences business, that's every lab every day, really nice adoption in the pharma and biotech segment there. So that was a nice positive development in terms of there. And maybe I'll dive a little bit into bioproduction, which is always an area of great interest to our investors. The business is actually progressing really exactly as we expected, really nice quarter of performance. So when I think about the most salient facts around bioproduction, sequentially really nice revenue growth in Q2. When I look at orders, we had really nice sequential growth in orders. We had year-over-year growth in orders, and we had a favorable book-to-bill. So progressing well, and when I look at others that have reported I feel very good about our performance. So when I think about the life science solution segment those are two of the drivers and then you've seen some announcements in the previous few months about important companion diagnostics our clinical sequence business -- clinical sequencing business is doing quite well. So Jack thanks for the question on LSS. Jack Meehan Excellent okay and then one to rotate to AI, so this also came in a bit better than I was expecting. Can you talk about how the book-to-bill was in the segment in the quarter? And just update some customer spending patterns? Thanks. Marc Casper Yes. So when I think about Analytical Instruments, it was nice to see the 3% growth in the quarter and very positive. Yes, I would say the market conditions also are playing out pretty much as we expected and not at the normal levels yet, and we certainly see the impact of the muted conditions in China. We have really excellent momentum in those differentiated products that we have where innovation matters, on orders as well as on revenue. When you look at electron microscopy, you look at the Orbitrap Astral, just the cutting-edge work, you've seen incredibly strong momentum there. So that's where the highlights are, and I would say in the more routine-ish aspects of the portfolio, you see more muted conditions. Thanks, Jack. Our next question is from Rachel Vatnsdal with JPMorgan. Rachel, your line is now open. Please go ahead. Rachel Vatnsdal Perfect. Hi, good morning, you guys. Thanks so much for taking the questions. Wanted to follow-up on some of the China comments. You mentioned that China grew mid-single-digits, partly due to the comp there. Can you just walk us through what are you seeing from China stimulus? We heard that this first tranche of funding was released earlier this quarter. So have you seen any orders related to China stimulus? Do you think that you'll benefit from this first tranche? And then also, have you seen any customers holding back spending related to the stimulus program? Kind of getting at this like air pocket that we've heard some of your peers talk about. Any comments there would be helpful. Marc Casper Rachel, thanks for the question. It's an important question. So let me start at the sort of high level and then get down to the stimulus and then try to as much transparency as I possibly can. First of all, I think the world was surprised at how weak China was economically as this year unfolded. The stimulus programs announced early in the year was a sign that the government wanted to get the economy going, which is a good thing, right, in terms of sort of what is the macro backdrop in terms of a tough economic environment. When I think about stimulus in our industry and what we're seeing, tremendous amount of activity with our customers actually to help them with figuring out what to apply for. And so we know there's quite a bit of interest in our products from a stimulus perspective, and we're helping our customers in that process. When I think about how do I expect it to play out, my expectation is that it's largely going to show up in revenue in 2025 and likely to have some small effect in the fourth quarter of 2024 as well. I did ask the question about air pocket to the team, and I'm actually heading off to China in a couple of weeks' time, so I'm looking forward to that. Our team didn't highlight any air pocket or anything like that. So it's kind of muted conditions, and customers are working on looking at the investments associated with the additional government funding. So we didn't see any pauses in the activity, and I'm proud of the team's mid-single-digit growth in the quarter. Rachel Vatnsdal Great. And then just as my follow-up here. On the CRO, you called out clinical research was an outperformer this quarter that drove some of the growth. So we've seen a few volatile prints from your peers. So can you walk us through what have you seen from an RFP standpoint and book-to-bill in the quarter for PPD? And then have we turned the quarter on emerging biotech funding and kind of how is that flowing through the model as well? Marc Casper Yes. So Rachel, team has done a really nice job executing very well in our clinical research business. And when I think about our performance, we delivered positive organic revenue growth despite a really substantial headwind from the runoff of vaccines and therapies in that activity. So team is doing a nice job. Commercial execution was very strong in the quarter, right? And customers value our capabilities. And when I sort of went under the details of the commercial performance and looked at some of the underlying trends, it was very clear that in Q2, we really did see some of the biotech funding activity that we talked about is a green shoot in Q1 that would give us confidence that the year in aggregate across our business would be improving from a market perspective. We saw that in Q2 actually translate into an acceleration of authorizations in our biotech customer base. And that really does bode well for that. And as you know well this business, that really translates more into revenue in '25 and '26 in terms of how long it takes to get the clinical trials up and going, but the authorization momentum very encouraging in the quarter. Thank you, Rachel. The next question is from Doug Schenkel with Wolfe Research. Doug, your line is now open. Please go ahead. Doug Schenkel Okay, thank you and good morning everybody. Marc, when we look at two-year stacks and calculate CAGRs going back pre-pandemic, it seems like most business lines within Thermo continue to trend positively. I think your commentary is consistent with that on the call this morning. With that in mind, I think one of the key questions is, what's going to be the pace of improvement from here? So with that in mind, two questions. First, where is the recovery occurring more quickly than you may have expected? Where are things lagging? And I'm kind of thinking about this both in terms of how you guided for the year, but also just based on what you've seen through previous cycles. So that's one question. And then the second would be just keeping in mind your assumption that this market grows 4% to 6% on a normalized basis, is it fair to assume that recognizing you're making progress here, but just seeing what the pacing is, is it fair to assume that the move back into that range is going to be gradual versus a snapback? And essentially that this move into the 4% to 6% range, it's going to take several quarters? Marc Casper Yes. So Doug, there's a lot in that question. It's a good question. So let me just start with I think the things that are around the market and our performance which is important to our investors, right? Pre-2023, holding aside some of the amazing market and our performance in the pandemic period, a very predictable, visible market without a lot of volatility and really a great underlying set of growth, right? So there's never debates about market growth sort of pre-pandemic or even in the early parts of the pandemic. So -- and then obviously, a difficult year for the industry in 2023, comparisons and a lot of other factors related to the pandemic directly and indirectly. So when I think about what we're seeing in the industry now for three quarters in a row, the visibility is pretty good. Like we have a good feel for what's going on. It's playing out as we expected. There's always things a little better, a little worse, also irrelevant on the margin. They're all in the factor of the aggregate, so I feel very good about the progression. What's embedded in our guidance in the market, right, is that for the full-year is that it continues to step up a little bit more in Q3 and further in Q4. And when I think about what we've assumed in the market growth and back in the January time frame when we gave our guidance is we said the market was going to be down low-single-digits. But when you looked at sort of the phasing implied, it probably is flattish, maybe up slightly in the fourth quarter in terms of the market progression. That's -- we don't have a perfect crystal ball, but that's sort of what's implied in there. And so it's progressing well. When I think to how it's going to progress exactly each quarter thereafter, when we get to January, I will have a much better feel for it. But I think what's really relevant is how do I feel about the 4% to 6%, right? And I'm looking forward to Investor Day. I feel great about the long-term 4% to 6%. That doesn't mean I can predict it to a quarter or the specific year, but when talking a three to five-year time frame, and do I believe that the market growth is going to be 4% to 6%, 100% confidence in that. But underlying scientific drivers are phenomenal in terms of our industry, what's going on in pipelines, our customer base, fantastic, right? So I don't lose any sleep over that. And I always question it because it's important. It's not like just take it from a dramatic standpoint, but from a fact and underlying drivers, I feel great about it. And then the other thing that's important to me, important to our 125,000 colleagues and actually quite important to our investors is our customers meaningfully choosing us more often than their other choices. And the ability to grow 2% faster than the market, I feel great about. And we have an incredible track record this quarter, at least looking at what we've seen so far, once again delivered on that. So hopefully, that puts it in the context of my enthusiasm. And we'll provide you transparency as the year wraps up to what do we see as a reasonable assumption for the next year. And I think our forecast accuracy is pretty good. Douglas Schenkel Okay. And Marc, if I can ask one more high-level follow-up. Over the years and in working with you and following Thermo, one of the neat things has been in these tougher periods in the market, Thermo and you specifically have -- you've played offense when others have played defense. Recognizing every cycle is difficult and different, I would say the last 1.5 years has been maybe tougher than normal even for Thermo. As things start to improve a little bit, but again, it's gradual, do you feel you're in a position now to maybe get even more aggressive like you have in previous cycles when it comes to capital deployment, evolving the business and other initiatives? Are you feeling more comfortable, more confident in making those moves that we've seen in prior cycles? Thank you. Marc Casper Doug, thanks for the question. When I think about the company's strategy and the trusted partner status that we've earned with our customers over many, many years, we're able to take a long-term perspective, while holding ourselves accountable for delivering excellent long-term results. And I love periods where not everybody is performing at the same level. It creates opportunities. I loved during the fact that the pandemic, we were able to accelerate our investments in innovation. Well, I mean I talked probably for five of my 15 minutes today on innovation. And I had to truncate it because the list was so long. It is super cool. And our job is to differentiate our competitive position to deliver superior organic growth to the others and translate into great results. And I'm very excited about our ability to continue to do that and further differentiate our industry leadership going forward. So thanks for the question, Doug. Thank you very much. Our next question is from Tycho Peterson. Tyco, your line is now open. Please go ahead. Tycho Peterson Thanks. Hey, Marc, a question on operating margins or maybe for Stephen. Lab products and services, obviously, you felt the headwinds from the vaccine and therapy roll off, but it was effectively at a two-year low. So just curious about how you think about margin for lab products going forward? And then as we think about 2025, if TPD and Patheon can grow above the corporate average, do you still have the ability to drive 40 to 50 bps of margin expansion or potentially could be higher or lower? Thanks. Stephen Williamson Tycho, thanks for the question, and good to hear from you again. So in terms of the margin profile in the quarter, we're going through largely the impact of the transition of the vaccine-related capacity in sterile fill finish and translating into other modalities. So that's probably the biggest factor that you see there. And I think about the margin profile for our businesses, I feel good about the ability to drive strong margin expansion as we -- the top line growth comes back in certain parts of the business where we've appropriately adjusted the cost base down and where volumes have come down. And as those volumes come back, we're going to get some good pull-through that comes from that. So look forward to giving the details on '25 when we get to the January call. But yes, in terms of the margin profile and kind of the mix of business, I feel good about the ability to expand our margins. Tycho Peterson Okay. And then one follow-up on CDMO capacity. You doubled fill finish over the last couple of years. Just curious, Marc, how you think about additional capacity expansion, how you think about capacity utilization in the industry and how actively you may look at some of the capacity that could get freed up from some of the recent M&A or potentially around biosecure in the U.S? Marc Casper Yes. So Tycho, when I think about our pharma services business and our capacity, where we play, I feel very good about our position. We've had very strong demand for our sterile fill finish abilities, which is our largest activity, and we're doing well there. We've been expanding the number of lines we have at our sites, and demand has been strong for that. So I feel good about that outlook. In the clinical trials, supplies, which is the other really large portion of our business and where we really have an unparalleled position, I highlighted a couple of examples of capabilities we're expanding. Effectively, we make sure that our capacity lines up with our forecasted demand. So it's not really an overcapacity viewpoint. And then on the other parts of the business, I feel okay about our position and nothing of note there. So that's pretty positive. And what we're going through right now, as a reminder, is we're transitioning a lot of the COVID-related activities to the normal therapies. And the team is doing a good job. It certainly impacts our growth in terms of headwind in 2024, but it becomes better in '25 and '26 as the new therapies and the tech transfers are complete and new lines come on place. So pretty good times ahead. Thank you. Our next question is from Puneet Souda with Leerink Partners. Puneet, your line is now open. Please go ahead. Puneet Souda Yes. Hi, thanks Marc and Stephen. Thanks for taking the question. So Marc, a higher-level question for you, maybe with your -- when you have conversations, the C-suite conversation with therapeutics teams out there, what are you seeing and hearing from your larger biopharma customers, and maybe to some extent, these mid-cap ones as well versus the smaller and earlier-stage customers? How much of a divergence are you seeing within these groups? And when can that divergence narrow? Marc Casper Yes. So Puneet, thanks for the question. So when I think about the things that jump out to me the patterns, if you will, and I see lots of customers, and I'm looking forward to being back on the road tomorrow, seeing our customers is a great thing. In our larger customers, which -- and these will be the companies with many products that are both commercial and in their pipeline, you're seeing a few things. One, they're focused on resiliency of their supply chain. So where maybe historically pre-pandemic, they would have had single site in-house manufacturing, you're seeing much more of the second site, leveraging our capabilities. And that's great in terms of just making sure that they can meet their customer demand, if you will, for medicines. You're also seeing the desire for how do we help them be more innovative and productive. And you basically fund all of the exciting things in their pipeline by just helping them really prioritize the most important work and do that in the most effective way. So it's really about helping them do more to maximize the impact of what's in their pipeline. When I think about the smaller customers, because we had gone through a period in 2023 where funding was challenged, right, a lot of the tone was around how do they get through the period. When I think about the first six months of dialogue, much higher confidence, right? Funding is happening, but also the confidence that funding will be available really at a very different spot. And you're seeing that really translate into the earliest indicators of that, which is authorizations of new clinical trials and new activity. But I would expect that, that would sort of flow through the rest of the types of work we do as the year continues to unfold and as we get into '25. So I think that's a very positive development. Puneet Souda Okay. Great. And just a follow-up for Stephen. On the EPS beat, it was about $0.25 at the midpoint and -- but you raised the guide only by $0.10. So just wondering how much of that is a reflection of the end market versus what's within your control in terms of cost management? Or is there anything specific that you would point out to? Stephen Williamson Yes. So Puneet, so $0.06 of the beating in Q2 is really timing-related. When I think about the FX rates and kind of the outlook for the rest of the year, $0.03 of that $0.06 could be offset in the second-half. And then from a tax standpoint, we're not assuming the change in the overall rate for the year. That's timing with that. So that $0.06 is good beat in Q2, but it's net neutral for the year as a whole. And then with the rest, we've raised the low end $0.15, and we raised at the high end $0.05. And I think that's a strong raise at this point and think it's appropriate and enables us to be better positioned for the second half of the year. And I wouldn't really read anything else into that. It's just -- I think that's just appropriate at this point. Yes, Our next question is from Dan Arias with Stifel. Dan, your line is now open. Please go ahead. Dan Arias Good morning, guys. Marc, where do you think the academic markets are headed here? Some mixed data points there, and AH budget isn't particularly robust this year. So curious what expectations we should have for the second half and then into the next cycle. Marc Casper Yes. I was encouraged by what I saw in academic and government in Q2. We had low single-digit growth, a relatively challenging comparison. So the team did a good job. What I'm seeing is on the high-end differentiated products, customers are getting money. I mean if I think through, consumers get money for the really great innovation. And given our track record on innovation, we're seeing strong demand for the Orbitrap Astral. And I know that there's a lot of excitement around the Thermo Scientific Stellar mass spectrometer and the eclipse series. These are really -- or series. These are really, really positive developments. And so I think it's good. I always think long-term academic and government globally, it was kind of a low-single-digit growth market, sometimes a little better than that. And for -- our performance is playing out in line with that right now. Dan Arias Okay. And then if I -- just as a follow-up on your comments on China stimulus and the ability to see money gets spent there. Do you see that as primarily just a function of time, customers need time to have it flow and get to them? Or are there sort of discrete triggers and specific things that need to happen in order to have demand to actually make its way to you? Thanks. Marc Casper I mean the process is they have to apply, and there's a central government funding and matched by their other funding sources, usually provincial or it could be local depending on the institution. So they're going through that process. As it gets approved, they then have the ability to go out and place the order, so that's the view. I think because these institutions are funded by the government in all times, whether it's stimulus or not, I think they have a mechanism to understand what's likely to happen. So this is not giant mystery to them. I think they're working through it and is kind of normal from that perspective. And what we're doing is reminding them of the importance of the important instrumentation that we've launched and the relevance of it. So that they prioritize their funding request to support our instrumentation. Dan, thanks for the question, and I'll turn to just wrapping up. So thanks, everyone, for joining us on the call today. Pleased to deliver another strong quarter, well positioned to deliver differentiated performance as we continue to create value for all of our stakeholders, and we'll build an even brighter future for our company. We're looking forward to talking about that bright future at our upcoming Investor Day on September 19 in New York and updating you on our third quarter performance in October. As always, thank you for your support of Thermo Fisher Scientific. Thank you very much. This concludes today's call. You may now disconnect your lines.

Earnings call: Thermo Fisher raises 2024 guidance on strong Q2 results By Investing.com

Thermo Fisher Scientific Inc. (NYSE:TMO) has reported robust financial outcomes for the second quarter of 2024, surpassing expectations and prompting an upward revision of its full-year guidance. The company's revenue reached $10.54 billion, with an adjusted operating income of $2.35 billion. Growth was observed across all segments, particularly in biosciences and clinical research. The launch of new products such as the Thermo Scientific Stellar Mass Spectrometer and the expansion of clinical trial supply services were significant contributors to this quarter's success. Moreover, Thermo Fisher's strategic partnerships in the Asia Pacific region and the effective implementation of its PPI business system have been pivotal in driving profitability and strong cash flow. With confidence in its growth strategy and market position, Thermo Fisher anticipates a continued positive trajectory for the remainder of the year. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Thermo Fisher Scientific's Q2 performance has set a positive tone for its 2024 outlook, with strategic innovations, market expansions, and a solid business system contributing to its success. As the company prepares for its Investor Day on September 19 and looks forward to providing third-quarter updates in October, stakeholders can expect Thermo Fisher to continue leveraging its strengths to achieve differentiated performance and create value. InvestingPro Insights Thermo Fisher Scientific Inc. (TMO) continues to demonstrate a strong financial position, as reflected in the latest InvestingPro data. With a hefty market capitalization of $218.56 billion and a P/E ratio standing at 36.43, the company's valuation metrics underscore its substantial presence in the market. Notably, the adjusted P/E ratio for the last twelve months as of Q1 2024 has been recorded at 34.02, suggesting a slight valuation adjustment when considering specific financial measures. An InvestingPro Tip worth mentioning is that Thermo Fisher has been consistently rewarding its shareholders, having raised its dividend for 6 consecutive years and maintained dividend payments for 13 consecutive years. This is a testament to the company's commitment to return value to its shareholders and its confidence in sustained profitability, which is also supported by analysts' predictions that the company will remain profitable this year. Investors looking for stability might also find Thermo Fisher's low price volatility appealing, as indicated by another InvestingPro Tip. This could be particularly attractive in a market where many sectors are experiencing heightened volatility. For readers interested in a deeper dive into Thermo Fisher's financial health and future prospects, InvestingPro offers a wealth of additional tips. In fact, there are 12 more InvestingPro Tips available for Thermo Fisher, which can be accessed by visiting https://www.investing.com/pro/TMO. To enhance your investing strategy with these insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. This offer could provide valuable guidance as Thermo Fisher navigates through the rest of the year with its strategic initiatives and market expansions. Full transcript - Thermo Fisher Sc (TMO) Q2 2024: Operator: Good morning, ladies and gentlemen and welcome to the Thermo Fisher Scientific 2024 Second Quarter Conference Call. [Operator Instructions] I would like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President Investor Relations. Mr. Tejada, you may begin the call. Rafael Tejada: Good morning, and thank you for joining us. On the call with me today is Marc Casper, our Chairman, President, and Chief Executive Officer and Stephen Williamson, Senior Vice President and Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investor section of our website thermofisher.com, under the heading News, Events, and Presentations until August 7, 2024. A copy of the press release of our second quarter 2024 earnings is available in the investor section of our website under the heading financials. So, before we begin, let me briefly cover our Safe Harbor Statement. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities and Livigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q, which are on file with the SEC and available in the Investors section of our website under the heading Financials, SEC Filings. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our second quarter 2024 earnings and also in the investor section of our website under the heading financials. So with that I'll now turn the call over to Marc. Marc Casper: Raf, thank you. Good morning, everyone and thanks for joining us today for our second quarter call. As you saw in our press release, we had great results for the quarter. We're making excellent progress to deliver differentiated results for the year. I'm proud of our team as they executed at a very high level to enable our customers to make the world healthier, cleaner, and safer. This continued success is a result of our proven growth strategy and our PPI business system. So first, let me recap the financials. Our revenue in the quarter was $10.54 billion. Our adjusted operating income was $2.35 billion. Adjusted operating margin increased in Q2 to 22.3%. And we delivered another quarter of strong adjusted EPS performance, achieving a 4% increase year-over-year to $5.37 per share. Our performance in the second quarter is allowing us to raise our guidance once again and continue our track record of delivering differentiated results. Turning to our performance by end market, in the second quarter, underlying mark conditions played out as we'd expected. Our team's excellent execution drove share gain in the quarter, and we delivered a sequential improvement in growth in all four of our end markets. Let me provide you with some additional context. Starting with pharma and biotech, we declined in the low-single-digits for the quarter. The vaccine and therapy revenue runoff resulted in a 4 point headwind for this customer segment. Performance in the second quarter was led by our biosciences and clinical research businesses. In academic and government and in industrial and applied, we grew in the low-single-digits during the quarter. In both these end markets, we delivered strong growth in our electron microscopy business. Finally, in diagnostics and healthcare, we declined in the low-single-digits. As a reminder, the reported growth in this end market is impacted by the runoff of COVID-19 testing-related revenue. During the quarter, the team delivered good core revenue growth highlighted by our transplant diagnostic and immunodiagnostics businesses, as well as our healthcare market channel. As I reflect on our performance during the quarter and on a year-to-day basis, I feel very good about the progress we've made at the halfway point of the year. Our end markets are playing out as we expected, and our team's execution has been excellent. I'll now turn to an update on our growth strategy. As a reminder, our strategy consists of three pillars. High impact innovation; our trusted partner status with customers; and our unparalleled commercial engine. Starting with the first pillar, it was a fantastic quarter of innovation as we launched a number of high impact new products across our businesses. I'll begin with the new technologies we launched at the American Society for Mass Spectrometry Conference, further strengthening our industry leading position in analytical instruments. At the conference, we introduced the Thermo Scientific Stellar Mass Spectrometer, which extends our leadership in proteomics. The Thermo Scientific Stellar is used to validate biomarker candidates. It offers unprecedented analytical capabilities for targeted quantitation, enabling the insights needed by researchers to advance their work. It's a perfect complement to our groundbreaking Thermo Scientific Orbitrap Astral, used for protein discovery that we launched last year. It was incredibly exciting to hear the customer testimonials sharing the power of the Orbitrap Astral. To-date, we've had more than 40 publications that incorporated the impact of this breakthrough, and we're really just getting started. Also at ASMS, we launched three new build-for-purpose editions of the Thermo Scientific Orbitrap Ascend Tribrid Mass Spectrometer tailored to specific applications for MultiOmics, Structural Biology and BioPharma. These instruments continue to elevate our industry-leading Thermo Scientific Orbitrap portfolio by offering enhanced speed and sensitivity to detect and characterize the most difficult protein samples, including complex biologics. This quarter we also launched products to help our customers meet their own sustainability goals. In our bioproduction business, we introduced a first of its kind bio-based film for our single-use technologies. These new bioprocess containers use plant-based material rather than fossil fuel materials to provide lower carbon solutions for the manufacturer of biologics. And in our laboratory products business, we launched a new line of Energy Star certified Thermo Scientific TSX universal series ULT freezers that deliver industry-leading performance and energy efficiency to help labs meet their sustainability goals. Turning to the highlights of our second and third pillars of our growth strategy, during the quarter we continue to strengthen our industry-leading commercial engine and the trusted partner status we've learned with our customers. Our customers rely on us to help accelerate their innovation, increase their productivity, and advance their important work. I spent a lot of time connecting with customers to understand their near and long-term priorities, so that we can enable their success. As a result of these unique relationships, we continue to advance our capabilities to be an even stronger partner for our customers. Let me give you a couple of examples from the second quarter. We expanded our leading clinical trial supply services with a new ultra-cold facility in Bleiswijk in the Netherlands to offer pharma and biotech customers tailored end-to-end support throughout the clinical supply chain for high-value therapies, including cell and gene therapies, biologics, antibodies, and vaccines. We also opened a state-of-the-art innovation lab at our site in Center Valley, Pennsylvania to showcase our innovative solutions for global clinical trial supply, including new packaging solutions, real-time tracking and tracing, and enhanced clinical trial setup and planning. In addition, we advance partnerships and collaborations with our customers during the quarter. Let me give you a couple of examples in the Asia Pacific region. To support Indonesia's growing investments in healthcare, scientific research, and renewable energy, we further expanded our presence and capabilities in the country. We are collaborating with the National Battery Research Institute to advance battery technology and energy storage, as well as with the Mandaya Hospital Group to help advance stem cell research and cell therapy development. In Singapore, we announced a collaboration with the National University Hospital in Mirxes, a local RNA technology company to develop and clinically validate advanced next generation sequencing genomic testing solutions specifically made to address the needs of the Southeast Asian population. So another strong quarter of executing our growth strategy. Let me now turn to our PPI business system, which enabled excellent execution during the quarter. PPI engages and empowers all of our colleagues to find a better way every day. During the quarter, I had the opportunity to see the PPI efforts to further improve manufacturing of our lab equipment products, and I came away incredibly impressed with the progress to drive operational efficiency in this business. It's also great to see how PPI has been adopted in our clinical research business where it is driving meaningful improvements in our efficiency and customer allegiance. Ultimately, you see the positive impact of our PPI business system and our Q2 results reflected in strong profitability and cashflow that we delivered in the quarter. We also advanced our corporate social responsibility priorities during the quarter. As a mission driven company, we helped to make the world a better place by enabling the important work of our customers. We also create a positive impact by supporting our communities and being a good steward of our planet. We continue to make progress on our environmental sustainability roadmap in Q2. As part of our commitment to safeguarding the world's natural resources, we have set targets for 2025, which include zero waste certification for 30 manufacturing and warehouse sites. During the quarter, three more of our sites achieve zero waste certification, and we're on track to achieve our goals. You can learn much more about our progress in our 2023 Corporate Social Responsibility Report, which was published during the quarter. The report provides a transparent account of our journey as we fulfill our commitments to society and all of our stakeholders. Let me now give you an update on capital deployment. We continue to successfully execute our disciplined capital deployment strategy, which is a combination of strategic M&A and returning capital to our shareholders. Shortly after the quarter ended, we completed our acquisition of Olink, and it was great to welcome our new colleagues to the company earlier this month. As you know, Olink is a leading provider of next generation proteomic solutions. The addition of Olink's proven and transformative technology is highly complementary to our industry leading mass spectrometers. Olink further advances our leadership as it is a great addition to our differentiated protein research ecosystem. Our world-class commercial engine will enable us to bring this technology to scientists around the world. By increasing the use of next-gen proteomics and providing industry-leading data quality at scale, excuse me, data quality at scale, we're in a great position to further enhance the understanding of human biology and meaningfully accelerate scientific breakthroughs. So as I reflect on the quarter, I'm proud of what our team accomplished and grateful to their contributions for our success. Let me now turn to our guidance. Given our strong performance in the second quarter, we're raising our 2024 guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion and adjusted EPS to be in the range of $21.29 to $22.07 per share. Stephen will take you through the details in his remarks. So to summarize our key takeaways from Q2, we delivered another quarter of strong results driven by our proven growth strategy and PPI business system. We continue to enable our customer success and this reinforces our trusted partner status and industry leadership. Our strong results in Q2 allowed us to raise our guidance again for the year. We're well positioned to deliver differentiated performance in 2024 as we continue to create value for all of our stakeholders and build an even brighter future for our company. With that, I'll now hand the call over to our CFO, Stephen Williamson. Stephen? Stephen Williamson: Thanks, Mark and good morning, everyone. I'll take you through an overview of our second quarter results for the total company, then provide color on our four business segments. And I'll conclude by providing our updated 2024 guidance. Before I get into the details of our financial performance, let me provide you with a high level view on how the second quarter played out versus our expectations at the time of our last earnings call. As Mark mentioned in the quarter, market conditions were as we'd expected, yet another quarter of excellent execution, and this enabled us to deliver Q2 financials ahead of what we'd assumed in our prior guidance. Starting with the top line, core organic revenue growth was a little over 0.5 percentage point ahead of what we'd assumed in the prior guide for Q2. That translates to approximately $60 million of revenue, which is partially offset by slightly higher FX revenue headwind. Turning to the bottom line, adjusted EPS was $0.25 ahead of what we'd assumed in the prior guide for Q2. $0.08 was from strong operational performance; $0.06 cents was from favorable effects and timing of discrete tax planning benefits within the year; and $0.11 was from the beat -- was from lower net interest expense. In my prior guidance I took a prudent approach to the Olink transaction from a financing cost standpoint. We're also executing well on free cash flow generation. The year-to-date free cash flow is 68% higher than the same period last year. So we're continuing to deliver strong performance and we're well positioned at the halfway point of the year. Let me now provide you with some additional details on Q2. Beginning with the earnings per share. In the quarter adjusted EPS grew by 4% to $5.37. GAAP EPS in the quarter was $4.04, up 15% from Q2 last year. On the top line, in Q2 reported revenue was 1% lower year-over-year. The components of our Q2 report of revenue change included 1% lower organic revenue, a 1% headwind from foreign exchange, and a slight contribution from acquisitions. We delivered another strong sequential improvement in core organic revenue growth this quarter. And in Q2, core organic revenue growth rounded up to flat on a year-over-year basis. In the quarter, pandemic-related revenue was approximately $115 million, this was mainly from vaccines and therapies. This represents a 3% headwind to organic revenue growth. Turning to our organic revenue performance by geography, in Q2 North America declined mid-single-digits, Europe grew low-single-digits, and Asia Pacific grew mid-single-digits, which includes China, which also grew mid-single-digits. With respect to our operational performance, we delivered $2.3 billion of adjusted operating income in the quarter, and adjusted operating margin was 22.3%, 10 basis points higher than Q2 last year and 30 basis points higher than Q1 2024. Total company adjusted gross margin in the quarter came in at 42.1%, 110 basis points higher than Q2 last year. In the quarter, we continue to deliver very strong productivity, reflecting our continued focus on cost management, as well as the carryover benefit from the cost actions put in place last year. This enabled us to more than offset the impact of low volumes, while appropriately funding investments to further advance our industry leadership. Moving on to the details of P&L, adjusted SG&A in the quarter was 16.6% of revenue. Total R&D expense was $340 million in Q2, reflecting our ongoing investments in high impact innovation. R&D as a percent of our manufacturing revenue was 7.1% in the quarter. Looking at results below the line, our Q2 net interest expense was $59 million, which is $89 million lower than Q2 2023, due to higher cash and investment balances. Our adjusted tax rate in the quarter was 10%. And average diluted shares were 383 million in Q2, approximately 5 million lower year-over-year, driven by share repurchases net of option dilution. Turning to free cash flow and the balance sheet, year-to-date cash flow from operations was $3.2 billion. Year-to-date free cash flow was $2.6 billion after investing $630 million of net capital expenditures. We enter the quarter with $8.8 billion in cash and short-term investments and $35.4 billion of total debt. Our leverage ratio at the end of the quarter was 3.3 times gross debt to adjusted EBITDA and 2.5 times on a net debt basis. Including my comments on our total company performance suggested ROIC was 11.8%, reflecting the strong returns on investment that we're generating across the company. Now provide some color on our performance of our four business segments, starting with life sciences solutions. Q2 reported revenue in the segment declined 4% and organic revenue was 3% lower than the prior year quarter. Growth in this segment was led by a biosciences business that was more than offset by the impact of the pandemic. Q2 adjusted operating income for life science solutions increased 6% and adjusted operating margin was 36.7%, up 350 basis points versus the prior year quarter. During Q2, we delivered exceptionally strong productivity, which was partially upset by unfavorable volume pull through. The team continued to do an excellent job to appropriately manage the cost base and deal with the unwind of the pandemic. In the analytical instrument segment, reported revenue grew 2% and organic growth was 3% higher than the prior year quarter. We continue to deliver a very strong growth in our electron microscopy business. In this segment, Q2 adjusted operating income increased 1% and adjusted operating margin was 24.6%, 10 basis points lower year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable mix and strategic investments. Turning to specialty diagnostics, in Q2 both reported and organic revenue were 1% higher than the prior year quarter. In Q2, we continued to see strong underlying growth in the core, led by our transplant diagnostics and immunodiagnostic businesses, as well as in our healthcare market channel. Q2 adjusted operating income for specialty diagnostics increased 1% and adjusted operating margin was 26.7%, which was flat, compared to Q2 2023. During the quarter, we delivered good productivity, which was offset by strategic investment. And finally, in the Laboratory Products and Biopharma Services segment, both reported revenue and organic growth decreased 1% in Q2 versus the prior year quarter. This is driven by the runoff of vaccines and therapies revenue. Growth in this segment in Q2 was led by a clinical research business. Q2 adjusted operating income declined 10% and adjusted operating margin was 12.9%, which is 120 basis points lower than Q2 2023, flat sequentially to Q1 2024. In the quarter, we delivered strong productivity, which is more than offset by unfavorable volume mix and strategic investments. Turning now to guidance, as Mark outlined, given our strong performance in Q2, we're raising our 2024 full-year guidance. We now expect revenue to be in the range of $42.4 billion to $43.3 billion, and adjusted EPS to be in the range of $21.29 to $22.07. The improved revenue guidance does not change the core organic revenue growth rounding for the year, so we still continue to assume core organic revenue growth will be in the range of minus 1% to positive 1% for 2024. And we continue to assume that the market declines low-single-digits this year. Our proven growth strategy and PPI business system execution will enable us to continue to take share once again. Our 2024 updated guidance range assumes an adjusted operating income margin between 22.5% and 22.8%, slightly higher than the prior guide. Our PPI business system is continuing to enable excellent execution, manage costs appropriately and fund the right long-term investments to enable us to further advance our industry leadership. We now expect net interest costs to be in the range of $380 million to $400 million for the year. And the raise to our adjusted EPS guidance range reflects a $0.15 increase on the low end and a $0.05 increase on the high end, which results in an increase in the midpoint by $0.10. So another strong quarter of execution, enabling an increase in the guidance outlook for the year, we remain really well positioned to continue to deliver differentiated performance. I thought it would be helpful to remind you of some of the key underlying assumptions behind the guide that remain unchanged from the previous guidance. In 2024, we're assuming just under $100 million of testing revenue and $300 million to $400 million of vaccines and therapies related revenues. In total, this represents a year-over-year headwind of $1.3 billion to $1.4 billion, or 3% of revenue. We assume that FX would be roughly neutral year-over-year to both revenue and adjusted EPS, and we're assuming that the $0.03 FX adjusted EPS beat that we saw in Q2 is offset for the remainder of the year, leading to no change for the year as a whole for FX versus the prior guidance. We continue to expect adjusted income tax rate will be 10.5% in 2024, and for the year we're assuming between $1.3 billion and $1.5 billion in net capital expenditures and free cash flow in the range of $6.5 billion to $7 billion. In terms of capital deployment, we're assuming $3 billion of share buybacks, which were already completed in January. Expect to return approximately $600 million of capital to shareholders this year through dividends and we deployed $3.1 billion to acquire Olink shortly after the Q2 close. Full-year average diluted share count is assumed to be approximately 383 million shares. Finally, I wanted to touch on quarterly phasing to help you with your modeling. Relative to the midpoint of the guide, I recommend modeling Q3 organic revenue growth 1% higher than we delivered in Q2. Also good to model core organic revenue growth in Q3 1% higher than we delivered in Q2. And in terms of adjusted EPS in Q3, I recommend modeling it to be just over 24% of the full-year. So to conclude, we continue to deliver on our commitments. And at the halfway point, we're in a great position to deliver differentiated performance for all our stakeholders in 2024. With that I'll turn the call back over to Raf. Rafael Tejada: Operator, we're ready for the Q&A portion of the call. Operator: Thank you. [Operator Instructions] Our first question is from Michael Ryskin with Bank of America (NYSE:BAC). Michael, your line is now open. Please go ahead. Michael Ryskin: Great. Thanks for taking the questions, guys. Congrats on the quarter. Marc, a high-level one for you to start off maybe, at our Vegas Health Care Conference in May, you made some initial comments about 2025 market expectations. And you said that you expect the tools market next year would be just below the 4 to 6 level it has historically been. Just given the way the year is playing out, how you're exiting 2024, entering 2025. It's been a couple months since then. You've got hopefully a clearer view of how 2024 is going to play out. So given where you sit now, do you have more confidence in that 2025 market assumption and maybe how Thermal can deliver differentiated performance above that? Marc Casper: Mike, thanks for the question. It was a pleasure to be in with you earlier in the quarter. So let me start actually one level off. Just kind of frame a few of my general thoughts and I'll talk about 2025. So when I think about Q2, team executed really well, really good financial performance. It was ahead of our expectations. It allowed us to raise our guidance. The other aspect of the performance is the actual performance as opposed to relative to expectations. Clearly very differentiated and very strong. It was good to see that core has now elevated to it's now flat, which is great. 4% adjusted EPS growth and expansion of margins. So I feel very good about the performance and when I think about the market they were in line with our expectations, so it's good to see the visibility that we've enjoyed for decades, as returned in terms of how the market's playing out. And when I think about our own performance within the markets, it was good to see that all four of our markets, we had sequential improvement in our growth across all four. So really very positive development. PPI business system is really delivering outstanding impact and ultimately feel good about the performance. Capital deployment has been active and good. We've deployed over $6 billion of capital through the first-half of the year, half of it on return of capital and half of it on a very exciting acquisition of Olink, and we're very well positioned at this point to deliver strong results. When I think about 2025, I think the way I would just think about it is we're going give you that in January of 2025. When we have the benefit of the year behind us and we're focused on delivering a great year, we'll be able to give you a view of not only our performance, but how we saw the underlying market conditions. The year is progressing as we expected, so we expect that the market will continue to improve modestly in the back half of the year, each quarter being a little better than the quarter before and that our performance will also continue to step up and that will give us momentum going at '25 in the details. We'll give you back -- we'll give you in a few months' time. Michael Ryskin: Okay, fair enough. And then for my follow-up, I want to focus on China, I think if I heard correctly, you called out that it grew mid-single-digits in the quarter. I want to make sure I heard that right. But if so, that's a bit surprising. Anything you could say in terms of what you're seeing there? Is that also ahead of your expectations and is this just a temporary bump in the quarter or something one-timey or are you seeing some real traction here and you think that can get you into your end? Thanks. Marc Casper: Yes, your hearing is excellent. So yes, we delivered mid-single-digit growth in the quarter. Team did a nice job, really good execution. Comparison was relatively easy in the quarter, so and I would still characterize the conditions as muted in terms of the environment, but a nice job by the team to deliver a very solid Q2 result. Thanks, Mike. Operator: Thank you very much. Our next question is from Jack Meehan. Jack, your line is now open. Please go ahead. Jack Meehan: Thanks. Thanks. Good morning, guys. Wanted to start by asking about LSS, so this had some nice sequential improvement in the growth rate. I heard biosciences led to growth. Can you talk about the relative improvement you're seeing there, or also genetic sciences and bioprocessing? And any updates on where you think your customers stand in terms of e-stock? Marc Casper: Yes, Jack, thanks for the question. When I think about probably the most important points on our life science solutions segment, nice to see the growth in our biosciences business, that's every lab every day, really nice adoption in the pharma and biotech segment there. So that was a nice positive development in terms of there. And maybe I'll dive a little bit into bioproduction, which is always an area of great interest to our investors. The business is actually progressing really exactly as we expected, really nice quarter of performance. So when I think about the most salient facts around bioproduction, sequentially really nice revenue growth in Q2. When I look at orders, we had really nice sequential growth in orders. We had year-over-year growth in orders, and we had a favorable book-to-bill. So progressing well, and when I look at others that have reported I feel very good about our performance. So when I think about the life science solution segment those are two of the drivers and then you've seen some announcements in the previous few months about important companion diagnostics our clinical sequence business -- clinical sequencing business is doing quite well. So Jack thanks for the question on LSS. Jack Meehan: Excellent okay and then one to rotate to AI, so this also came in a bit better than I was expecting. Can you talk about how the book-to-bill was in the segment in the quarter? And just update some customer spending patterns? Thanks. Marc Casper: Yes. So when I think about Analytical Instruments, it was nice to see the 3% growth in the quarter and very positive. Yes, I would say the market conditions also are playing out pretty much as we expected and not at the normal levels yet, and we certainly see the impact of the muted conditions in China. We have really excellent momentum in those differentiated products that we have where innovation matters, on orders as well as on revenue. When you look at electron microscopy, you look at the Orbitrap Astral, just the cutting-edge work, you've seen incredibly strong momentum there. So that's where the highlights are, and I would say in the more routine-ish aspects of the portfolio, you see more muted conditions. Thanks, Jack. Operator: Our next question is from Rachel Vatnsdal with JPMorgan (NYSE:JPM). Rachel, your line is now open. Please go ahead. Rachel Vatnsdal: Perfect. Hi, good morning, you guys. Thanks so much for taking the questions. Wanted to follow-up on some of the China comments. You mentioned that China grew mid-single-digits, partly due to the comp there. Can you just walk us through what are you seeing from China stimulus? We heard that this first tranche of funding was released earlier this quarter. So have you seen any orders related to China stimulus? Do you think that you'll benefit from this first tranche? And then also, have you seen any customers holding back spending related to the stimulus program? Kind of getting at this like air pocket that we've heard some of your peers talk about. Any comments there would be helpful. Marc Casper: Rachel, thanks for the question. It's an important question. So let me start at the sort of high level and then get down to the stimulus and then try to as much transparency as I possibly can. First of all, I think the world was surprised at how weak China was economically as this year unfolded. The stimulus programs announced early in the year was a sign that the government wanted to get the economy going, which is a good thing, right, in terms of sort of what is the macro backdrop in terms of a tough economic environment. When I think about stimulus in our industry and what we're seeing, tremendous amount of activity with our customers actually to help them with figuring out what to apply for. And so we know there's quite a bit of interest in our products from a stimulus perspective, and we're helping our customers in that process. When I think about how do I expect it to play out, my expectation is that it's largely going to show up in revenue in 2025 and likely to have some small effect in the fourth quarter of 2024 as well. I did ask the question about air pocket to the team, and I'm actually heading off to China in a couple of weeks' time, so I'm looking forward to that. Our team didn't highlight any air pocket or anything like that. So it's kind of muted conditions, and customers are working on looking at the investments associated with the additional government funding. So we didn't see any pauses in the activity, and I'm proud of the team's mid-single-digit growth in the quarter. Rachel Vatnsdal: Great. And then just as my follow-up here. On the CRO, you called out clinical research was an outperformer this quarter that drove some of the growth. So we've seen a few volatile prints from your peers. So can you walk us through what have you seen from an RFP standpoint and book-to-bill in the quarter for PPD? And then have we turned the quarter on emerging biotech funding and kind of how is that flowing through the model as well? Marc Casper: Yes. So Rachel, team has done a really nice job executing very well in our clinical research business. And when I think about our performance, we delivered positive organic revenue growth despite a really substantial headwind from the runoff of vaccines and therapies in that activity. So team is doing a nice job. Commercial execution was very strong in the quarter, right? And customers value our capabilities. And when I sort of went under the details of the commercial performance and looked at some of the underlying trends, it was very clear that in Q2, we really did see some of the biotech funding activity that we talked about is a green shoot in Q1 that would give us confidence that the year in aggregate across our business would be improving from a market perspective. We saw that in Q2 actually translate into an acceleration of authorizations in our biotech customer base. And that really does bode well for that. And as you know well this business, that really translates more into revenue in '25 and '26 in terms of how long it takes to get the clinical trials up and going, but the authorization momentum very encouraging in the quarter. Thank you, Rachel. Operator: The next question is from Doug Schenkel with Wolfe Research. Doug, your line is now open. Please go ahead. Doug Schenkel: Okay, thank you and good morning everybody. Marc, when we look at two-year stacks and calculate CAGRs going back pre-pandemic, it seems like most business lines within Thermo continue to trend positively. I think your commentary is consistent with that on the call this morning. With that in mind, I think one of the key questions is, what's going to be the pace of improvement from here? So with that in mind, two questions. First, where is the recovery occurring more quickly than you may have expected? Where are things lagging? And I'm kind of thinking about this both in terms of how you guided for the year, but also just based on what you've seen through previous cycles. So that's one question. And then the second would be just keeping in mind your assumption that this market grows 4% to 6% on a normalized basis, is it fair to assume that recognizing you're making progress here, but just seeing what the pacing is, is it fair to assume that the move back into that range is going to be gradual versus a snapback? And essentially that this move into the 4% to 6% range, it's going to take several quarters? Marc Casper: Yes. So Doug, there's a lot in that question. It's a good question. So let me just start with I think the things that are around the market and our performance which is important to our investors, right? Pre-2023, holding aside some of the amazing market and our performance in the pandemic period, a very predictable, visible market without a lot of volatility and really a great underlying set of growth, right? So there's never debates about market growth sort of pre-pandemic or even in the early parts of the pandemic. So -- and then obviously, a difficult year for the industry in 2023, comparisons and a lot of other factors related to the pandemic directly and indirectly. So when I think about what we're seeing in the industry now for three quarters in a row, the visibility is pretty good. Like we have a good feel for what's going on. It's playing out as we expected. There's always things a little better, a little worse, also irrelevant on the margin. They're all in the factor of the aggregate, so I feel very good about the progression. What's embedded in our guidance in the market, right, is that for the full-year is that it continues to step up a little bit more in Q3 and further in Q4. And when I think about what we've assumed in the market growth and back in the January time frame when we gave our guidance is we said the market was going to be down low-single-digits. But when you looked at sort of the phasing implied, it probably is flattish, maybe up slightly in the fourth quarter in terms of the market progression. That's -- we don't have a perfect crystal ball, but that's sort of what's implied in there. And so it's progressing well. When I think to how it's going to progress exactly each quarter thereafter, when we get to January, I will have a much better feel for it. But I think what's really relevant is how do I feel about the 4% to 6%, right? And I'm looking forward to Investor Day. I feel great about the long-term 4% to 6%. That doesn't mean I can predict it to a quarter or the specific year, but when talking a three to five-year time frame, and do I believe that the market growth is going to be 4% to 6%, 100% confidence in that. But underlying scientific drivers are phenomenal in terms of our industry, what's going on in pipelines, our customer base, fantastic, right? So I don't lose any sleep over that. And I always question it because it's important. It's not like just take it from a dramatic standpoint, but from a fact and underlying drivers, I feel great about it. And then the other thing that's important to me, important to our 125,000 colleagues and actually quite important to our investors is our customers meaningfully choosing us more often than their other choices. And the ability to grow 2% faster than the market, I feel great about. And we have an incredible track record this quarter, at least looking at what we've seen so far, once again delivered on that. So hopefully, that puts it in the context of my enthusiasm. And we'll provide you transparency as the year wraps up to what do we see as a reasonable assumption for the next year. And I think our forecast accuracy is pretty good. Douglas Schenkel: Okay. And Marc, if I can ask one more high-level follow-up. Over the years and in working with you and following Thermo, one of the neat things has been in these tougher periods in the market, Thermo and you specifically have -- you've played offense when others have played defense. Recognizing every cycle is difficult and different, I would say the last 1.5 years has been maybe tougher than normal even for Thermo. As things start to improve a little bit, but again, it's gradual, do you feel you're in a position now to maybe get even more aggressive like you have in previous cycles when it comes to capital deployment, evolving the business and other initiatives? Are you feeling more comfortable, more confident in making those moves that we've seen in prior cycles? Thank you. Marc Casper: Doug, thanks for the question. When I think about the company's strategy and the trusted partner status that we've earned with our customers over many, many years, we're able to take a long-term perspective, while holding ourselves accountable for delivering excellent long-term results. And I love periods where not everybody is performing at the same level. It creates opportunities. I loved during the fact that the pandemic, we were able to accelerate our investments in innovation. Well, I mean I talked probably for five of my 15 minutes today on innovation. And I had to truncate it because the list was so long. It is super cool. And our job is to differentiate our competitive position to deliver superior organic growth to the others and translate into great results. And I'm very excited about our ability to continue to do that and further differentiate our industry leadership going forward. So thanks for the question, Doug. Operator: Thank you very much. Our next question is from Tycho Peterson. Tyco, your line is now open. Please go ahead. Tycho Peterson: Thanks. Hey, Marc, a question on operating margins or maybe for Stephen. Lab products and services, obviously, you felt the headwinds from the vaccine and therapy roll off, but it was effectively at a two-year low. So just curious about how you think about margin for lab products going forward? And then as we think about 2025, if TPD and Patheon can grow above the corporate average, do you still have the ability to drive 40 to 50 bps of margin expansion or potentially could be higher or lower? Thanks. Stephen Williamson: Tycho, thanks for the question, and good to hear from you again. So in terms of the margin profile in the quarter, we're going through largely the impact of the transition of the vaccine-related capacity in sterile fill finish and translating into other modalities. So that's probably the biggest factor that you see there. And I think about the margin profile for our businesses, I feel good about the ability to drive strong margin expansion as we -- the top line growth comes back in certain parts of the business where we've appropriately adjusted the cost base down and where volumes have come down. And as those volumes come back, we're going to get some good pull-through that comes from that. So look forward to giving the details on '25 when we get to the January call. But yes, in terms of the margin profile and kind of the mix of business, I feel good about the ability to expand our margins. Tycho Peterson: Okay. And then one follow-up on CDMO capacity. You doubled fill finish over the last couple of years. Just curious, Marc, how you think about additional capacity expansion, how you think about capacity utilization in the industry and how actively you may look at some of the capacity that could get freed up from some of the recent M&A or potentially around biosecure in the U.S? Marc Casper: Yes. So Tycho, when I think about our pharma services business and our capacity, where we play, I feel very good about our position. We've had very strong demand for our sterile fill finish abilities, which is our largest activity, and we're doing well there. We've been expanding the number of lines we have at our sites, and demand has been strong for that. So I feel good about that outlook. In the clinical trials, supplies, which is the other really large portion of our business and where we really have an unparalleled position, I highlighted a couple of examples of capabilities we're expanding. Effectively, we make sure that our capacity lines up with our forecasted demand. So it's not really an overcapacity viewpoint. And then on the other parts of the business, I feel okay about our position and nothing of note there. So that's pretty positive. And what we're going through right now, as a reminder, is we're transitioning a lot of the COVID-related activities to the normal therapies. And the team is doing a good job. It certainly impacts our growth in terms of headwind in 2024, but it becomes better in '25 and '26 as the new therapies and the tech transfers are complete and new lines come on place. So pretty good times ahead. Operator: Thank you. Our next question is from Puneet Souda with Leerink Partners. Puneet, your line is now open. Please go ahead. Puneet Souda: Yes. Hi, thanks Marc and Stephen. Thanks for taking the question. So Marc, a higher-level question for you, maybe with your -- when you have conversations, the C-suite conversation with therapeutics teams out there, what are you seeing and hearing from your larger biopharma customers, and maybe to some extent, these mid-cap ones as well versus the smaller and earlier-stage customers? How much of a divergence are you seeing within these groups? And when can that divergence narrow? Marc Casper: Yes. So Puneet, thanks for the question. So when I think about the things that jump out to me the patterns, if you will, and I see lots of customers, and I'm looking forward to being back on the road tomorrow, seeing our customers is a great thing. In our larger customers, which -- and these will be the companies with many products that are both commercial and in their pipeline, you're seeing a few things. One, they're focused on resiliency of their supply chain. So where maybe historically pre-pandemic, they would have had single site in-house manufacturing, you're seeing much more of the second site, leveraging our capabilities. And that's great in terms of just making sure that they can meet their customer demand, if you will, for medicines. You're also seeing the desire for how do we help them be more innovative and productive. And you basically fund all of the exciting things in their pipeline by just helping them really prioritize the most important work and do that in the most effective way. So it's really about helping them do more to maximize the impact of what's in their pipeline. When I think about the smaller customers, because we had gone through a period in 2023 where funding was challenged, right, a lot of the tone was around how do they get through the period. When I think about the first six months of dialogue, much higher confidence, right? Funding is happening, but also the confidence that funding will be available really at a very different spot. And you're seeing that really translate into the earliest indicators of that, which is authorizations of new clinical trials and new activity. But I would expect that, that would sort of flow through the rest of the types of work we do as the year continues to unfold and as we get into '25. So I think that's a very positive development. Puneet Souda: Okay. Great. And just a follow-up for Stephen. On the EPS beat, it was about $0.25 at the midpoint and -- but you raised the guide only by $0.10. So just wondering how much of that is a reflection of the end market versus what's within your control in terms of cost management? Or is there anything specific that you would point out to? Stephen Williamson: Yes. So Puneet, so $0.06 of the beating in Q2 is really timing-related. When I think about the FX rates and kind of the outlook for the rest of the year, $0.03 of that $0.06 could be offset in the second-half. And then from a tax standpoint, we're not assuming the change in the overall rate for the year. That's timing with that. So that $0.06 is good beat in Q2, but it's net neutral for the year as a whole. And then with the rest, we've raised the low end $0.15, and we raised at the high end $0.05. And I think that's a strong raise at this point and think it's appropriate and enables us to be better positioned for the second half of the year. And I wouldn't really read anything else into that. It's just -- I think that's just appropriate at this point. Operator: Yes, Our next question is from Dan Arias with Stifel. Dan, your line is now open. Please go ahead. Dan Arias: Good morning, guys. Marc, where do you think the academic markets are headed here? Some mixed data points there, and AH budget isn't particularly robust this year. So curious what expectations we should have for the second half and then into the next cycle. Marc Casper: Yes. I was encouraged by what I saw in academic and government in Q2. We had low single-digit growth, a relatively challenging comparison. So the team did a good job. What I'm seeing is on the high-end differentiated products, customers are getting money. I mean if I think through, consumers get money for the really great innovation. And given our track record on innovation, we're seeing strong demand for the Orbitrap Astral. And I know that there's a lot of excitement around the Thermo Scientific Stellar mass spectrometer and the eclipse series. These are really -- or series. These are really, really positive developments. And so I think it's good. I always think long-term academic and government globally, it was kind of a low-single-digit growth market, sometimes a little better than that. And for -- our performance is playing out in line with that right now. Dan Arias: Okay. And then if I -- just as a follow-up on your comments on China stimulus and the ability to see money gets spent there. Do you see that as primarily just a function of time, customers need time to have it flow and get to them? Or are there sort of discrete triggers and specific things that need to happen in order to have demand to actually make its way to you? Thanks. Marc Casper: I mean the process is they have to apply, and there's a central government funding and matched by their other funding sources, usually provincial or it could be local depending on the institution. So they're going through that process. As it gets approved, they then have the ability to go out and place the order, so that's the view. I think because these institutions are funded by the government in all times, whether it's stimulus or not, I think they have a mechanism to understand what's likely to happen. So this is not giant mystery to them. I think they're working through it and is kind of normal from that perspective. And what we're doing is reminding them of the importance of the important instrumentation that we've launched and the relevance of it. So that they prioritize their funding request to support our instrumentation. Dan, thanks for the question, and I'll turn to just wrapping up. So thanks, everyone, for joining us on the call today. Pleased to deliver another strong quarter, well positioned to deliver differentiated performance as we continue to create value for all of our stakeholders, and we'll build an even brighter future for our company. We're looking forward to talking about that bright future at our upcoming Investor Day on September 19 in New York and updating you on our third quarter performance in October. As always, thank you for your support of Thermo Fisher Scientific. Operator: Thank you very much. This concludes today's call. You may now disconnect your lines.

Edwards Lifesciences Corporation (EW) Q2 2024 Earnings Call Transcript

Larry Biegelsen - Wells Fargo Robbie Marcus - JPMorgan David Roman - Goldman Sachs Joshua Jennings - TD Cowen Travis Steed - Bank of America Matthew Taylor - Jefferies Vijay Kumar - Evercore ISI Patrick Wood - Morgan Stanley Greetings, and welcome to the Edwards Lifesciences Second Quarter 2024 Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Mark Wilterding, Senior Vice President, Investor Relations. Thank you. You may begin. Mark Wilterding Thank you very much, Kevin. Good afternoon, and thank you all for joining us. With me on today's call is our CEO, Bernard Zovighian; and our CFO, Scott Ullem. Also joining us for the Q&A portion of the call will be Larry Wood, our Global President of TAVR and Surgical Structural Heart; Daveen Chopra, our Global Leader of TMTT; Wayne Markowitz, our Global Leader of Surgical Structural Heart; and Katie Szyman, our Global Leader of Critical Care. Just after the close of regular trading, Edwards Lifesciences released second quarter 2024 financial results. During today's call, management will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include, but are not limited to, financial guidance and expectations for growth opportunities, strategy, leverage and integration of acquisitions, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters and foreign currency fluctuations. These statements speak only as of the date on which they are made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information may be found in the press release, our 2023 annual report on Form 10-K and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Unless otherwise noted, our commentary on sales growth refers to constant currency sales growth, which is defined in the quarterly press release issued earlier today. Reconciliations between GAAP and non-GAAP numbers mentioned during the call are also included in the company's press release. With that, I'd like to turn the call over to Bernard for his comments. Bernard Zovighian Thank you, Mark, and thank you all for joining us. This afternoon we issued two press releases which the team and I will review in more detail with you now. The first, outlining our Q2 results. And the second, highlighting our acquisition of JenaValve, a pioneer in the transcatheter treatment of aortic rehabilitation or AR. And Endotronix, a leader in heart failure management solutions. I will start with our second quarter performance. Total company sales of $1.6 billion increased 8% on a constant currency basis versus the year ago period. In addition, we made important advancements in our clinical research, new product introductions and efforts by Edwards employees to address the unmet needs of many more patients around the world. TAVR growth in the second quarter was lower than expected, yet we are pleased with the increasingly significant contribution from TMTT. Our vision for TMTT is becoming a reality and our strategic commitment has developed into a growth portfolio of differentiated technology. Overall, Edwards remain well-positioned to deliver strong, sustainable growth. We also announced this afternoon two acquisitions, JenaValve and Endotronix. We have known this company for many years. Discussions with the companies have been ongoing for some time and the timing of these acquisitions coincided with earnings. We are pleased to expand into two new structural heart therapeutic areas, AR and heart failure, and we will leverage our innovation capabilities with worldclass science and clinical evidence to ensure accelerated access to life-saving technologies for patients around the world. Now, I will provide some additional detail on Q2 results by product group. In TAVR, second quarter global sales of $1.04 billion increased 6% year-over-year, lower than we planned. Edwards competitive position did not meaningfully change globally, although we experienced some regional pressure, and we maintain pricing. We are confident in our differentiated technology, high-quality evidence and the value we continue to demonstrate to patients, clinicians and the healthcare system. We remain focused on continuing our deep commitment to advancing evidence for AS patients. At the New York Valves meeting in June, we presented additional analysis from the PARTNER trials, which demonstrated excellent clinical outcome up to five years in women and patient with small annuli. Adding to the global body of evidence on the platform, we also anticipate additional data from the RHEIA study to be presented at the upcoming [ESC] (ph) Meeting in London. RHEIA is a prospective randomized study in more than 400 patients across 35 sites in Europe comparing the safety and efficacy of TAVR versus surgery in women with severe symptomatic aortic stenosis. We are actively pursuing significant opportunity to grow TAVR globally over the long-term and are proud to continue our deep commitment to advancing science for aortic stenosis patient through the progress and early TAVR trials, which could fundamentally change how AS patients are treated. Early TAVR trial results will be presented at TCT this year, and we believe if the data are compelling, it could have a meaningful impact on the timing for patient treatment, while also streamlining referral and patient care for all severe AS patients. In the US, our year-over-year second quarter TAVR sales growth was slightly below our global constant currency growth rate. We believe our US competitive position was largely unchanged. Second quarter, US TAVR sales grew slower than expected. The continued growth and expansion of structural heart therapies, including newly approved tricuspid therapies and other fast-growing structural heart therapies put pressure on hospital workflows, which impacted TAVR. These pressures were also observed in the recent spike in emergent TAVR cases as reflected in claims data. As centers adopt these new therapies and they become part of extended processes, we expect this will stabilize. We know from experience that hospital have historically demonstrated the ability to scale to support transcatheter procedure growth over time. We believe significant undertreatment of severe AS persists, evidence demonstrates that a large number of in-system patients currently go untreated. We are accelerating our efforts to improve referrals and treatment rates for patient already in the hospital system who are suffering from severe symptomatic aortic stenosis. We recently launched the Edwards ENACT patient activation program, which leverage a comprehensive cardiovascular AI platform and worldclass support to bring real-time insights to TAVR program and improve quality of care for patients. This first of its kind program is focused on streamlining the identification, evaluation and treatment of severe aortic stenosis patient within the hospital system. Outside of the US, in the second quarter, our constant currency TAVR sales growth was slightly above our global TAVR growth. In Japan, we generated double-digit sales growth driven by SAPIEN 3 Ultra RESILIA. We continue to focus on expanding the ability of this therapy and believe AS remain a significant under threated disease among the substantial elderly population in Japan. In Europe, while share is down slightly on an annualized basis, we were pleased with the momentum, driven by the launch of SAPIEN 3 Ultra RESILIA. We are pleased with high procedure success rate and exceptional patient outcome. We expect the momentum to continue to build as more centers have experienced with the first-choice valve for lifetime management. In closing, we now anticipate second half TAVR sales growth similar to the first half year-over-year growth rate of 5% to 7% full year growth rate versus previously guidance of 8% to 10%. This equate to full year global TAVR sales of $4 billion to $4.2 billion. We believe hospitals are motivated to continue scaling to accommodate increasing volume of transcatheter procedures, which will bring tremendous value to patients and the healthcare system. We remain confident that Edwards is positioned for healthy and sustainable TAVR growth, driven by our differentiated TAVR portfolio, our deep commitment to advancing patient care for high-quality clinical evidence and new indications and our investment in patient activation initiative. Turning to TMTT. Our deep structural heart expertise has enabled us to significantly advance our portfolio of differentiated technologies, including the PASCAL repair system, the EVOQUE tricuspid replacement system and the SAPIEN M3 mitral replacement system. Our exciting pipeline of innovations is addressing the large unmet needs for patients with mitral and tricuspid disease. In Q2, we achieved positive results with sales of $83 million, representing a 75% increase versus the prior year. Q2 sales were led by PASCAL globally and early commercial introduction of EVOQUE in the US and Europe. PASCAL adoption is growing, reflecting its premium differentiation and the value it brings to physician and patients. We believe the mitral tier markets continues to grow double-digit in both the US and Europe. We are excited to bring this therapy to more geographies, more physicians and more patients. The EVOQUE commercial launch continue to progress well. Our disciplined strategy is focused on outstanding patient outcome in centers investing resources required to grow a successful tricuspid program. We are now opening new centers both in Europe and the US after having started with our clinical trial sites. We continue to see strong interest in the therapy, which reflects the significant unmet need in this population of patient who have few options for treatment. Our early real-world commercial experience has demonstrated excellent clinical results. Consistent with those from the TRISCEND II trial. We look forward to presenting the full cohort of TRISCEND II data at the TCT Conference in October. Last month, CMS announced the opening of a national coverage analysis for transcatheter tricuspid valve replacement. Since EVOQUE was granted FDA breakthrough status and is utilizing the CMS parallel review process, we believe CMS can move quickly to finalize national coverage. SAPIEN M3 remains on-track to be our first transcatheter mitral valve replacement therapy to gain regulatory approval and launch around the world. We are also pleased to have received a breakthrough designation from the FDA, and we completed enrollment in the mitral annulus classification or MAC arm of our ENCIRCLE study. We now expect SAPIEN M3 to receive CE Mark earlier than previously expected by mid-2025, with FDA approval in the US to follow in 2026. Earlier this month, we announced the acquisition of JenaValve. JenaValve early-stage technology will add to our growing pipeline of innovative therapy in TMTT and we expect to close the acquisition later this year. We further expect that JenaValve technology combined with Edwards expertise in mitral disease will enhance the company TMVR technologies to address large unmet structural heart patient needs and support sustainable long-term growth. Based on the first half 2024 momentum and the ongoing global adoption of our differentiated technology PASCAL and EVOQUE we are increasing full year sales guidance for TMTT to the higher end of our previous $320 million to $340 million range. We remain confident that our unique portfolio strategy with repair and replacement therapies for both mitral and tricuspid disease will offer clinician the broader set of options needed to treat this complex and diverse patients. The advancement of our long-term TMTT strategy has positioned us for strong, sustainable growth over many years, driven by a growing portfolio of innovative therapies. In surgical structural heart second quarter sales of $264 million increased 5% over the prior year. Growth was driven by strong global adoption of Edwards premium surgical technologies INSPIRIS, MITRIS and KONECT. We continue to see positive procedure growth globally for the many patients best treated surgically, including those undergoing complex procedures. We continue to expand the overall body of RESILIA evidence and have completed enrollment in the US and Canada for our momentous critical trial studying RESILIA performance and the mitral position. MITRIS adoption in Europe is ramping up, and we are pleased to have been granted reimbursement for the device in France earlier than expected. In summary, we remain confident that our full year 2024 surgical sales will be 6% to 8% driven by continued adoption of our RESILIA portfolio and growth in overall heart valve surgeries. In Critical Care, second quarter sales were $246 million, which increased 7% versus the prior year. Growth was led by a pressure monitoring devices using the ICU with strong contribution from our SMART Recovery technologies, including the Acumen IQ sensor. Demand was also strong for Swan-Ganz catheter. Critical Care remains focused on driving growth through SMART Recovery and SMART Expansion, which are designed to help clinicians make more informed decision and get patients home to their family faster. Since announcing the sales of Critical Care to Becton Dickinson in June, our team has made significant progress and we plan to close by late Q3. I want to thank all of them for their hard work and dedication. Turning now to the strategic acquisition of JenaValve and Endotronix. These acquisitions provide an expanded opportunity in new therapeutic areas to address the unmet needs of AR and heart failure patients around the world. Furthermore, the acquisition reflects our deep commitment to advancing patient care through our unique strategy and reinforce our confidence in Edwards sustainable long-term growth. Starting with JenaValve, a pioneer in the transcatheter treatment of AR, a deadly disease that impacts more than 100,000 patients in the US alone and is largely untreated today. Edwards anticipate US FDA approval of the JenaValve Trilogy Heart Valve System in late 2025, which will represent the first approved therapy for patient suffering from AR. Edwards will invest to accelerate development of this novel technology to enable earlier patient access. As the pioneers in valve innovation, we believe we are best positioned to lead this next frontier of aortic valve disease treatment. We expect this to be the beginning of a long-term iterative strategy similar to TAVR. Turning to Endotronix. Edwards made its first investment in the company in 2016. So we are very familiar with the technology, the opportunity and the employees. Many structural heart patients Edwards serves today also suffer from heart failure with limited options. This acquisition will expand Edwards structural heart portfolio into a new therapeutic area to address the large unmet needs of patients suffering from heart failure, which we believe has a significant long-term growth opportunity. Last month, Endotronix received FDA approval for Cordella, an implantable preliminary artillery pressure sensor that directly measure the leading indicator of congestion following the publication of a successful US pivotal trial. We are pleased to enter the structural heart therapeutic area with innovation, worldclass science, and clinical evidence to provide access to life-saving technologies for patients around the world. We anticipate this investment will strengthen its leadership in structural heart innovation and represent long-term growth opportunity. Minimal revenue contribution from JenaValve and Endotronix is expected to begin late in 2025. As you can tell, we have a lot of positive momentum and many catalysts across our core businesses, TAVR, TMTT and Surgical combined with opportunities to reach new patient population. [Technical Difficulty] quarter total company sales performance, where TAVR sales growth came in below our expectations. However, it's important to understand broader context, we are pleased that TMTT continues to outperform our expectations. And overall underlying sales growth, including Critical Care was nearly 8%, adjusted EPS was $0.70. GAAP earnings per share of $0.61 included one-time separation expenses related to the sale of Critical Care. A full reconciliation between our GAAP and adjusted earnings per share is included with today's release. So, now I'll cover additional details of our P&L, which reflect total company results, including Critical Care. Note that Critical Care will be presented as a discontinued operation in the 10-Q we will file next week. As we noted in the press release, we'll provide Q4 2024 information reflecting the sale of Critical Care and the acquisitions announced this month when we report third quarter results. For the second quarter, our adjusted gross profit margin was 77.1% compared to 77.7% in the same period last year. Last year's second quarter gross profit margin benefited from a more favorable impact from foreign exchange rates. We expect Edwards Q3 adjusted gross profit margin, including Critical Care to be in line with Q2, driven by high-value technologies that yield strong gross profit margins. Adjusted, selling general and administrative expenses in the quarter were $509 million or 31.2% of sales compared to $469 million in the prior year. This increase was driven by an expansion of field-based personnel to support growth of our transcatheter therapies, including the launch and rollout of PASCAL and EVOQUE. Adjusted research and development expenses in the second quarter grew 12% over the prior year to $303 million or 18.6% of sales. This increase was primarily the result of continued investments in our transcatheter valve innovations, including increased clinical trial activity. Turning to taxes. Our reported tax rate this quarter was 5.2% or adjusted 8.4%. Our unusually favorable non-GAAP rate in the second quarter reflects several positive one-time items that were recorded during the quarter. This unexpected favorability in our tax rate benefited earnings per share by $0.04 in the second quarter. Foreign exchange rates decreased second quarter adjusted sales growth by 120 basis points or $17.6 million compared to the prior year. FX rates negatively impacted our second quarter adjusted gross profit margin by 60 basis points compared to last year's second quarter. Free cash flow for the second quarter was reduced $47 million for payments associated with special activities relating to the separation of Critical Care. Excluding the impact of these items, adjusted free cash flow was $333 million. First half adjusted free cash flow was $539 million. We expect to receive cash from the sale of Critical Care in the third quarter. Turning to the balance sheet. We continue to maintain a strong and flexible balance sheet with approximately $2 billion in cash, cash equivalents and short-term investments as of June 30. Now I'll finish this update with comments about our previously announced sale of Critical Care, as well as guidance relating to our acquisition announcements. We announced on June 3 that Edwards entered into an agreement to sell Critical Care to BD, and we are planning to close the sale late in the third quarter. During the second quarter, we recorded $80 million of one-time costs associated with the sale. Additional one-time costs will be incurred throughout 2024. We expect Q3 sales, including the assumption that we own Critical Care for the full quarter of $1.56 billion to $1.64 billion and Q3 earnings per share of $0.67 to $0.71. We do not expect the recently announced acquisitions to contribute to Edwards sales in 2024. We intend to provide fourth quarter guidance reflecting the sale of Critical Care and the acquisitions announced this month when third quarter results are reported in October. We will also provide 2025 guidance at our Investor Conference in New York on December 4. In the meantime, I'll share a few early expectations for 2025. Next year we expect minimal revenue from acquisitions. While we are planning on incremental operating expenses from these early-stage companies, partially offset by operational efficiencies we plan to realize following the sale of Critical Care. We do not expect increased operating efficiencies to completely offset the loss of profits from the sale of Critical Care in 2025, but we are planning healthy, long-term profit growth. In addition, we plan to maintain a strong balance sheet to support continued internal and external investments as well as opportunistic share repurchase. Most importantly, we are confident in the moves we have made to reshape our portfolio of technologies to focus specifically on structural heart. The sale of Critical Care provides extra management bandwidth, as well as additional liquidity to fund external growth investments. And at the same time, our original vision for TMTT is becoming a reality and the early-stage investments we made in companies like JenaValve and Endotronix position us to acquire high-quality and high potential businesses with talented employees. We have other jewels in our portfolio of internal and external investments that will benefit Edwards in the years ahead. Over the long-term, we see an exciting future with expanded opportunities in large and growing market, which we believe will result in sustainable double-digit revenue and earnings per share growth. Thank you, Scott. So let me share a few closing thoughts. In TAVR, we have significant opportunities, and we are committed to growing globally by advancing science over long-term, progress and early TAVR trials could fundamentally change how AS patient are treated. In TMTT, our deep expertise has enabled us to significantly advance our exciting portfolio of innovation. And our long-term TMTT strategy has position us for strong, sustainable growth over many years. In surgical structural heart, we continue to see strong global adoption of our premium surgical technologies. Our JenaValve and Endotronix acquisitions provide an expanded opportunity in new therapeutic areas. The buffer presents significant long-term opportunities. We remain confident that our innovative therapy will allow Edwards to treat more patient around the world and continue to drive strong organic growth in the years to come. Our special inclinations increasingly recognize the significant benefit of transcatheter-based technology, we remain as optimistic as ever about the long-term growth opportunity. Thank you, Bernard. We're ready to take questions now. In order to allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up. If you have additional questions, please re-enter the queue and management will answer as many participants as possible during the remainder of the call. Kevin, please go ahead with additional details on accessing the Q&A portion of the call. [Operator Instructions] Our first question is coming from Larry Biegelsen from Wells Fargo. Your line is now live. Larry Biegelsen Hey, guys. Good afternoon. Thanks for taking the question. Two for me. Let me start with early TAVR, and then I had a follow up for Scott on 2025. So what would be -- for early TAVR, what would be compelling to you? Do you need to show a mortality benefit to be more compelling? And how should we think about the impact on your TAVR growth if the study is positive, do you expect it to accelerate the TAVR growth in 2025 above the 5% to 7% you expect this year? And I had one follow up. Larry Wood Sure. Hey, Larry. This is Larry. Thanks for your question. I think at a very high level there needs to be a compelling story for why early intervention is better and basically make the case against watchful waiting. And we've done a lot of work when we were powering the trial, and we obviously had a lot of belief in it. The primary endpoint is death, stroke and rehospitalization. And so, it's really the composite of all those. And winning that trial and obviously, the more you would win it by makes the more compelling case. In terms of the individual components, we'll have to look at those. But when you think about it from the patient journey if they're waiting and bad things are happening to them while they're waiting, and it's resulting in unplanned rehospitalization, or it's resulting in stroke, or it's resulting in mortality, all those are very meaningful things, and that's why they're all composites in the endpoint, so we'll have to wait and see the data, we'll have to see the story, but death, stroke and rehospitalization has kind of become almost a standard now for most of these trials because the clinical community believe these are all important considerations and endpoints. Bernard Zovighian Maybe let me add something to what Larry said. For sure asymptomatic is very important to us and to the community and to patients. But it is one thing of one of the many things we are doing, and we are confident in growing this TAVR opportunity. So asymptomatic is one, patient activation, we see some impact already, but also moderate. So if you think about over the next few years, we see many catalysts. It is why we are confident in this TAVR opportunity. Granted, we know that Q2 was lower than expected, and I guess we are going to talk about it, but in front of us, we see that this opportunity as a big one, like we saw it few years ago, still we see it, still we are confident, and we are doing all the things to realize this opportunity. Larry Biegelsen That's helpful. And Scott, thanks for the initial color on 2025. I'm sure you know that's important. Everyone on this call right now to try to understand -- try to as best as we can to model that. So a couple of pieces, follow ups on that. The press release says strong sustainable growth. It doesn't say 10% operational growth for the remaining business in 2025. I just want to confirm that that 10% from the analyst meeting last year in December is not -- you're not reiterating that today. And second, on dilution, we estimate -- I think most of us estimate about $0.40 of dilution from Critical Care spin, any reaction to that? And the incremental spending you talked about from the acquisitions, any additional color on that? And just lastly, the use of the proceeds, should we just assume share, buyback or additional M&A? Thank you. Scott Ullem All right. That's a multi-part follow up question. Let me try to hit a couple of the things you asked about, Larry. First of all, on the 10% long-term top line growth, we're just not commenting on guidance at this point, it doesn't mean we're increasing it or decreasing it or changing it. It's just the kind of thing where we don't update that during the course of the year, so we're not providing an update today. We will definitely provide an update as we always do at our December investor conference. For dilution from Critical Care. Yes, a lot of this depends upon how we end up prioritizing investments in the company as we separate Critical Care. And as you can imagine, there are a lot of different moving pieces as we do that. So we're not going to be able to give you a specific figure on, I'll call it, remain co, ex-Critical Care at this point. And it does tie to your question about incremental operating expenses that we're absorbing with these acquisitions, and those depend upon a couple of things. One is, when we actually close the acquisitions and start to realize that spending. Two, how we end up integrating them inside of Edwards. And as you can imagine, we just announced them today, so those plans are not completely developed. Finally, in terms of use of proceeds from Critical Care. As you know we're always interested in buying back stock. We're always looking for buying opportunities. But the first call on cash hasn't changed one bit, which is we're going to continue to invest in the company. We're going to continue to invest in the capacity that we need to support the growth of the company. We'll certainly be looking at other external investments. And then finally, we'll look at capital, at allocating capital to share buyback. So there's a little bit of color and we'll obviously give you a lot more as we get towards the end of the year. Bernard Zovighian Larry, on the guidance, I agree with what Scott said about. We are not planning to communicate the guidance on 2025. But if you look at the quarter, TAVR grew about 6%, the company about 8%. So you see a big contribution from TMTT, and we see that contribution to get bigger as we go because right now we are just at the beginning of PASCAL expansion. Just at the beginning of the EVOQUE expansion. We have M3 coming, in TAVR, we have asymptomatic end of the year, so are we confident about sustainable growth over the long-term? Yes. We are going to talk about guidance in December. Thank you. Next question Today is coming from Robbie Marcus from JP Morgan. Your line is live. Robbie Marcus Great. Thanks for taking the questions. Two from me. Maybe first, you talked about it in the script, but I was hoping you could give a little more, TAVR has clearly come in below your initial expectations for the year. The guidance has moved down. The US is slowing. OUS is facing pressure. We saw two of your smaller competitors, but still competitors see pretty nice growth sequentially and year-over-year. So the TAVRS taking more in Europe and outside the US, Japan. How are you thinking just about the underlying growth rate of the TAVR market? And I appreciate it's a huge opportunity and it's still a lot to conquer in the future, but in, let's call it the short to medium term, how are you thinking about the overall market growth? And is there anything you can do to help accelerate it? Scott Ullem Yes. Thanks, Robbie. Well, obviously we expected growth rate to be higher in Q2 than it was. We had a slow start in Q1, but we were exiting March and we felt good about where we were. So this did come as a surprise. I think when we reflect back on it, and we look more deeply at it, you have to think about all the things that have shown up that are going to the same structural heart team at all of these hospitals. We're seeing rapid growth in mitral repair. We're seeing a lot of growth in other procedures, and we had two new therapy approvals recently in the tricuspid space, and I think a little bit we looked at the procedure volumes and the hospitals have shown a pretty good job of being able to handle these things. We probably underestimated the burden of even starting these new programs, even preparing to start these new programs, because you have to screen the patients early on. There's a lot of learning, screen failures, all of those things, and I think it's just tackling the teams. Now, in terms of things we can do to help, there are certainly things we can do to help. We can do a lot of imaging workups and take some of the load off the team. We can do device prep. We can come in with our benchmark program and teach them efficiencies and do those things. But once a program has been optimized that it really does come down to the hospital to add another team or add additional days and do those sorts of things. So there are some things we can do, but we can't do everything. I think the other thing is, I think highlighting this for the clinicians and we're very confident, this isn't some slowdown because there's a lack of patients. We didn't see any of the fundamentals change in terms of new data that was concerning or any of these things, I think it's just a matter of the workflow right now. And we need to be able to engage with hospitals. But two important things we saw is we saw an increase in time from CT to procedure, which indicates patients are waiting longer and the other thing that we saw was a sharp increase in the number of cases being quoted as emergent versus routine. And I think that speaks to these patients waiting in the queue as these workflow issues sort out. So I think hospitals will certainly do that in time. These patients don't wait well, and we know that there's a lot of them, but we're going to have to continue to work through that with the hospitals. Bernard Zovighian Yes. So let me add on what Larry said. To be fair, we are contributing a little bit on this pressure. At the same time we are benefiting. If you look at the TMTT growth in the quarter. So we are contributing and benefiting at the same time. Now, big picture, we have seen this picture in the past, don't you think we have seen hospital facing like more to do, more technology to adopt, to be trying on new technologies, and we are very good at scaling. We are very good at learning. We are very good at adapting their workflows in the cath lab, so we believe it is temporary. And we are the real still with this team are, with Larry are partnering on this one. So we are fully focusing on this one helping in real hospital. But we have faith the hospital are going to do that like they did it in the last 10 years. Thanks. Robbie Marcus Great. And maybe a follow-up to that guidance implies roughly stable TAVR first half into second half. I appreciate the need to be conservative, but it sounds like some of the learnings you saw in second quarter could possibly help in the back half of the year. Maybe just walk through the thought process of the 5% to 7% TAVR guide and kind of what you're baking into that? Thanks a lot. Scott Ullem Yes. I mean, it's pretty straightforward which is we're baking into it similar market conditions. The year-over-year calculation is pretty similar. Fourth quarter comp gets a little bit tougher. But we think that all things considered, that 5% of the low end, 7% on the high end captures the likely scenario for the second half combined with the first half that we've already reported. We believe, to add on that one, we believe early TAVR, TCT, it will be already almost the end of a quarter, Robbie. So TCT is in late October. So we believe it will have a very minimal impact in Q4. So it is why we didn't want to take too much risk here. Thank you. Next question today is coming from David Roman from Goldman Sachs. Your line is now live. David Roman Thank you, and good afternoon. I wanted just to come back actually on some of Larry's comments there regarding, and maybe you're characterizing it as capacity. And as you think about the myriad of therapies going into structural heart right now, whether that is some of the new valve therapies, whether it's Watchman. To what extent do you think hostile economics factor into the decision and prioritization making here and how does that, if it does in any way impact your kind of pricing decision around TAVR or EVOQUE? Larry Wood Yes, it's a good question. And I'll defer to Daveen on EVOQUE, but I'll start with the TAVR side of it. It doesn't really change the pricing, and we don't think this is an economically driven thing. I think when new therapies come forward, hospitals are competitive. They want to be able to offer all of the therapies. And that means they want to aggressively start these newer programs and make sure that they can offer all of the options for their patients. And so, I think that's what's driving some of this more than other things. And I think all companies before they're willing to bring a new technology in, they want to -- the center has to demonstrate competence, right? They have to demonstrate they have the ability to screen, they have to have patients in queue and all those things. And I think it becomes a big thing, but I don't think this is an economically driven thing. I think it is just the result of all the new things that are coming into the cath lab and again, I think that does get corrected with time. Daveen Chopra Yes, this is Daveen, and I'll just jump in for a second here. We're seeing as we bring in new therapy like EVOQUE, right, while procedure times are relatively efficient, and they are, they're an hour-long procedures. It takes up a lot of energy, effort, thoughts, processes to start a new therapy, right? It takes a lot of bandwidth for people in terms of trying to find the patients, where are the referrals coming from? How does it kind of work through the system? How we pre-case plan? And these are often the same groups of people, valve clinic coordinators, interventional cardiologists, etc. that are working on TAVR. So as you bring in just a new therapy and start building it up, it takes a while, a lot of bandwidth and a lot of energy to get it going. But then over time, like we've seen for every other therapy, you create efficiency. It gets faster, and we're going to help them do that. But hospital then figure out, okay, now this is how the therapy is going to work its way through the system, and it becomes more efficient and becomes better so that there is more capacity to do more procedures overall. David Roman That's very helpful. And maybe just a related follow-up to that, can you maybe unpack the $83 million in the TMTT line for us in a little bit more detail. It sounds like minimal EVOQUE contribution with PASCAL accelerating. But maybe if you could sort of delineate a little bit the different product drivers within there, and then maybe some of the different geographic drivers? And then maybe if I could sneak a follow-up into the response there, how long do you think Larry it takes to dislodge the sort of capacity constrain or sort of that digestion of multiple therapies going to the systems? Daveen Chopra This is Daveen. I'll start off a little bit with TMTT. I mean, first, just at a higher level. We were actually super excited to see that in quarter two, our vision becoming more and more reality. We've made a strategic commitment that we need a portfolio of repair and replacement technologies for the many different mitral and tricuspid patients, and it was nice to see that step forward in Q2. Also, when you break it down on the level Q1 sales were led by PASCAL, right. PASCAL is a larger pool. It continues to grow in adoption. We believe in this differentiated premium technology, and it was our largest growth driver. We also did see the early commercial introduction in the US and Europe of EVOQUE, right, EVOQUE got approved in Europe late last year, in the US earlier this year, so we're beginning that important process of training centers getting up to speed, beginning to train our own internal people and start that kind of case cadence. So those were kind of the two. And in terms of size and scale, just because in Europe we've been in Europe since 2019 now that's a much larger base. Since when you have a larger base, you have kind of a stronger growth coming off that, but the US is growing up quickly now. And we're continuing to expand our technologies around the world beyond just the US and Europe. Larry Wood Yes. And just to follow up, how long does it take to dislodge? It's hard for us to be exact, and I think we try to account for that in our guidance that it's not a light switch. But the best analogy I can say is when we brought TAVR into all these hospitals, we heard repeatedly that there was impact on coronary procedures and other things that were going on in the cath lab, and we were kind of taking up a little bit of that mind share, a little bit of that workflow space, but it wasn't sustainable. You can't just park your coronary patients forever. And you can't park AS patients forever. So I think once centers have certainty of the added workload and certainty of the volume, I think they add the resource, and they do the things necessary, but nobody's going to go hire a bunch of people in advance as the new therapy show up. They always are kind of recovering as the workload gets high, and I think to agree that's just how hospital systems operate. Bernard Zovighian Yes, we are confident by experience that the hospital and we do learn fast, adjust their workflow, their processes. And this is why we are seeing it is temporary, obviously, patients when they stay home, they have a terrible quality of life, and many of them are dying, so I don't believe it is sustainable. And everybody is committed. The hospital are committed. We are committed. So when you have a full commitment behind it, we know it is going to be resolved. Thank you. Next question today is coming from Josh Jennings from TD Cowen. Your line is now live. Joshua Jennings Hi. Good afternoon. Thanks for taking the questions. Wanted to just start off with the TAVR outlook and kind of longer-term you guys have put a $10 billion kind of TAM forecast by 2028 in the past. Should we eventually still be thinking about that TAM opportunity being in place, but maybe pushed out a little bit or maybe the aortic regurgitation indication gets you there by 2028, but you may not be reiterating today, but it sounds like you're confident in the TAVR market in that $10 billion TAM, but not sure if you're reiterating it now. Bernard Zovighian Yes, I think you said it in your question. We are confident we are not updating the guidance for next year or for 2028 here on the market, but we are confident. We will do so in December at the investor conference in New York. Thank you. Thank you. Next question is coming from Travis Steed from Bank of America. Your line is now live. Travis Steed Hey, thanks for taking the questions. I wanted to go back and circle back on Robbie's question on TAVR. It feels like there's a little bit more of a change here. Just three months ago, you thought TAVR was going to accelerate over the course of the year. I thought the 8% to 10% at the beginning of the year was supposed to be a conservative guide. So just want to understand like, I hear what you're saying on TMTT, but that's a small number of faction versus the overall TAVR centers, so I don't know if there's anything else that you'd kind of call out or kind of what surprised you on the TAVR line. I know there was some of the European stuff and competition there that you called out last quarter, just understanding kind of the full change and why you got the initial TAVR guide wrong at the start of this year. Larry Wood Yes. Thanks, Travis. Yes. When we exited Q1, we thought we were on a good ramp, and we thought we were on a good pace, and that's why reiterated guidance and we felt good about it and we just didn't see that play out in Q2 the way that we anticipated and by no means do I mean to say this is all Daveen's fault and it's all EVOQUE because that's not accurate or fair when you look at the number of procedures. I think it's the cumulative impact of all the things that have hit the structural heart teams over the last year, and it's one of those things you can always increase a little capacity, work a little harder, increase a little capacity, work a little bit harder, but then at some point, you reach a breakpoint when it's simply too much. And the heaviest lift for centers is starting a program and it's not just the procedure volume. It's all that screening and all of the case reviews and all the interaction that just consumes a lot of resources and a lot of time and the training, they have to go to training and observe cases, in many cases, and all of those sorts of things. And so, I think it's just the cumulative impact of those things that happen over time. And we did see the slowdown more acutely in large centers and small centers, which fits a little bit of the model as well in terms of the centers that are most likely to be looking to start these new programs and are competitive about that. And again, I said it earlier, but we did see a spike in emerging cases over routine cases, and I think that fits what we're saying as well. But that's not going to be sustainable for people. Emerging cases have more complications. They don't have as good a patient outcomes and people will have longer length of stay and that's going to adversely impact patients and the hospitals themselves. So I think people will have to adjust it over time. And we're going to have to work closely with them to help them do that. Travis Steed All right. That's helpful. Any color on Q3 TAVR and kind of where that's settling out versus the full year guide. I think you guys had extra selling days in Q3. And then on the dilution from the acquisitions, I know there's like a range of outcomes like that's going to be, but we all have a pretty good sense of Critical Care and the dilution there, but just to give a sense of kind of range of outcomes on some of the dilutions that you've got, like I was thinking. $0.10 is kind of ballpark, but I don't know if you'd react to that at all. Scott Ullem Yes. Thanks for the question, Travis. In Q3, you're right, we do have a little help from extra selling days in the third quarter. And that's factored into our guidance. It's in the guide that we provided. In terms of dilution from acquisitions, again, we've got to first close the acquisitions, then work on integrating them. Obviously, we spent a lot of time with the plan, but it takes some time, actually, before we actually get businesses inhouse and start recording what kind of financial implications there are before we can report out on those. We'll know a lot more by the end of next quarter when we've actually gotten further down the path, and we'll talk about it then. And of course, we'll give full guidance for EPS in 2025 at our investor conference. Thank you. Next question today is coming from Matt Taylor from Jefferies. Your line is now live. Matthew Taylor Hi. Thanks for taking the question. I guess I wanted to follow up on some of your US TAVR commentary and the workflow angle, because I'd like to understand better why you think it's showing up so acutely now, I guess, given you're still in a limited rollout of EVOQUE. Is this an issue that's been matriculating for a while and we're just seeing it more now? And could you help us understand your history there, you talked about the impact on coronaries. How long do you think it'll take for the hospital to adjust. Is this a one quarter or three-quarter issue or it'd take years. What kind of time frame would you put on them adjusting to accommodate the additional workflows? Larry Wood Yes. Thanks, Matt. The thing that I would say is, I guess if I were to draw an analogy, if you had a factory and you saw demand for your product going up, you can always add a little more hours and you always have a little bit of excess capacity. And you can adjust to those things. I think there is just a point in time where you hit a wall, and it's harder to do those things, and I think that's a little bit of what we saw here. It's the cumulative effect of all of these things that have played out over time. If you look at total cath lab procedures for the structural heart team in the last three years is probably close to double during that period of time, which is a lot of growth that these teams are having to absorb and they're having to adapt to, and I think it will take time. And again, when you're starting these new programs, these new therapies, that's the heaviest lift part of it. And again, I think this gets corrected over time, and we'll work closely with the hospitals to do that. But we reflected that in our guidance and just wanted to be realistic and not be tone deaf to what's happened, but on the same thing I'll tell you is none of us are happy with the growth rate. None of us are happy adjusting guidance and we're going to be working as hard as we can to do everything we can to restore the growth to where we think it should be. Bernard Zovighian And we are not happy as a company, the patients are not happy, the physician are not happy, the hospital are not happy. So we are fully aligned about it is a problem we need to solve it. So it is why also we are confident here. Thank you. Next question today is coming from Vijay Kumar from Evercore ISI. Your line is now live. Vijay Kumar Hey, guys. Thanks for taking my question. I guess one on, just based on what competition is saying, I know there's been noise on small and light trial. How do you respond to -- this is not competitive dynamics what we're seeing in the US market? Larry Wood Sure. Yeah. We presented our data at New York Valves, and I don't think we've seen the impact of that in any meaningful way. I know some of the smaller competitors have reported, but you have to take their growth rates in consideration of the base they're growing off of versus the base that we're growing off of globally. Vijay Kumar Understood. And maybe Scott, one for you on the guidance here, EPS, your prior guidance $2.70 to $2.80 inclusive of Critical Care, right, is that still intact or what's the new range? I just want to get an apples-to-apples sort of EPS baseline. Scott Ullem It's a fair question. We are not providing a new update. And the reason is because we know Critical Care is going to close sometime late in the third quarter. But as a result, fourth quarter will not include Critical Care. And so, we obviously, looked at a whole bunch of different pro forma scenarios, but it didn't make sense to try to provide some kind of a bridge to the original $2.70 to $2.80 guidance. So, sorry, but we've not given an updated number for the full company just because it's not -- it wouldn't be comparable with Critical Care coming out at the end of the third quarter. Vijay Kumar Or is there a comparable like, without Critical Care for the full year, what the underlying number is. Scott Ullem Well, the underlying number is actually pretty similar in terms of growth rate with and without Critical Care. And our guidance for the full company is 8% to 10% underlying growth. That's similar, whether it includes Critical Care for the full year or excludes Critical Care for the full year, but we have not translated that down to EPS, with or without. Thank you. Next question is coming from Patrick Wood from Morgan Stanley. Your line is now live. Patrick Wood Fabulous. Thank you so much. Just two quick ones. I guess, on the EVOQUE side and the initial rollout on the clinical feedback and success that you guys have had. How's that been going? There's been a little bit of volatility in the more database. So I'm just curious how the clinician feedback has been. Daveen Chopra Hey, thanks so much, Patrick. This is Daveen. Overall, if you pull back, we've actually been very pleased with the initial rollout of EVOQUE in both the US and Europe. We continue to see really strong physician demand and it really, for us, reinforces the unmet need of these patient group who are looking for better solutions. As I mentioned earlier, we're seeing those predictable outcome times. We're seeing it similar to the clinical trials. And just to look at, we're seeing very similar clinical results to what we saw in the clinical trials, specifically from TRISCEND II, So we've been seeing very similar rates there of kind of clinical outcomes. We've seen so far on the journey, especially in Europe now, where PASCAL is actually approved for EVOQUE. We see that it reinforces the need for both the repair and the replacement technology to really treat the maximum number of EVOQUE patients. So overall, we continue to be very excited and happy with where the EVOQUE launch is going. Patrick Wood Very helpful. And then maybe just quickly on Endotronix. I was with Harry and Ariel at THT, and like the conical data on their side looks very interesting. How do you see this fitting into the business overall, because my understanding was that probably this would be initially used for fine-tuning medication management, right? Is this more about building the rolodex patients, so that you know them a little bit better further downstream when it comes to a trans catheter approach. How do you see it strategically fitting in? Thanks. Bernard Zovighian Thanks for the question. So let me start big picture with first the patients. We decided to get into this field because we see very largely the patient population needs. Heart failure is one-off, if not the largest driver of healthcare spending in the US. We have known the company for a long time. We were an investor in the company. We believe that they have very unique technology, differentiated technology. As a matter of fact, they received a broad label from FDA last month. There is an NCD ongoing right now, so we see that as a big opportunity, a natural progression for us. If you're asking about -- a very clear strategy about what we are going to do, where we are going to start all of this. It is a little bit early. Again, we expect the closing of the transaction in the third quarter, correct, Scott here. And in December, we will have a full deep dive on the strategy for Endotronix. We believe that many of these patients, are failure patient are patient we are serving and treating today with our valve technologies. So it is in our space. So we are super-excited about it. We see this one as a great opportunity, a great long-term opportunity to expand our reach as a company. Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to Bernard for any further closing comments. Bernard Zovighian Thank you, everyone, for your continued interest in Edwards. Scott, Mark, and I welcome any additional question by telephone. Thank you so much. Have a great rest of your day. Thank you. This does conclude today' teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Visa Inc. (V) Q3 2024 Earnings Call Transcript

Darrin Peller - Wolfe Research Andrew Jeffrey - William Blair Bryan Keane - Deutsche Bank Ken Suchoski - Autonomous Research Tien-Tsin Huang - JPMorgan Gus Gala - Monness, Crespi, Hardt Will Nance - Goldman Sachs Timothy Chiodo - UBS James Faucette - Morgan Stanley Bryan Bergin - TD Cowen Sanjay Sakhrani - KBW Jason Kupferberg - Bank of America Dan Perlin - RBC Capital Markets Harshita Rawat - Bernstein Welcome to Visa's Fiscal Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin. Jennifer Como Thank you. Good afternoon, everyone, and welcome to Visa's fiscal third quarter 2024 earnings call. Joining us today are Ryan McInerney, Visa's Chief Executive Officer; and Chris Suh, Visa's Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC's website and the Investor Relations section of our website. Our comments today regarding our financial results will reflect revenue on a GAAP basis and all other results on a non-GAAP nominal basis unless otherwise noted. The related GAAP measures and reconciliation are available in today's earnings release and related materials available on our IR website. Good afternoon, everyone. Thank you for joining us. We delivered strong third quarter results with $8.9 billion in net revenue, up 10% year-over-year, and EPS up 12%. Our key business drivers were relatively stable as compared to Q2, adjusted for leap year. In constant dollars, overall payments volume grew 7% year-over-year, U.S. payments volume grew 5%, and international payments volume grew 10%. Cross-border volume excluding intra-Europe, rose 14%, and processed transactions grew 10% year-over-year. We recently received the results from our annual Global Client Engagement Survey where Visa achieved a Global Net Promoter Score, or NPS, of 76, up three points from last year. We saw NPS increases across all of our client types, merchants, issuers, fintechs, and processors and across our regions, the results remain strong, with a notable 6-point NPS improvement in North America. I want to thank all of our 30,000 employees who helped deliver these fantastic results. And as I review some highlights from the quarter, you'll see how this focus on serving our clients by meeting their needs, innovating, and helping them grow is fueling our success across consumer payments, new flows, and value-added services. Let's start with consumer payments, where we see more than $20 trillion of opportunity to capture cash, check, ACH, domestic schemes and other forms of electronic payment. In our client engagement survey, our clients ranked our strategic partnership and our brand as two of the most important factors to our successful relationships. I'll share some examples of how each of these played out this quarter. In strategic partnerships, we are constantly seeking ways to add more value and grow together with our clients. We are pleased to have been named the Preferred Network Partner by Lloyds Banking Group, renewing our debit relationship and significantly expanding our relationship in credit, winning 10 million additional credit credentials across the Group's consumer and commercial business. Also in the U.K., NatWest has launched a new Visa Travel Reward credit card, following the signing of our partnership last year. They will also be utilizing many value-added services, including transaction controls and card benefits. On the European continent, we worked with Raiffeisen Bank International AG, a leading bank in several markets. And recently, in the Czech Republic and Romania, we renewed our commercial business and expanded our consumer debit and credit business totaling over two million potential new credentials. In Korea, we deepened our partnership with leading issuer KB Kookmin Card. Already a user of Visa Direct cross-border money movement and a Visa consumer and commercial issuer, they will grow their consumer credit and debit portfolios with Visa and use value-added services, including consulting and marketing services. In Peru, we extended our partnership with leading issuer, Banco de Credito de Peru, across consumer and commercial portfolios with plans to launch additional new flows offerings and value-added services. In the U.S., we extended our agreement with Wells Fargo. This will allow us to continue to support Wells Fargo's strategy to reinvent their credit business and provide additional growth by leveraging key Visa assets like consulting and Visa sponsorships such as FIFA and the Olympic and Paralympic Games. On the brand front, with the Olympic Games opening ceremony later this week, it is exciting to see the engagement with the Visa brand and activation across the world in marketing campaigns, cardholder experiences and Olympic and Paralympic-branded Visa issuance, which I am happy to report in Europe is at nearly six million cards compared to the five million number I quoted just last quarter. We have also added nearly 100,000 new merchant locations in France in advance of the event. Our brand also plays an important role in winning co-brand partnerships. In India, growing credit issuance and reaching affluent and cross-border consumers remain areas of focus. We are excited about the launch of a co-brand card with Adani One and ICICI Bank as India's first co-branded credit card with rich airport-linked benefits for their target base of 400 million customers through the Adani One platform. We also signed an agreement to launch a new co-brand card with Tata Digital, along with an Indian banking partner, building on the success of our existing credit co-brand relationship. This new co-brand offering consists of a multicurrency prepaid foreign exchange card that will target travelers from India, also benefiting from the rewards of the Tata Digital Super App, Tata Neu. Across seven countries in Latin America, we will work with Unicomer, a major retailer and financial services provider with numerous brands to deliver a co-brand credit card in addition to using CyberSource. And in CEMEA, we reached a de novo co-brand arrangement with BinDawood, a leading grocer in the Kingdom of Saudi Arabia with 88 outlets and over five million loyalty program members. On the travel side, we extended our relationship with Malaysia Airlines from a prepaid co-brand card targeting millennials and Gen Z customers to also launch a new co-brand credit card for the travel-minded affluent. And in the U.S., Turkish Airlines have chosen Visa to be their exclusive network partner for their new Miles and Smiles co-brand credit card. Our consumer payment strategy is focused on growing credentials as we are doing across all the partnerships I just mentioned and increasing acceptance locations. And wallets are a great example of where this comes together, where Visa can be a funding source, an embedded credential, and an accepted form of payment by wallet merchants. This increases the value proposition for wallet providers and their users. Two wallet highlights this quarter are in Peru and Vietnam. Yape is a Peruvian super app with more than 15 million users who already have a Visa credential that enables them to send money across P2P apps via Visa Direct. And just recently, they launched Tap to Phone functionality for their more than two million merchants to accept Visa. And in Vietnam, a country with approximately 50 million wallet users, the three leading digital wallets, MoMo, VNPAY, and ZaloPay are now enabling their users to utilize Visa cards as a funding source for transactions at over 500,000 QR acceptance points managed by these wallets. One additional area that we are very focused on is delivering simple, easy, and secure checkout experiences. Let me share a few recent examples. First, we are integrating Click to Pay and the Visa Payment Passkey Service, enabling a customer to authenticate themselves using biometrics. Already, we have hundreds of issuers enabled for passkeys in Europe and a number of issuers who represent more than 50% of our e-commerce payments volume in Europe piloting the solution. Second, we crossed 10 billion tokens this quarter, a significant milestone. And in 2023 alone, Visa tokens helped generate more than an estimated $40 billion in incremental e-commerce revenue for businesses globally and saved more than $600 million in fraud. Third is the ability to tap for more use cases on a mobile device. With tapping as one of the best in-person commerce experiences, we want to provide Visa users with more ways to tap, including Tap to Pay, tap to authenticate an identity, tap to add a card, or tap to send money to family or friends. And finally, this quarter, Tap to Pay grew four percentage points from last year to 80% of face-to-face transactions globally, excluding the U.S. In the U.S., we surpassed 50% and have 30 U.S. cities above 60% penetration. Now moving on to new flows. This quarter, new flows revenue grew 18% year-over-year in constant dollars with Visa Direct overall transactions growing 41% for the quarter to 2.6 billion and commercial volumes up 7% year-over-year in constant dollars. Let me provide some updates, starting with B2B, where we have focused on penetrating new verticals and delivering innovative products and solutions. In healthcare, we will work with AXA and Paysure to launch a commercial virtual card solution to simplify the claims processes for their customers worldwide. We have also expanded our virtual card acceptance with a key business services provider, Cintas, who offers uniform, safety, and fire protection services to over one million customers. Together with our partner, Billtrust, we will help Cintas streamline their payments, automate processes, and manage costs on Billtrust's Business Payments Network or BPN. We also just recently extended our long-standing BPN collaboration with Billtrust that connects suppliers and buyers to facilitate straight-through processing of virtual card payments with rich data that optimizes acceptance costs. Our products and solutions in B2B remain very important in winning and growing our business. One such solution is the enhanced B2B data that we can provide. In Brazil, together with Solero, a leading business financial management solution, we will provide issuers with enhanced visibility into small business spend by aggregating data across cards, bank accounts, boletos and more, enabling them to better manage their client relationships and offer compelling products. Another solution is Spend Clarity, which provides expense program management, including card issuance, controls, and reporting. Wells Fargo has white-labeled our solution called Wells One Expense Manager, which has now onboarded 6,000 corporate clients representing over one million users, providing access to their spend data. Now moving on to Visa Direct. We continued to grow our transactions through expanded and new relationships. Over the past year, total Visa Direct cross-border P2P transactions have nearly doubled, with Europe and CEMEA being the largest regions. In CEMEA, we are very excited to have renewed our Visa Direct relationship with fintech Monobank in addition to renewing their consumer and commercial credit, debit, and prepaid portfolios. In Asia Pacific, we are partnering with China Zhongsheng Bank on cross-border capabilities, including Visa Direct and Currencycloud, allowing the bank to support cross-border payments for their merchant clients. Canadian fintech Nuvei has extended its agreement with us for Visa Direct across all cross-border use cases in more than 30 countries for their merchant clients and recently became the first Visa Direct enabler in Colombia. We also executed our first global agreement with WorldRemit and Sendwave, enabling their customers to eventually send Visa Direct cross-border remittances from 50 countries to recipients in 130 countries. Quickly, a leading South Asian marketplace, has enabled Visa Direct cross-border remittance solutions for U.S. customers to send money to relatives and friends in India and the rest of South Asia. And in earned wage access, we reached an agreement with Weaver, a U.K.-based embedded finance provider. In addition to card issuance, they will be utilizing Visa Direct to enable Weaver's business clients to offer employee expense reimbursement, reward and recognition, and earned wage access. Earned wage access provider PayActiv, who serves 4,000 businesses has renewed its agreement with us and will enable Visa+ for payouts. Similarly, we expanded our relationship with enabler, Astra. In addition to domestic disbursements, Astra will now offer cross-border remittances, implement Visa+ to reach domestic wallets in the U.S., and expand to additional use cases, including payroll, earned wage access and marketplaces. Visa+ is still in the early stages but is fully rolled out and live for PayPal and Venmo users and more providers continue to join the platform. Wrapping up new flows, we also renewed an agreement with FIS, an important issuer processing partner to enable a suite of value-added services and new flows capabilities for their clients, including Visa Direct. And now on to value-added services, where revenue was up 23% in the third quarter in constant dollars. Let me highlight some of the progress we have made in driving adoption and growth among our value-added services portfolio. First in issuing solutions. One area of strong revenue growth this quarter was in card benefits, where we enable our clients to offer unique value propositions tailored to their customer base in travel, entertainment, restaurants, insurance and more. Strong issuance in premium cards across most of our regions has fueled this growth in the third quarter. For example, in Latin America, travel benefits have grown with over 370,000 unique visits to our Visa Infinite Airport Lounge in Brazil, representing customers from a number of leading issuers. In addition, since its launch in 2022, our Visa Infinite Fast Pass in Brazil, which allows cardholders to get through airport security more quickly, has screened over one million travelers. These are among the top five card benefits in Brazil and deliver value to customers, issuers and Visa. We continue to add more benefits like the recently launched partnership with OpenTable to offer eligible Visa cardholders access to coveted restaurant reservations and experiences in the U.S., with plans to expand into Canada and Mexico. In Acceptance Solutions, third quarter growth was driven by increasing utilization across both token and e-commerce-related services. In e-commerce, one such example is with iFood, the largest food delivery platform in Brazil who is utilizing our Verifi solution to help prevent disputes before they become chargebacks. In addition, they will be using our authentication solutions. In Risk & Identity Solutions, we continued to see strong adoption by new and existing clients, driven in part by growth in card-not-present transactions. In North America, acquirer Worldpay will be expanding their use of our authentication solutions from CardinalCommerce, fostering collaboration and real-time enhanced data exchange between Worldpay merchants and issuers during card-not-present transactions, reducing fraud and allowing more transactions to be properly authenticated and authorized securely. We are also pleased that the pilot of our account-to-account risk scoring solution Visa Protect with Pay.UK has had great results, showing an average 40% uplift in fraud detection over the 3-month pilot period. In addition, we are now launching Visa Protect in Argentina with a core payments technology company, Celsa after successfully piloting the solution there as well. The last two value-added services are open banking and advisory services. We continue to sign new partners with Tink in Europe and the U.S. And as I mentioned earlier, we continue to see strong growth in client demand for our consulting and marketing services, particularly around marquee events such as the Olympic and Paralympic Games. Our value-added services portfolio solutions is strong and is driving meaningful growth for our clients and for Visa. Before I close, I wanted to speak to the fact that the settlement reached for the injunctive relief class was rejected by the court. We are, of course, disappointed with this decision. We believe that the prior settlement provided meaningful relief to all merchants and we will continue to work towards another settlement. To close, so far this fiscal year, we have seen strong revenue and EPS growth as a result of relatively stable volume and transaction growth. I remain very excited about the opportunity that lies ahead of us. At Visa, we come to work in service of our clients and partners and are focused on building and deploying the best solutions possible across consumer payments, new flows, and value-added services. In Q3, we had another strong quarter with relatively stable growth across payments volume, cross-border volume, and processed transactions when compared to Q2, adjusted for leap year. In constant dollars, global payments volume was up 7% year-over-year and cross-border volumes, excluding intra-Europe, was up 14% year-over-year. Processed transactions grew 10% year-over-year. Fiscal third quarter net revenue was up 10% in both GAAP and constant dollars, in line with our expectations. EPS was up 12% year-over-year and 13% in constant dollars. Now let's go into the details. In the U.S., payment volumes growth numbers were generally in line with Q2 adjusted for leap year, with total Q3 payments volume growing 5% year-over-year, with credit and debit also growing 5%. Card-present volume grew 2% and card-not-present volume grew 7%. In the U.S., while growth in the high spend consumer segment remained stable compared to prior quarters, we saw a slight moderation in the lower spend consumer segment. Moving to international markets. Total payments volume was up 10% in constant dollars, relatively stable with Q2 when adjusted for leap year. Payments volume growth rates were strong for the quarter in most major regions, with Latin America, CEMEA, and Europe ex U.K. each growing more than 16% in constant dollars. Asia Pacific payments volume slowed to less than 0.5 point of year-over-year growth in constant dollars for the quarter, driven primarily by the macroeconomic environment, most notably in Mainland China. Now to cross-border volume, which I will speak to today in constant dollars and excluding intra-Europe transactions. Total cross-border volume was up 14% in Q3, relatively stable to Q2 adjusted for leap year. Cross-border card-not-present volume growth, excluding travel and adjusted for cryptocurrency purchases, was in the mid-teens, helped by continued strength in retail. Cross-border travel volume growth was also up in the mid-teens or 157% indexed to 2019. This quarter, we saw the inbound Asia Pacific Index improve nine points at a similar pace to Q2 to 151% of 2019. The improvement in Asia Pacific outbound travel, however, slowed from Q2 with the index increasing by less than one point to 125% of 2019. We continue to see the same primary drivers as last quarter with some additional pressure from macroeconomic conditions. Now let's review our third quarter financial results. I'll start with the revenue components. Service revenue grew 8% year-over-year versus the 8% growth in Q2 constant dollar payments volume, with revenue yield improving sequentially and versus last year due to improving utilization of card benefit. Data processing revenue grew 9% versus 10% processed transaction growth with the revenue yield generally in line sequentially and versus last year. International transaction revenue was up 9% versus the 14% increase in constant dollar cross-border volume, excluding intra-Europe, impacted by lapping higher currency volatility from last year. Volatility levels remain consistent on average to last quarter. Other revenue grew 31%, primarily driven by strong consulting and marketing services revenue related to the Olympics and, to a lesser extent, pricing. Client incentives grew 11%. Now on to our three growth engines. Consumer payments growth was driven by relatively stable payments volume, cross-border volume and processed transaction growth. New flows revenue grew 18% year-over-year in constant dollars. Visa Direct transactions grew 41% year-over-year, helped by growth in Latin America for interoperability among P2P apps. Commercial volumes rose 7% year-over-year in constant dollars. In Q3, value-added services revenue grew 23% in constant dollars to $2.2 billion, primarily driven by Issuing and Acceptance Solutions and Advisory Services. Operating expenses grew 14%, primarily due to increases in general and administrative personnel and marketing expenses, including spend related to the Olympics. FX was 0.5 point drag versus the 1.5 point benefit we expected. Pismo represented an approximately one point drag. Nonoperating income was $73 million. Our tax rate was 18.8% and EPS was $2.42, up 12% over last year, inclusive of an approximately 1.5 point drag from exchange rates and an approximately 0.5 point drag from Pismo. In Q3, we bought back approximately $4.8 billion in stock and distributed over $1 billion in dividends to our stockholders. At the end of June, we had $18.9 billion remaining in our buyback authorization. Now let's move to what we've seen so far in July through the 21st with volume growth in constant dollars. Cross-border is excluding intra-Europe. U.S. payments volume was up 4% with debit up 4% and credit up 3% year-over-year. The slight deceleration from Q3 does not appear to be from any one factor but likely a number of smaller factors such as weather, timing of promotional shopping events, and the technology outage, among others. Cross-border volume grew 13% year-over-year, below Q3 levels with travel-related volume growing slightly less, which continued to be impacted by Asia Pacific and card-not-present ex travel volume growing at similar levels to Q3. Processed transactions grew 9% year-over-year. Now on to our expectations. Remember that adjusted basis is defined as non-GAAP results in constant dollars and excludes acquisition impacts. You can review these disclosures in our earnings presentation for more detail. Let's start with the fourth quarter. We expect payments volume and processed transactions to grow at a similar rate to Q3. For total cross-border volume growth, we are expecting to end up slightly below Q3. Currency volatility continues to average around 4-year lows through July 21. And as such, we are making an adjustment to currency volatility expectations for Q4, now assuming volatility will stay in line with Q3 levels. Incentives are expected to be at their lowest growth rate all year. Pulling it all together, we expect adjusted net revenue growth in the low double digits, which equates to a slight improvement from the 10% adjusted revenue growth rate in the third quarter. We expect our Q4 adjusted operating expenses to grow in the high single digits. Nonoperating income is expected to be between $40 million and $50 million. The tax rate is expected to be between 19% and 19.5% in Q4, which puts Q4 adjusted EPS growth rate in the high end of low double digits. Moving to the full year. With three quarters now complete, our expectations for full year adjusted net revenue growth remains unchanged from what we shared at the start of the year. Whilst absorbing the impact of lower currency volatility and the macroeconomic challenges in Asia, which have affected volumes, we still expect to reach low double-digit adjusted net revenue growth for the full year. Full year adjusted operating expense growth will be in the high single digit to low double digits, reflecting the less favorable impact of FX. This keeps full year adjusted EPS growth in the low teens. In closing, we delivered strong results this quarter, with new flows and value added services revenue growing faster than consumer payments. We extended our existing relationships, one new clients and invested to develop innovative products and solutions, all positioning us for continued growth into the future. Thanks Chris. And with that, we're ready to take questions. [Operator Instructions] Our first question comes from Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller Hi, thanks guys. Look, let me just start. The U.S. volume growth rate obviously is a bit softer. And if you could help us distill what you consider structural versus cyclical, I think that'd be a good place to start. But adding on to it really is, just the ability for you to grow double-digit revenue with only four, five, six, mid-single-digit U.S. volume growth is, coming from value added services. It's coming from cross border. Can you help us understand if that kind of trend, you believe the company has that capability to grow those rates on revenues, even in this context of U.S. volume trends? Thanks guys. Chris Suh Yes. Hi Darrin. So let me start with the U.S. Let me start with the first part of your question, and then we'll maybe get into zoom out and talk about maybe the longer question. So in the U.S. in Q3, we did see stable drivers relative to Q2, once you adjust for leap year. That's 5% payment volumes growth in the third quarter. In the 21 days since in July, that number did tick down to 4%. Maybe I'll just sort of give you the full arc of what we're seeing. So 4%, we'll just level set on those numbers, 4% in the 21 days versus 5% in Q3. And so for that, we did stare at a lot of the drivers, the factors that impacted those three weeks. And there was a lot going on and I referenced a few of them on the call and maybe I'll expand on those a bit. First, we had a major hurricane, Hurricane Beryl, and it impacted Texas and other parts of the U.S. nearby. The second, I referenced the timing of promotional e-commerce events. Maybe I can expand on that a little bit. The timing this year was later and then e-commerce customers are billed, when the goods are shipped. And so, some of that shipping periods fell out of that 21 period. So we had a little bit of difference in the 21 day period, to the comparable year ago. And third, obviously the major tech outage that happened at the end of last week, that also had some impact. So, when we look at that, no single factor drove that one point of change from Q3, to the first part of July. But all things considered, we actually feel pretty good about the three week results. Now the second part of your question really was around sort of the low double-digits in the context of cross-border, VAS and CMS. I'll sort of back into the question. We've had consistent strong performance in VAS, over $2 billion of revenue, over 20% growth for many quarters consecutively. And we're seeing strength across the business in issuing solutions and acceptance and advisory. That's a business that we feel great about the momentum in. With our new flows business, 18% growth, as Ryan talked about, in the quarter, that's the second quarter in a row, where we're seeing growth in the teens, great execution, stable volumes, and visa direct transactions growing at a high level. As you know, that business also, quarter-to-quarter, can vary a little bit in the growth rates, as we saw in the first half of the year. But all in all, feel really good about the continued strength in that business. And then cross-border, well, cross-border, maybe I'll just zoom out a little bit and talk about cross-border and what we've seen over the course of time. If you recall, pre-pandemic, cross-border grew, travel grew in the high single-digits to low double-digits. And e-commerce, which was about a third of the business, grew into the teens, sometimes into the mid-teens. Obviously, the pandemic happened, travel really contracted, e-commerce grew faster. And since then, now post-pandemic, what we're seeing now is that e-commerce is roughly 40% of the business. And the growth rate has normalized. It's stabilized back to pre-pandemic levels. And so let's say, teens growth on e-commerce on 40% of the cross-border business. Travel after the post-pandemic run-up has normalized. It's a little hard to tell exactly where it's going to stabilize at, but we've seen high growth. We've seen it continue to normalize. But what we do know structurally, is that with e-commerce being a bigger portion of the business, that's a tail into the total cross-border growth. And so, we are confident that that will continue to be healthy relative to the domestic spend. I'll pause there and certainly if there's anything else to add, Ryan, or others, please jump in. Next, we'll go to the line of Andrew Jeffrey from William Blair. Please go ahead. Andrew Jeffrey Hi. Good afternoon. Appreciate you taking the question. Very impressive value-added services growth this quarter at 23%. And I think as you mentioned, Chris, it's approaching 25% of total revenue, so perhaps driving more than half your consolidated revenue growth. Can you talk a little bit about at what point we might expect value-added services to sort of bend up the growth curve of Visa consolidated? Ryan McInerney It's Ryan, Andrew. Thanks for the question. And yes, we're very excited about not only what we delivered, in terms of value-added services growth for the quarter. What we've been delivering consistently for several years now, since we shared with you all the strategy, and kind of became very purposeful about our go-to-market approach. I mean, you go back to I think it was 2021, we did about $5 billion in revenue, 2022, $6 billion. Last year was $7 billion. Like you said, we did $2.2 billion this quarter, up 23%. So I think what we've shown, is that we have delivered consistent growth quarter-after-quarter, and year-after-year in these businesses. And we're super optimistic about where we go from here. I mean, we think about the opportunities really in three different segments. The first is, we have a series of value-added services, some of which Chris outlined in his previous answer that, are very focused on enhancing value for Visa transactions. Risk products like Visa Secure, dispute tools like Visa Resolve Online, card benefits, like I mentioned in my prepared remarks. And we've - that has historically been the largest part of our value-added services business. And we've shown that we can drive great growth in that area. Increasingly, we're building out a set of services that add value for non-Visa transactions. We've done some things in this space before. Some of our platforms like CyberSource, Authorize.Net, Verifi. But then you've heard me talk in the last couple of quarters about expanding our risk capabilities. For example, to not just other card networks, but also to RFCP and account-to-account services. And I mentioned the great results we've had in both the U.K. and in Argentina on that front. And then the third area of opportunity for us, is expanding our value-added services beyond payments. Historically, we've had things like Visa Consulting and Analytics and our marketing services And some of the open banking services delivered by Tink, but we're continuing to build out a portfolio of value-added services, for our clients and partners beyond payments things like the cyber protection capabilities that we've been bringing to market. So, we've demonstrated consistent growth. We believe we'll be able to continue to demonstrate consistent growth. We've got a product pipeline, and a go-to-market approach all over the world with a diverse set of clients, and we feel good about the opportunity. Next, we'll go to the line of Bryan Keane from Deutsche Bank. Please go ahead. Bryan Keane Hi guys, good afternoon. Chris, just want to ask about incentives, being the lowest expectation will be for the fourth quarter. Can you just talk a little bit about how much of that is volume-driven, versus the amount of renewals you're seeing? And just trying to think about, as we head into next fiscal year, just what kind of growth or sustainable growth should we think about for incentives? Thanks. Chris Suh Thanks for the question. I'll even take us back a little bit about the expectations that, we had for incentives coming into the fiscal year. As we ended fiscal '23, that was a high year for us in terms of volume of renewals, a little higher than our typical sort of normal cadence. That did impact how we thought about the incentive volumes in FY '24. And even last year, we had sort of a different growth rate in the first half and the second half of the year. And so as we looked across this year, we had a slightly lower volume of renewals this year. Obviously, year-to-date incentives have played out slightly differently, largely due to client performance, deal timing, things like that. And overall, it's been better than, as it's been lower, I guess, than what we anticipated. When we go into Q4, sort of the same trend applies. We still expect Q4 to benefit from the lapping of the high incentives that, we saw in the second half of last year, which informs, again, the growth rate that we anticipate in Q4. We don't have a lot to share about FY 2025 at this point, but we'll share plenty in the next earnings call. Next, we'll go to the line of Ken Suchoski from Autonomous Research. Please go ahead. Ken Suchoski Hi, good afternoon. Thanks for taking the question. I wanted to ask about VAS and I think the team has talked about, how some of the VAS revenue is correlated with transaction growth. But you also have parts of that business that are more recurring, or less recurring in nature. So can you just help us understand how, you think about the cyclicality of VAS, and how that business might perform in a lower volume growth environment? And I also think the team has talked about pricing, for value in VAS. So how much more room is left to go there? And how does that help with the resiliency of the business? Thank you. Ryan McInerney Yes Ken, it's Ryan. On the second part of your question, our ability to price for value is a function of the value that we bring to the market, and we feel great about the value that we're bringing to the market. And I think you see it in our results. Across the various different areas of issuing solutions, Acceptance Solutions, Risk & Identity Solutions, Advisory. I mean, we just continue to bring products and services that are ultimately, helping our clients grow their business, helping our clients reduce fraud, grow authorizations, those types of things. And we believe we'll continue to do that, and we believe we'll be able to continue to price for value. As I think I was saying earlier, there is - the biggest portion of our value-added services, are a function of Visa transactions. And so obviously, Visa transactions, as they go up or down, have an impact on that, but so does our ability to sell more services. On previous calls, I've talked about the fact that we still have the majority of our clients that have yet to have the type of penetration and depth that, we've been able to achieve with others. So, as we continue to penetrate our clients, all around the world in the various markets that we deliver, as I was saying earlier, to the earlier question, I'm very optimistic about our ability to continue to grow this business as we have. Next, we'll go to the line of Tien-Tsin Huang from JPMorgan. Please go ahead. Tien-Tsin Huang Hi, thanks, good afternoon. Just curious if you're - if you've updated your U.S. outlook here in the second half, are you still expecting transaction sizes to accelerate in the U.S., especially in the fourth quarter? Chris Suh Hi, Tien-Tsin. Thanks for the question. Yes, we had forecasted ATS, as you know, growth to improve throughout the pace of this year from quarter-to-quarter, and we did see that. We saw ATS improve in the third quarter. Specifically in the U.S., ATS was slightly better in Q3 than in Q2. It got to basically flat year-over-year in Q3. We saw improvement in a number of categories, sequentially, restaurant, QSR fuel, telecom, utilities, insurance, to name a few. And we do anticipate in Q4 that we'll continue to see, slight improvement sequentially again. The one thing - the one watch out I'll call out is the fuel prices could impact that trajectory and so, we'll watch that closely. So yes, it is playing out as we anticipated. The pace is slightly varied from what we anticipated, but it is continuing to improve. And I think that's the important thing. Next, we'll go to the line of Gus Gala from Monness, Crespi, Hardt. Please go ahead. Gus Gala Hi, guys. Thank you. Can we talk a little bit about the contactless payments penetration? Can you maybe highlight maybe what the gap is in penetration rates, across maybe some of your older cardholders or young cardholders? Just trying to get around to what a terminal level of penetration could look like? Thanks. Ryan McInerney You're asking - just so I heard, you're asking about Tap to Pay? I mean, yes, maybe just back up first in the big picture of things. The fact that outside of the United States, eight out of 10 of all the Visa face-to-face transactions around the entire planet are Tap to Pay now, I mean, that just tells you right there that it's all segments, all demographics, all use cases, all product types. I mean, we're at 80% overall around the world. We've got, I think, more than 55 countries that are now more than 90% contactless penetration. So increasingly, in most countries for most customers, for most products all around the world, that's just the default way that people are paying. And in the U.S., the curve is maturing exactly how we'd expect it based on what we've seen in 100-plus countries all around the world. As I said in my prepared remarks, now one out of every two transactions in the U.S. are taps. In a place like New York City, where many of you on the call spend time, we're above 75% now. So in New York City, where - which is one of the early adopters of transit, we're above, I think, 75%-plus of all face-to-face transactions. That's up from just 50% two years ago. So again, at that level of penetration in a market the size of New York City, it's across the board in terms of products and issuers, and segments and the like. So, I think as we continue to see this growth happen, buyers, sellers, they love tapping as a way to pay. And we're going to continue to see that growth accelerate in a place like the U.S. Next, we'll go to the line of Will Nance from Goldman Sachs. Please go ahead. Will Nance Hi, guys. Thanks for taking the question. We've been getting a lot of questions around the litigation updates, and I totally understand the level of uncertainty is a lot higher now. But I guess the most common investor question that we're getting is, around the potential impacts to the overall ecosystem, if we see a much greater reduction in interchange rates from what was proposed. And I guess specifically how the production and interchange rates, could reverberate through renewal negotiations with issuers, and then longer term, how this may impact the trajectory of incentives and net yields. So just wondering if we could hear kind of your perspective, about the potential reduction, or a larger reduction in the overall size of sort of ecosystem revenue, and if that changes the direction of any of the key indicators that we're focused on over time? Thanks. Ryan McInerney Hi, Will. Thanks for the question. And you're asking about the MDL litigation. I guess I'll just back up. The first thing I would say is we strongly disagree with the judge's decision. We believe the settlement was fair. We believe the settlement provided meaningful relief to all merchants. The second thing, I would say is the decision failed to take into consideration a number of things, especially the complex multisided ecosystem that we operate in. The role that - the complicated role that many different players in the ecosystem delivered. So, but having said that, we're pursuing a revised settlement. It's too early to speculate on what that settlement is. So I just - I won't do that today. But I would ask everybody to keep in mind, a settlement can occur at any point before, during, or even after the trial. So just keep that in mind as the process plays out. Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead. Timothy Chiodo Hi. Thanks for taking the question. I want to hit on that at the same time tackles, both incentives and value-added services revenue. So it's the concept of value in-kind incentives. I was hoping you could talk a little bit about whether or not, these are becoming more prominent, meaning you're using them a little bit more in discussions with issuers. And then, if you could just briefly recap some of the mechanics around the revenue recognition, the contra revenue, the addition to deferred revenue. And then eventually, the value-added services revenue? Thanks a lot. Ryan McInerney Yes. I'll just give you the high level on this. The value in-kind is a great way for us to, as it says, to deliver value to our clients. And increasingly, our clients, as you see in our performance are preferring to buy our value-added services, versus just take incentives that might drop to the bottom line. So that is absolutely something that, our clients are asking for more of. It's something that is helping our clients grow their businesses. And I talked earlier about just the last several years about our product pipeline, how we've gone to market, how we built new products to solutions and services for our clients. And that's what's driving the demand. So that's kind of become a more important part of our client renewals and our client renewal discussions. And increasingly value-added services are becoming a way for us to differentiate ourselves with our clients, and grow our consumer payments business. Do you want to talk about the organics? Chris Suh Tim, to the second part of your question, maybe I'll just give you a high-level summary. I think you have sort of the pieces you called out. At a high level, when value in-kind is offered in lieu of a cash incentive, it can - it would be recognized as a contra revenue at the time that it's granted or earned, depending on the nature of the contract. And then on the other side, when the client is able to utilize that value in-kind for services from Visa, commonly in our value-added services business, that's then recognized as revenue and the associated costs are also recognized in our P&L. Next, we'll go to the line of James Faucette from Morgan Stanley. Please go ahead. James Faucette Great. Thank you very much. I wanted to just ask a follow-up question on near-term trends. We've seen a little bit of further slowing in credit than in debit over the last couple of months, and in the past has been a little bit of an indication of consumer stress. And I'm just wondering how you're thinking about that. And it seems like you're looking for the rest of the September quarter that, there's a little bit of a re-acceleration, as we get past some of the issues that you identified in July. Just want to make sure that I'm understanding that correctly, and kind of how we should interpret a little bit of the divergence in credit and debit growth right now? Thanks. Ryan McInerney Let me just give a little context on it and then Chris, feel free to add or correct. Like Chris said, we're three weeks into the quarter. We had a hurricane. We had a tech outage across the country. We had a number of things happen. So, we're not kind of taking three weeks as a trend. We'll see kind of how things progress from here, in just terms kind of what happens for the rest of the quarter. I don't know if you want to talk about the credit-debit divergence. Chris Suh Yes. Well, I think I'll refer back to a little bit of a comment that we made, and we're seeing the July results. I also commented on the call that we are seeing a little bit of moderation in what I would call the lower spend band cohorts. And I think that's a little bit correlated, to some of the volume numbers that we're seeing in the quarter, related to credit versus debit. But all in all, when we look at it relative to, again, Q2 and Q3, we see it to be relatively stable once you factor in sort of the days mix with the leap year. Next, we'll go to the line of Bryan Bergin from TD Cowen. Please go ahead. Bryan Bergin Hi, good afternoon. Thank you. Wanted to ask on new flows here. So you had a nice acceleration in growth really over the last two quarters on consistent comps. Can you add more color on the particular areas of strength that have picked up? I know Visa Direct was one of those. I'm just curious if you think you could sustain that level of expansion, or may that moderate a bit? Chris Suh Yes. Thanks for the question. 18% growth, as I mentioned, feel really good about the execution and the momentum in the business. It is an enormous opportunity that we have in front of us, across both our commercial business and money movement with Visa Direct. I think you're familiar with the numbers, 41% growth in the transactions and stable commercial volumes as well. I think what - this acceleration that you're referring to, we had a unique situation in Q1 where we had some onetime items that really kind of depressed the growth, reported growth in Q1. And if you look at the last couple of quarters, it's more reflective, I think, of the underlying health in the business. That said, as we saw in Q1, that growth rate can vary from quarter-to-quarter, based on deal timing and terms and one-time items like the one that impacted Q1. And so overall, I'd say at the macro level, good momentum. The underlying business is healthy, and we're continuing to see that level of growth. And the growth rate should be healthier, and should continue to grow faster than consumer payments, with some normal expected variability quarter-to-quarter. Ryan McInerney And just to build on Chris' points, I think we're in the very early stages of Visa Direct growth. We spent many, many years investing and building the platform, the infrastructure, the connectivity, domestic cross-border, working with issuers and acquirers and processors. And now we're able to be out there selling all around the world, finding new use cases, some of which I highlighted in my prepared remarks. You go back to 2019, we did 2 billion Visa Direct transactions. We did 2.6 billion transactions this quarter. So this is just another great example of, when we go and we systematically identify the need in the market, we spend the time, we build the infrastructure. We build 8.5 billion end points, the connectivity, the reliability, the security, the fraud capabilities. I just think we're in the very early stages of what we're going to see, in terms of the growth of this business and the number of use cases and partners, many of which I highlighted in my prepared remarks that, are going to want to build their use cases on this platform. Next, we'll go to the line of Sanjay Sakhrani from KBW. Please go ahead. Sanjay Sakhrani Thank you. I guess most of my questions have been asked and answered. But just on that last point, Ryan, you were making, I'm just wondering, where are we in the evolution of yield there? Can those go higher as you continue to expand in some of those categories with Visa Direct? And then just in terms of Reg II, is the full impact of Reg II now in the run rate, or should we expect there be any uncertainties related to that? Thank you. Ryan McInerney Yes. I'll take both of them. On the first one, we're still in the early evolution of the use cases. I mean, we weren't even talking about earned wage access a couple of years ago, Sanjay. And so as we've got - I think we've got 65 or so use cases now on the platform, our teams are finding new use cases all the time. So I think we're continuing to see the evolution of all of that and the economics of all that will play out. What I would point you back to, is what I mentioned in my prepared remarks, the tremendous success we're having in cross-border. We've had great success in selling new use cases, and driving cross-border transaction growth in Visa Direct. As you know, the yields are higher in cross-border, given the value that we add. So again, feel good about all of that. Listen, I want to just emphasize in terms of Reg II, the e-commerce debit market is a very competitive market, and is going to be competitive for as far as we can see. So while Chris noted, I think noted that the impact has remained the same, we haven't seen any change in impact, and I don't - and we're not expecting any change in impact for the fourth quarter. It is a competitive business. We are out there with clients day in and day out, helping them understand the benefits of processing transactions on Visa. And there are a lot of them, which is why we feel good so far in the evolution of Reg II, about how we've been able to grow that business. We feel great about the capabilities that a Visa data transaction offers, many of which I've talked about on these calls in the past. So we're out there, we're competing, we're selling, we're delivering our products, and we feel good about our win rate. Next, we'll go to the line of Jason Kupferberg from Bank of America. Please go ahead. Jason Kupferberg Thanks guys. So just a clarification on revenue, and then a question on volumes for this fiscal year. So it sounds like for Q4, you're looking for revenue growth of, call it, 11% to 12%. I think that would put you at the low end of the low double-digit guide, you're maintaining for the year. So that's what I wanted to clarify. And then just a question on volumes. I think you said Q4 should be in line with Q3, which I think would bring the full year to around 7%, versus the high single-digit updated guide last quarter. So just as we start to tune our models for next year, what are some of the potential accelerants off that 7% level we should be considering? Chris Suh Hi, Jason, let's unpack that. You had a couple of things in there, and I just want to - I think this is important, so we'll just be super clear. For Q4, my guidance, our guidance for our Q4 adjusted net revenue would be low double-digits. And sort of the directional guidance I also gave is it would be slightly above the Q3 level that we reported, which was the 10% growth in the quarter. And so sort of take that - take those two points and I would triangulate around that. And that would still get you sort of to the math of the low end of low double-digits, as you called it, for the full year. The second point was on drivers from Q3 to Q4. I did say that payment volume, payment transactions, we anticipate Q4 to be consistent with Q3. The one exception to that is in cross-border, where I did say it'd be slightly below the Q3 levels. And that really is based on the travel circumstances and situation in Asia that we've talked about extensively, with outbound travel in Asia, in particular, being impacted and recovering slower than we anticipated at the beginning of the year. And so, those are the two variables in terms of the - to get the Q4 guidance consistent with the intent - that I communicated. And then as far as FY '25 goes, we're at the beginning end of planning, and as we always do, we'll share our expectations on '25 at the end of Q4. Next, we'll go to the line of Dan Perlin from RBC Capital Markets. Please go ahead. Dan Perlin Thanks. I guess more of a big picture question here, Ryan. So your AI and gen AI investment, you've talked about, I think at conferences, your desire to kind of build out your own large language model. So I'm wondering, one, where do those investments stand today? I guess, two, what would be your expectation for early use cases of those investments, and kind of the payback period? And then three, is there an opportunity to drive, like true incremental sales, or better outcomes for your merchant constituents as opposed to just the banks? Thanks. Ryan McInerney Yes. Hi, Dan, thanks for the question on AI. First of all, to frame it is, we are all in on gen AI at Visa as we've been all in on predictive AI, for more than a decade. We're applying it in two broad-based different ways. One is, sort of adopting across the company to drive productivity, and we're seeing real results there. We're seeing great results, great adoption, great productivity increases from technology, to accounting to sales all across the company. The second is applying generative AI to enhance the entire payment ecosystem. And to the latter part of your question, absolutely. I guess I'd give you one set of examples or some of the risk tools and capabilities that we've been deploying in the market. I mentioned the risk products that we're using on RTP and account-to-account payments. That is an opportunity to reduce fraud, both for merchants and for issuers. I think I mentioned on a previous call, we have our Visa Provisioning Intelligence Service, which is using artificial intelligence to help predict token provisioning fraud before it happens. That also is a benefit to both issuers and merchants. And the list goes on. So, we are very optimistic about the positive impact that generative AI can have, not just on our own productivity, but on our ability to help drive increased sales and lower fraud across the ecosystem. For our final question, we'll go to the line of Harshita Rawat from Bernstein. Please go ahead. Harshita Rawat Good afternoon. Ryan, Chris U.S. card volume growth of 5% in surface kind of suggests a little bit more of a mature market. Now I understand the category differences between card volume growth and DC growth, which influence the delta here. Ryan, you discussed your global down estimate of $20 trillion in consumer payments for Visa. How should we think about, the secular digitization opportunity and the growth algorithm for the U.S., which is your biggest market? Thank you. Ryan McInerney Okay. It was a little hard for us to hear you, Harshita, but I think I got the gist of your question around the growth algorithm for consumer payments, especially in mature markets. So as I've said before, we see more than $20 trillion of opportunity around the world. About a quarter of that is in the U.S., by the way. And that's cash, that's check, that's ACH, that's electronic transactions, that's cards that run on domestic networks and the like. And we're capturing that opportunity through a few different ways. One is continuing to expand acceptance and expand the places, where people can use cards. In the U.S., rent would be a great example. We've been having some really good success, penetrating the rent vertical. The second is making it easier to drive e-commerce growth and e-commerce transactions, which has an outsourced impact on our ability to drive growth on Visa, for those types of things. And third is just continuing to innovate with new products and services that, make our issuers want to issue Visa and consumers want to use them. We announced a full slate of new product innovations at our Visa Payments Forum this year. And those are the types of products that, we believe are going to help us win in the marketplace, and help us capture and digitize a big chunk of that opportunity on the Visa network. Jennifer Como And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day. Thank you, all, for participating in the Visa fiscal third quarter 2024 earnings conference call. That concludes today's conference. You may disconnect at this time, and please enjoy the rest of your day.

Visa (V) Q3 2024 Earnings Call Transcript

Welcome to Visa's fiscal third quarter 2024earnings conference call [Operator instructions] Today's conference is being recorded. [Operator instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, senior vice president and global head of investor relations. Thank you. Good afternoon, everyone, and welcome to Visa's fiscal third quarter 2024earnings call Joining us today are Ryan McInerney, Visa's chief executive officer; and Chris Suh, Visa's chief financial officer. This call is being webcast on the investor relations section of our website at investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Don't miss this second chance at a potentially lucrative opportunity Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a "Double Down" stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Right now, we're issuing "Double Down" alerts for three incredible companies, and there may not be another chance like this anytime soon. Additional information concerning those factors is available in our most recent annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC's website and the investor relations section of our website. Our comments today regarding our financial results will reflect revenue on a GAAP basis and all other results on a non-GAAP nominal basis unless otherwise noted. The related GAAP measures and reconciliation are available in today's earnings release and related materials available on our IR website. And with that, let me turn the call over to Ryan. Ryan McInerney -- Chief Executive Officer Good afternoon, everyone. Thank you for joining us. We delivered strong third quarter results with $8.9 billion in net revenue, up 10% year over year, and EPS up 12%. Our key business drivers were relatively stable as compared to Q2, adjusted for leap year. In constant dollars, overall payments volume grew 7% year over year, U.S. payments volume grew 5%, and international payments volume grew 10%. Cross-border volume, excluding intra-Europe, rose 14%, and processed transactions grew 10% year over year. We recently received the results from our annual global client engagement survey where Visa achieved a global net promoter score, or NPS, of 76, up 3 points from last year. We saw NPS increases across all of our client types, merchants, issuers, fintechs, and processors and across our regions, the results remain strong, with a notable 6-point NPS improvement in North America. I want to thank all of our 30,000 employees who helped deliver these fantastic results. And as I review some highlights from the quarter, you'll see how this focus on serving our clients by meeting their needs, innovating, and helping them grow is fueling our success across consumer payments, new flows, and value-added services. Let's start with consumer payments, where we see more than $20 trillion of opportunity to capture cash, check, ACH, domestic schemes and other forms of electronic payment. In our client engagement survey, our clients ranked our strategic partnership and our brand as two of the most important factors to our successful relationships. I'll share some examples of how each of these played out this quarter. In strategic partnerships, we are constantly seeking ways to add more value and grow together with our clients. We are pleased to have been named the Preferred Network Partner by Lloyds Banking Group, renewing our debit relationship and significantly expanding our relationship in credit, winning 10 million additional credit credentials across the group's consumer and commercial business. Also in the U.K., NatWest has launched a new Visa Travel Rewards credit card, following the signing of our partnership last year. They will also be utilizing many value-added services, including transaction controls and card benefits. On the European continent, we worked with Raiffeisen Bank International AG, a leading bank in several markets. And recently, in the Czech Republic and Romania, we renewed our commercial business and expanded our consumer debit and credit business totaling over 2 million potential new credentials. In Korea, we deepened our partnership with leading issuer KB Kookmin Card. Already a user of Visa Direct cross-border money movement and a Visa consumer and commercial issuer, they will grow their consumer credit and debit portfolios with Visa and use value-added services, including consulting and marketing services. In Peru, we extended our partnership with leading issuer, Banco de Crédito del Perú, across consumer and commercial portfolios with plans to launch additional new flows offerings and value-added services. In the U.S., we extended our agreement with Wells Fargo. This will allow us to continue to support Wells Fargo's strategy to reinvent their credit business and provide additional growth by leveraging key Visa assets like consulting and Visa sponsorships such as FIFA and the Olympic and Paralympic Games. On the brand front, with the Olympic Games opening ceremony later this week, it is exciting to see the engagement with the Visa brand and activation across the world in marketing campaigns, cardholder experiences and Olympic and Paralympic-branded Visa issuance, which I am happy to report in Europe is at nearly 6 million cards, compared to the 5 million number I quoted just last quarter. We have also added nearly 100,000 new merchant locations in France in advance of the event. Our brand also plays an important role in winning co-brand partnerships. In India, growing credit issuance and reaching affluent and cross-border consumers remain areas of focus. We are excited about the launch of a co-brand card with Adani One and ICICI Bank as India's first co-branded credit card with rich airport-linked benefits for their target base of 400 million customers through the Adani One platform. We also signed an agreement to launch a new co-brand card with Tata Digital, along with an Indian banking partner, building on the success of our existing credit co-brand relationship. This new co-brand offering consists of a multicurrency prepaid foreign exchange card that will target travelers from India, also benefiting from the rewards of the Tata Digital super app, Tata Neu. Across seven countries in Latin America, we will work with Unicomer, a major retailer and financial services provider with numerous brands to deliver a co-brand credit card in addition to using CyberSource. And in CEMEA, we reached a de novo co-brand arrangement with BinDawood, a leading grocer in the Kingdom of Saudi Arabia with 88 outlets and over 5 million loyalty program members. On the travel side, we extended our relationship with Malaysia Airlines from a prepaid co-brand card targeting Millennials and Gen Z customers to also launch a new co-brand credit card for the travel-minded affluent. And in the U.S., Turkish Airlines have chosen Visa to be their exclusive network partner for their new Miles&Smiles co-brand credit card. Our consumer payment strategy is focused on growing credentials as we are doing across all the partnerships I just mentioned and increasing acceptance locations. And wallets are a great example of where this comes together, where Visa can be a funding source, an embedded credential, and an accepted form of payment by wallet merchants. This increases the value proposition for wallet providers and their users. Two wallet highlights this quarter are in Peru and Vietnam. Yape is a Peruvian super app with more than 15 million users who already have a Visa credential that enables them to send money across P2P apps via Visa Direct. And just recently, they launched Tap to Phone functionality for their more than 2 million merchants to accept Visa. And in Vietnam, a country with approximately 50 million wallet users, the three leading digital wallets, MoMo, VNPAY, and ZaloPay are now enabling their users to utilize Visa cards as a funding source for transactions at over 500,000 QR acceptance points managed by these wallets. One additional area that we are very focused on is delivering simple, easy, and secure checkout experiences. Let me share a few recent examples. First, we are integrating Click to Pay and the Visa Payment Passkey Service, enabling a customer to authenticate themselves using biometrics. Already, we have hundreds of issuers enabled for passkeys in Europe and a number of issuers who represent more than 50% of our e-commerce payments volume in Europe piloting the solution. Second, we crossed 10 billion tokens this quarter, a significant milestone. And in 2023 alone, Visa tokens helped generate more than an estimated $40 billion in incremental e-commerce revenue for businesses globally and saved more than $600 million in fraud. Third is the ability to tap for more use cases on a mobile device. With tapping as one of the best in-person commerce experiences, we want to provide Visa users with more ways to tap, including tap to pay, tap to authenticate an identity, tap to add a card, or tap to send money to family or friends. And finally, this quarter, Tap to Pay grew 4 percentage points from last year to 80% of face-to-face transactions globally, excluding the U.S. In the U.S., we surpassed 50% and have 30 U.S. cities above 60% penetration. Now moving on to new flows. This quarter, new flows revenue grew 18% year over year in constant dollars with Visa Direct overall transactions growing 41% for the quarter to 2.6 billion and commercial volumes up 7% year over year in constant dollars. Let me provide some updates, starting with B2B, where we have focused on penetrating new verticals and delivering innovative products and solutions. In healthcare, we will work with AXA and Paysure to launch a commercial virtual card solution to simplify the claims processes for their customers worldwide. We have also expanded our virtual card acceptance with a key business services provider, Cintas, who offers uniform, safety, and fire protection services to over 1 million customers. Together with our partner, Billtrust, we will help Cintas streamline their payments, automate processes, and manage costs on Billtrust's Business Payments Network, or BPN. We also just recently extended our long-standing BPN collaboration with Billtrust that connects suppliers and buyers to facilitate straight-through processing of virtual card payments with rich data that optimizes acceptance costs. Our products and solutions in B2B remain very important in winning and growing our business. One such solution is the enhanced B2B data that we can provide. In Brazil, together with Celero, a leading business financial management solution, we will provide issuers with enhanced visibility into small business spend by aggregating data across cards, bank accounts, boletos and more, enabling them to better manage their client relationships and offer compelling products. Another solution is Spend Clarity, which provides expense program management, including card issuance, controls, and reporting. Wells Fargo has white-labeled our solution called Wells One Expense Manager, which has now onboarded 6,000 corporate clients representing over 1 million users, providing access to their spend data. Now moving on to Visa Direct. We continued to grow our transactions through expanded and new relationships. Over the past year, total Visa Direct cross-border P2P transactions have nearly doubled, with Europe and CEMEA being the largest regions. In CEMEA, we are very excited to have renewed our Visa Direct relationship with fintech Monobank in addition to renewing their consumer and commercial credit, debit, and prepaid portfolios. In Asia Pacific, we are partnering with China ZheShang Bank on cross-border capabilities, including Visa Direct and Currencycloud, allowing the bank to support cross-border payments for their merchant clients. Canadian fintech Nuvei has extended its agreement with us for Visa Direct across all cross-border use cases in more than 30 countries for their merchant clients and recently became the first Visa Direct enabler in Colombia. We also executed our first global agreement with WorldRemit and Sendwave, enabling their customers to eventually send Visa Direct cross-border remittances from 50 countries to recipients in 130 countries. Quicklly, a leading South Asian marketplace, has enabled Visa Direct cross-border remittance solutions for U.S. customers to send money to relatives and friends in India and the rest of South Asia. And in earned wage access, we reached an agreement with Weavr, a U.K.-based Embedded Finance provider. In addition to card issuance, they will be utilizing Visa Direct to enable Weavr's business clients to offer employee expense reimbursement, reward and recognition, and earned wage access. Earned wage access provider, PayActiv, who serves 4,000 businesses has renewed its agreement with us and will enable Visa+ for payouts. Similarly, we expanded our relationship with enabler, Astra. In addition to domestic disbursements, Astra will now offer cross-border remittances, implement Visa+ to reach domestic wallets in the U.S., and expand to additional use cases, including payroll, earned wage access and marketplaces. Visa+ is still in the early stages but is fully rolled out and live for PayPal and Venmo users and more providers continue to join the platform. Wrapping up new flows, we also renewed an agreement with FIS, an important issuer processing partner to enable a suite of value-added services and new flows capabilities for their clients, including Visa Direct. And now, on to value-added services, where revenue was up 23% in the third quarter in constant dollars. Let me highlight some of the progress we have made in driving adoption and growth among our value-added services portfolio. First in issuing solutions. One area of strong revenue growth this quarter was in card benefits, where we enable our clients to offer unique value propositions tailored to their customer base in travel, entertainment, restaurants, insurance and more. Strong issuance in premium cards across most of our regions has fueled this growth in the third quarter. For example, in Latin America, travel benefits have grown with over 370,000 unique visits to our Visa Infinite airport lounge in Brazil, representing customers from a number of leading issuers. In addition, since its launch in 2022, our Visa Infinite Fast Pass in Brazil, which allows cardholders to get through airport security more quickly, has screened over 1 million travelers. These are among the Top 5 card benefits in Brazil and deliver value to customers, issuers and Visa. We continue to add more benefits like the recently launched partnership with OpenTable to offer eligible Visa cardholders access to coveted restaurant reservations and experiences in the U.S., with plans to expand into Canada and Mexico. In Acceptance Solutions, third quarter growth was driven by increasing utilization across both token and e-commerce-related services. In e-commerce, one such example is with iFood, the largest food delivery platform in Brazil who is utilizing our Verifi solution to help prevent disputes before they become chargebacks. In addition, they will be using our authentication solutions. In Risk and Identity Solutions, we continued to see strong adoption by new and existing clients, driven in part by growth in card-not-present transactions. In North America, acquirer Worldpay will be expanding their use of our authentication solutions from CardinalCommerce, fostering collaboration and real-time enhanced data exchange between Worldpay merchants and issuers during card-not-present transactions, reducing fraud and allowing more transactions to be properly authenticated and authorized securely. We are also pleased that the pilot of our account-to-account risk scoring solution Visa Protect with Pay.UK has had great results, showing an average 40% uplift in fraud detection over the three-month pilot period. In addition, we are now launching Visa Protect in Argentina with a core payments technology company, COELSA, after successfully piloting the solution there as well. The last two value-added services are open banking and advisory services. We continue to sign new partners with Tink in Europe and the U.S. And as I mentioned earlier, we continue to see strong growth in client demand for our consulting and marketing services, particularly around marquee events such as the Olympic and Paralympic Games. Our value-added services portfolio solutions is strong and is driving meaningful growth for our clients and for Visa. Before I close, I wanted to speak to the fact that the settlement reached for the injunctive relief class was rejected by the court. We are, of course, disappointed with this decision. We believe that the prior settlement provided meaningful relief to all merchants and we will continue to work toward another settlement. To close, so far this fiscal year, we have seen strong revenue and EPS growth as a result of relatively stable volume and transaction growth. I remain very excited about the opportunity that lies ahead of us. At Visa, we come to work in service of our clients and partners and are focused on building and deploying the best solutions possible across consumer payments, new flows, and value-added services. Thanks, Ryan. Good afternoon, everyone. In Q3, we had another strong quarter with relatively stable growth across payments volume, cross-border volume, and processed transactions when compared to Q2, adjusted for leap year. In constant dollars, global payments volume was up 7% year over year and cross-border volumes, excluding intra-Europe, was up 14% year over year. Processed transactions grew 10% year over year. Fiscal third quarter net revenue was up 10% in both GAAP and constant dollars, in line with our expectations. EPS was up 12% year over year and 13% in constant dollars. Now let's go into the details. In the U.S., payment volumes growth numbers were generally in line with Q2 adjusted for leap year, with total Q3 payments volume growing 5% year over year, with credit and debit also growing 5%. Card-present volume grew 2% and card-not-present volume grew 7%. In the U.S., while growth in the high spend consumer segment remained stable compared to prior quarters, we saw a slight moderation in the lower spend consumer segment. Moving to international markets. Total payments volume was up 10% in constant dollars, relatively stable with Q2 when adjusted for leap year. Payments volume growth rates were strong for the quarter in most major regions, with Latin America, CEMEA, and Europe ex U.K. each growing more than 16% in constant dollars. Asia Pacific payments volume slowed to less than 0.5 point of year-over-year growth in constant dollars for the quarter, driven primarily by the macroeconomic environment, most notably in Mainland China. Now to cross-border volume, which I will speak to today in constant dollars and excluding intra-Europe transactions. Total cross-border volume was up 14% in Q3, relatively stable to Q2 adjusted for leap year. Cross-border card-not-present volume growth, excluding travel and adjusted for cryptocurrency purchases, was in the mid-teens, helped by continued strength in retail. Cross-border travel volume growth was also up in the mid-teens or 157% indexed to 2019. This quarter, we saw the inbound Asia Pacific Index improve 9 points at a similar pace to Q2 to 151% of 2019. The improvement in Asia Pacific outbound travel, however, slowed from Q2 with the index increasing by less than 1 point to 125% of 2019. We continue to see the same primary drivers as last quarter with some additional pressure from macroeconomic conditions. Now let's review our third quarter financial results. I'll start with the revenue components. Service revenue grew 8% year over year versus the 8% growth in Q2 constant dollar payments volume, with revenue yield improving sequentially and versus last year due to improving utilization of card benefit. Data processing revenue grew 9% versus 10% processed transaction growth with the revenue yield generally in line sequentially and versus last year. International transaction revenue was up 9% versus the 14% increase in constant dollar cross-border volume, excluding intra-Europe, impacted by lapping higher currency volatility from last year. Volatility levels remain consistent on average to last quarter. Other revenue grew 31%, primarily driven by strong consulting and marketing services revenue related to the Olympics and, to a lesser extent, pricing. Client incentives grew 11%. Now on to our three growth engines. Consumer payments growth was driven by relatively stable payments volume, cross-border volume and processed transaction growth. New flows revenue grew 18% year over year in constant dollars. Visa Direct transactions grew 41% year over year, helped by growth in Latin America for interoperability among P2P apps. Commercial volumes rose 7% year over year in constant dollars. In Q3, value-added services revenue grew 23% in constant dollars to $2.2 billion, primarily driven by issuing and acceptance solutions and advisory services. Operating expenses grew 14%, primarily due to increases in general and administrative, personnel and marketing expenses, including spend related to the Olympics. FX was 0.5-point drag versus the 1.5-point benefit we expected. Pismo represented an approximately 1-point drag. Nonoperating income was $73 million. Our tax rate was 18.8% and EPS was $2.42, up 12% over last year, inclusive of an approximately 1.5-point drag from exchange rates and an approximately 0.5-point drag from Pismo. In Q3, we bought back approximately $4.8 billion in stock and distributed over $1 billion in dividends to our stockholders. At the end of June, we had $18.9 billion remaining in our buyback authorization. Now let's move to what we've seen so far in July through the 21st with volume growth in constant dollars. Cross-border is excluding intra-Europe. U.S. payments volume was up 4% with debit up 4% and credit up 3% year over year. The slight deceleration from Q3 does not appear to be from any one factor but likely a number of smaller factors such as weather, timing of promotional shopping events, and the technology outage, among others. Cross-border volume grew 13% year over year, below Q3 levels with travel-related volume growing slightly less, which continued to be impacted by Asia Pacific and card-not-present ex travel volume growing at similar levels to Q3. Processed transactions grew 9% year over year. Now on to our expectations. Remember that adjusted basis is defined as non-GAAP results in constant dollars and excludes acquisition impacts. You can review these disclosures in our earnings presentation for more detail. Let's start with the fourth quarter. We expect payments volume and processed transactions to grow at a similar rate to Q3. For total cross-border volume growth, we are expecting to end up slightly below Q3. Currency volatility continues to average around four-year lows through July 21. And as such, we are making an adjustment to currency volatility expectations for Q4, now assuming volatility will stay in line with Q3 levels. Incentives are expected to be at their lowest growth rate all year. Pulling it all together, we expect adjusted net revenue growth in the low double digits, which equates to a slight improvement from the 10% adjusted revenue growth rate in the third quarter. We expect our Q4 adjusted operating expenses to grow in the high single digits. Nonoperating income is expected to be between $40 million and $50 million. The tax rate is expected to be between 19% and 19.5% in Q4, which puts Q4 adjusted EPS growth rate in the high end of low double digits. Moving to the full year. With three quarters now complete, our expectations for full year adjusted net revenue growth remains unchanged from what we shared at the start of the year. Whilst absorbing the impact of lower currency volatility and the macroeconomic challenges in Asia, which have affected volumes, we still expect to reach low double-digit adjusted net revenue growth for the full year. Full year adjusted operating expense growth will be in the high single digit to low double digits, reflecting the less favorable impact of FX. This keeps full year adjusted EPS growth in the low teens. In closing, we delivered strong results this quarter with new flows and value-added services revenue growing faster than consumer payments. We extended our existing relationships, won new clients and invested to develop innovative products and solutions, all positioning us for continued growth into the future. So now, Jennifer, it's time for some Q&A. Jennifer Como -- Senior Vice President, Head of Global Investor Relations Thanks, Chris. And with that, we're ready to take questions. [Operator instructions] Our first question comes from Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller -- Analyst Look, let me just start. The U.S. volume growth rate, obviously, is a bit softer. And if you could help us distill what you consider structural versus cyclical, I think that would be a good place to start. But adding on to it really is just the ability for you to grow double-digit revenue with only 4%, 5%, 6% -- mid-single-digit U.S. volume growth is coming from value-added services, it's coming from cross-border. Can you help us understand if that kind of trend you believe the company has that capability to grow those rates on revenues even in this context of U.S. volume trends? Chris Suh -- Chief Financial Officer Darrin, so let me start with the U.S., let me start with the first part of your question, and then we'll maybe get in to zoom out and talk about maybe the long-term question. So in the U.S. in Q3, we did see stable drivers relative to Q2 once you adjust for leap year. That's 5% payment volumes growth in the third quarter. In the 21 days since, in July, that number did tick down to 4%. Maybe I'll just sort of give you the full arc of what we're seeing. So 4%, to just level set on those numbers, 4% in the 21 days versus 5% in Q3. And so, for that, we did stare at a lot of the drivers, the factors that impacted those three weeks, and there was a lot going on. I referenced a few of them on the call and maybe I'll expand on those a bit. First, we had a major hurricane, Hurricane Beryl. It impacted Texas and other parts of the U.S. nearby. The second, I referenced the timing of promotional e-commerce events. Maybe I can expand on that a little bit. The timing this year was later and in e-commerce customers are billed when the goods are shipped. And so, some of that shipping period fell out of that 21 period, so we had a little bit of difference in the 21-day period to the comparable a year ago. And third, obviously, the major tech outage that happened at the end of last week, that also had some impact. So when we look at that, no single factor drove that 1 point of change from Q3 to the first part of July. But all things considered, we actually feel pretty good about the three-week results. Now the second part of your question really was around sort of the low double digits in the context of cross-border, VAS, and CMS. I'll sort of back into the question. We've had consistent strong performance in VAS, over $2 billion of revenue, over 20% growth for many quarters consecutively. And we're seeing strength across the business in issuing solutions and acceptance and advisory. That's a business that we feel great about the momentum in. With our new flows business, 18% growth, as Ryan talked about, in the quarter. That's the second quarter in a row where we're seeing growth in the teens. Great execution, stable volumes and Visa Direct transactions growing at a high level. As you know, that business also quarter to quarter can vary a little bit in the growth rates that we saw in the first half of the year. But all in all, I feel really good about the continued strength in that business. And then, cross-border, well, cross-border. Maybe I'll just zoom out a little bit and talk about cross-border and what we've seen over the course of time. If you recall pre pandemic, cross-border grew, travel grew sort of in the high single digits to low double digits, and e-commerce, which is about one-third of the business, grew into the teens, sometimes into the mid-teens. Obviously, the pandemic happened. Travel really contracted, e-commerce grew faster and since then. Now post pandemic, what we're seeing now is that e-commerce is roughly 40% of the business. And the growth rate has normalized, it stabilized back to pre-pandemic levels. And so, let's say, teens growth on e-commerce on 40% of the cross-border business. Travel after the post-pandemic run-up has normalized. It's a little hard to tell exactly where that -- where it's going to stabilize at but we've seen high growth. We've seen it continue to normalize. But what we do know structurally is that with e-commerce being a bigger portion of the business, that's a tailwind to the total cross-border growth. And so, we are confident that that will continue to be healthy relative to the domestic spend. I'll pause there and certainly, if there's anything else to add, Ryan or others, please jump in. Next, we'll go to the line of Andrew Jeffrey from William Blair. Please go ahead. Andrew Jeffrey -- Analyst Very impressive value-added services growth this quarter at 23%, and I think as you mentioned, Chris, it's approaching 25% of total revenue, so perhaps driving more than half of your consolidated revenue growth. Can you talk a little bit about at what point we might expect value-added services to sort of bend up the growth curve of Visa consolidated? Ryan McInerney -- Chief Executive Officer It's Ryan, Andrew. Thanks for the question. And yes, we're very excited about not only what we delivered in terms of value-added services growth for the quarter. What we've been delivering consistently for several years now since we shared with you all the strategy and kind of became very purposeful about our go-to-market approach. I mean, you go back to I think it was 2021, we did about $5 billion in revenue; 2022, $6 billion. Last year was $7 billion. Like you said, we did $2.2 billion this quarter, up 23%. So I think what we've shown is that we have delivered consistent growth quarter after quarter and year after year in these businesses. And we're super optimistic about where we go from here. I mean, we think about the opportunities really in three different segments. The first is we have a series of value-added services, some of which Chris outlined in his previous answer that are very focused on enhancing value for Visa transactions. Risk products like Visa Secure, dispute tools like Visa Resolve Online, card benefits, like I mentioned in my prepared remarks. And we've -- that has historically been the largest part of our value-added services business, and we've shown that we can drive great growth in that area. Increasingly, we're building out a set of services that add value for non-Visa transactions. We've done some things in this space before. Some of our platforms like CyberSource, Authorize.net, Verifi. But then, you've heard me talk in the last couple of quarters about expanding our risk capabilities, for example, to not just other card networks but also to RTP and account-to-account services. And I mentioned the great results we've had in both the U.K. and in Argentina on that front. And then, the third area of opportunity for us is expanding our value-added services beyond payments. Historically, we've had things like Visa Consulting and Analytics and our marketing services and some of the open banking services delivered by Tink, but we are continuing to build out a portfolio of value-added services for our clients and partners beyond payments. Things like the cyber protection capabilities that we've been bringing to market. So we've demonstrated consistent growth. We believe we'll be able to continue to demonstrate consistent growth. We've got a product pipeline and a go-to-market approach all over the world with a diverse set of clients, and we feel good about the opportunity. Operator Next, we'll go to the line of Bryan Keane from Deutsche Bank. Please go ahead. Bryan Keane -- Analyst Chris, just want to ask about incentives being the lowest expectation will be for the fourth quarter. Can you just talk a little bit about how much of that is volume-driven versus the amount of renewals you're seeing? And just trying to think about as we head into next fiscal year, just what kind of growth or sustainable growth should we think about for incentives? Chris Suh -- Chief Financial Officer Thanks for the question. I'll even take us back a little bit about the expectations that we had for incentives coming into the fiscal year. As we ended fiscal '23, that was a high year for us in terms of volume of renewals, a little higher than our typical sort of normal cadence. That did impact how we thought about the incentive volumes in FY '24. And even last year, we had sort of a different growth rate in the first half and the second half of the year. And so, as we looked across this year, we had a slightly lower volume of renewals this year. Obviously, year-to-date incentives have played out slightly differently, largely due to client performance, deal timing, things like that. And overall, it's been better than -- it's been lower, I guess, than what we anticipated. When we go into Q4, sort of the same trend applies. We still expect Q4 to benefit from the lapping of the high incentives that we saw in the second half of last year, which informs, again, the growth rate that we anticipate in Q4. We don't have a lot to share about FY 2025 at this point, but we'll share plenty in the nextearnings call Operator Next, we'll go to the line of Ken Suchoski from Autonomous Research. Please go ahead. Ken Suchoski -- Autonomous Research -- Analyst I wanted to ask about VAS and I think the team has talked about how some of the VAS revenue is correlated with transaction growth. But you also have parts of that business that are more recurring or less recurring in nature. So can you just help us understand how you think about the cyclicality of VAS and how that business might perform in a lower volume growth environment? And I also think the team has talked about pricing for value in VAS. So how much more room is left to go there? And how does that help with the resiliency of the business? Ryan McInerney -- Chief Executive Officer Ken, it's Ryan. On the second part of your question, our ability to price for value is a function of the value that we bring to the market, and we feel great about the value that we're bringing to the market. And I think you see it in our results. Across the various different areas of issuing solutions, acceptance solutions, risk and identity solutions, advisory, I mean, we just continue to bring products and services that are ultimately helping our clients grow their business, helping our clients reduce fraud, grow authorizations, those types of things. And we believe we'll continue to do that, and we believe we'll be able to continue to price for value. As I think I was saying earlier, there is -- the biggest portion of our value-added services are a function of Visa transactions. And so, obviously, Visa transactions, as they go up or down, have an impact on that, but so does our ability to sell more services. On previous calls, I've talked about the fact that we still have the majority of our clients that have yet to have the type of penetration and depth that we've been able to achieve with others. So as we continue to penetrate our clients all around the world in the various markets that we deliver, as I was saying earlier, to the earlier question, I'm very optimistic about our ability to continue to grow this business as we have. Operator Next, we'll go to the line of Tien-Tsin Huang from J.P. Morgan. Please go ahead. Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst Just curious if you're -- if you've updated your U.S. outlook here in the second half, are you still expecting transaction sizes to accelerate in the U.S., especially in the fourth quarter? Chris Suh -- Chief Financial Officer Tien-Tsin, thanks for the question. Yes, we had forecasted ATS, as you know, growth to improve throughout the pace of this year from quarter to quarter, and we did see that. We saw ATS improve in the third quarter. Specifically in the U.S., ATS was slightly better in Q3 than in Q2. It got to basically flat year over year in Q3. We saw improvement in a number of categories, sequentially, restaurant, QSR, fuel, telecom, utilities, insurance, to name a few. And we do anticipate in Q4 that we'll continue to see slight improvement sequentially again. The one thing -- the one watch out I'll call out is the fuel prices could impact that trajectory, and so, we'll watch that closely. So yes, it is playing out as we anticipated. The pace is slightly varied from what we anticipated but it is continuing to improve, and I think that's the important thing. Operator Next, we'll go to the line of Gus Gala from Monness, Crespi, and Hardt. Please go ahead. Gus Gala -- Monness, Crespi, Hardt, and Company -- Analyst Can we talk a little bit about the contactless payments penetration? Can you maybe highlight maybe what the gap is in penetration rates across maybe some of your older cardholders versus young cardholders? Just trying to get around to what a terminal level of penetration could look like. Ryan McInerney -- Chief Executive Officer You're asking -- just so I heard, you're asking about Tap to Pay? I mean, yes, maybe just back up first in the big picture of things. The fact that outside of the United States, eight out of 10 of all the Visa face-to-face transactions around the entire planet are Tap to Pay now, I mean, that just tells you right there that it's all segments, all demographics, all use cases, all product types. I mean, we're at 80% overall around the world. We've got, I think, more than 55 countries that are now more than 90% contactless penetration. So increasingly, in most countries for most customers, for most products all around the world, that's just the default way that people are paying. And in the U.S., the curve is maturing exactly how we'd expect it based on what we've seen in 100-plus countries all around the world. As I said in my prepared remarks, now one out of every two transactions in the U.S. are taps. In a place like New York City, where many of you on the call spend time, we're above 75% now. So in New York City, where -- which is one of the early adopters of transit, we are above, I think, 75%-plus of all face-to-face transactions. That's up from just 50% two years ago. So again, at that level of penetration in a market the size of New York City, it's across the board in terms of products and issuers and segments and the like. So I think as we continue to see this growth happen, buyers, sellers, they love tapping as a way to pay. And we're going to continue to see that growth accelerate in a place like the U.S. Operator Next, we'll go to the line of Will Nance from Goldman Sachs. Please go ahead. Will Nance -- Goldman Sachs -- Analyst We've been getting a lot of questions around the litigation updates, and I totally understand the level of uncertainty is a lot higher now. But I guess, the most common investor question that we're getting is around the potential impacts to the overall ecosystem, if we see a much greater reduction in interchange rates from what was proposed. And I guess, specifically how the production and interchange rates could reverberate through renewal negotiations with issuers, and then longer term, how this may impact the trajectory of incentives and net yields. So just wondering if we could hear kind of your perspective about the potential reduction or a larger reduction in the overall size of sort of ecosystem revenue, and if that changes the direction of any of the key indicators that we're focused on over time. Ryan McInerney -- Chief Executive Officer Will, thanks for the question. And you're asking about the MDL litigation. I guess, I'll just back up. The first thing I would say is we strongly disagree with the judge's decision. We believe the settlement was fair. We believe the settlement provided meaningful relief to all merchants. The second thing I would say is the decision failed to take into consideration a number of things, especially the complex multisided ecosystem that we operate in, the role that -- the complicated role that many different players in the ecosystem delivered. But having said that, we are pursuing a revised settlement. It's too early to speculate on what that settlement is. So I just won't do that today. But I would ask everybody to keep in mind a settlement can occur at any point before, during, or even after the trial. So just keep that in mind as the process plays out. Operator Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead. Timothy Chiodo -- UBS -- Analyst I want to hit one that at the same time tackles both incentives and value-added services revenue. So it's the concept of value in-kind incentives. I was hoping you could talk a little bit about whether or not these are becoming more prominent, meaning you're using them a little bit more in discussions with issuers. And then, if you could just briefly recap some of the mechanics around the revenue recognition, the contra revenue, the addition to deferred revenue and then eventually the value-added services revenue. Ryan McInerney -- Chief Executive Officer Yes. I'll just give you the high level on this. The value in-kind is a great way for us, as it says, to deliver value to our clients. And increasingly, our clients, as you see in our performance are preferring to buy our value-added services versus just take incentives that might drop to the bottom line. So that is absolutely something that our clients are asking for more of. It's something that is helping our clients grow their businesses. And I talked earlier about just the last several years about our product pipeline, how we've gone to market, how we built new products to solutions and services for our clients. And that's what's driving the demand. So that's kind of become a more important part of our client renewals and our client renewal discussions. And increasingly value-added services are becoming a way for us to differentiate ourselves with our clients and grow our consumer payments business. Do you want to talk about the organics? Chris Suh -- Chief Financial Officer Tim, to the second part of your question, maybe I'll just give you a high-level summary. I think, you have sort of the pieces you called out. At a high level, when value in-kind is offered in lieu of a cash incentive, it would be recognized as a contra revenue at the time that it's granted or earned, depending on the nature of the contract. And then, on the other side, when the client is able to utilize that value in-kind for services from Visa, commonly in our value-added services business, that's then recognized as revenue and the associated costs are also recognized in our P&L. Operator Next, we'll go to the line of James Faucette from Morgan Stanley. Please go ahead. James Faucette -- Analyst I wanted to just ask a follow-up question on near-term trends. We've seen a little bit of further slowing in credit than in debit over the last couple of months, and in the past has been a little bit of an indication of consumer stress. And I'm just wondering how you're thinking about that. And it seems like you're looking for the rest of the September quarter that there's a little bit of a reacceleration as we get past some of the issues that you identified in July. Just want to make sure that I'm understanding that correctly and kind of how we should interpret a little bit of the divergence in credit and debit growth right now. Ryan McInerney -- Chief Executive Officer Let me just give a little context on it and then Chris, feel free to add or correct. Like Chris said, we're three weeks into the quarter. We had a hurricane. We had a tech outage across the country. We had a number of things happen. So we're not kind of taking three weeks as a trend. We'll see kind of how things progress from here in just terms of kind of what happens for the rest of the quarter. I don't know if you want to talk about the credit-debit divergence. Chris Suh -- Chief Financial Officer Yes. Well, I think I'll refer back to a little bit of a comment that we made, and we're seeing the July results. I also commented on the call that we are seeing a little bit of moderation in what I would call the lower spend band cohorts. And I think that's a little bit correlated to some of the volume numbers that we are seeing in the quarter related to credit versus debit. But all in all, when we look at it relative to, again, Q2 and Q3, we see it to be relatively stable once you factor in sort of the days mix with leap year. Operator Next, we'll go to the line of Bryan Bergin from TD Cowen. Please go ahead. Bryan Bergin -- Analyst Wanted to ask on new flows here. So you had a nice acceleration in growth really over the last two quarters on consistent comps. Can you add more color on the particular areas of strength that have picked up? I know Visa Direct was one of those. I'm just curious if you think you could sustain that level of expansion or may that moderate a bit? Chris Suh -- Chief Financial Officer Thanks for the question. 18% growth, as I mentioned, feel really good about the execution and the momentum in the business. It is an enormous opportunity that we have in front of us across both our commercial business and money movement with Visa Direct. I think, you're familiar with the numbers, 41% growth in the transactions and stable commercial volumes as well. I think, what -- this acceleration that you're referring to, we had a unique situation in Q1 where we had some onetime items that really kind of depressed the growth, reported growth in Q1. And if you look at the last couple of quarters, it's more reflective, I think, of the underlying health in the business. That said, as we saw in Q1, that growth rate can vary from quarter to quarter based on deal timing and terms and onetime items like the one that impacted Q1. And so, overall, I'd say at the macro level, good momentum. The underlying business is healthy, and we are continuing to see that level of growth. And the growth rate should be healthier and should continue to grow faster than consumer payments with some normal expected variability quarter to quarter. Ryan McInerney -- Chief Executive Officer And just to build on Chris' points, I think we're in the very early stages of Visa Direct growth. We spent many, many years investing and building the platform, the infrastructure, the connectivity, domestic cross-border, working with issuers and acquirers and processors. And now, we're able to be out there selling all around the world, finding new use cases, some of which I highlighted in my prepared remarks. You go back to 2019, we did 2 billion Visa Direct transactions. We did 2.6 billion transactions this quarter. So this is just another great example of when we go and we systematically identify the need in the market, we spend the time, we build the infrastructure. We build 8.5 billion endpoints, the connectivity, the reliability, the security, the fraud capabilities, I just think we're in the very early stages of what we're going to see in terms of the growth of this business and the number of use cases and partners, many of which I highlighted in my prepared remarks that are going to want to build their use cases on this platform. Operator Next, we'll go to the line of Sanjay Sakhrani from KBW. Please go ahead. Sanjay Sakhrani -- Analyst I guess, most of my questions have been asked and answered. But just on that last point, Ryan, you were making, I'm just wondering, where are we in the evolution of yield there? Can those go higher as you continue to expand in some of those categories with Visa Direct? And then, just in terms of Reg 2, is the full impact of Reg 2 now in the run rate or should we expect there be any uncertainties related to that? Ryan McInerney -- Chief Executive Officer Yes. I'll take both of them. On the first one, we're still in the early evolution of the use cases. I mean, we weren't even talking about earned wage access a couple of years ago, Sanjay. And so, as we've got -- I think we've got 65 or so use cases now on the platform, our teams are finding new use cases all the time. So I think we're continuing to see the evolution of all of that and the economics of all that will play out. What I would point you back to is what I mentioned in my prepared remarks, the tremendous success we're having in cross-border. We've had great success in selling new use cases and driving cross-border transaction growth in Visa Direct. As you know, the yields are higher in cross-border, given the value that we add. So again, feel good about all of that. Listen, I want to just emphasize in terms of Reg 2, the e-commerce debit market is a very competitive market and is gonna be competitive for as far as we can see. So while Chris noted, I think noted that the impact has remained the same, we haven't seen any change in impact, and we're not expecting any change in impact for the fourth quarter. It is a competitive business. We are out there with clients day in and day out, helping them understand the benefits of processing transactions on Visa. And there are a lot of them, which is why we feel good so far in the evolution of Reg 2 about how we've been able to grow that business. We feel great about the capabilities that a Visa data transaction offers, many of which I've talked about on these calls in the past. So we're out there, we are competing, we're selling, we're delivering our products, and we feel good about our win rate. Operator Next, we'll go to the line of Jason Kupferberg from Bank of America. Please go ahead. Jason Kupferberg -- Analyst So just a clarification on revenue and then a question on volumes for this fiscal year. So it sounds like for Q4, you're looking for revenue growth of, call it, 11% to 12%. I think that would put you at the low end of the low double-digit guide you're maintaining for the year. So that's what I wanted to clarify. And then, just a question on volumes. I think, you said Q4 should be in line with Q3, which I think would bring the full year to around 7% versus the high single-digit updated guide last quarter. So just as we start to tune our models for next year, what are some of the potential accelerants off that 7% level we should be considering? Chris Suh -- Chief Financial Officer Jason, let's unpack that. You had a couple of things in there, and I just want to -- I think this is important so we'll just be super clear. For Q4, my guidance, our guidance for our Q4 adjusted net revenue would be low double digits. And sort of the directional guidance I also gave is it would be slightly above the Q3 level that we reported, which was the 10% growth in the quarter. And so, sort of take that -- take those two points and I would triangulate around that. And that would still get you sort of to the math of the low end of low double digits, as you called it, for the full year. The second point was on drivers from Q3 to Q4. I did say that payment volume, payment transactions, we anticipate Q4 to be consistent with Q3. The one exception to that is in cross-border, where I did say it'd be slightly below the Q3 levels. And that really is based on the travel circumstances and situation in Asia that we've talked about extensively, with outbound travel in Asia, in particular, being impacted and recovering slower than we anticipated at the beginning of the year. And so, those are the two variables in terms of the -- to get the Q4 guidance consistent with the intent that I communicated. And then, as far as FY '25 goes, we're at the beginning end of planning, and as we always do, we'll share our expectations on '25 at the end of Q4. Operator Next, we'll go to the line of Dan Perlin from RBC Capital Markets. Please go ahead. Daniel Perlin -- Analyst I guess, more of a big picture question here, Ryan. So your AI and GenAI investment, you've talked about, I think at conferences, your desire to kind of build out your own large language model. So I'm wondering, one, where do those investments stand today? I guess, two, what would be your expectation for early use cases of those investments and kind of the payback period? And then, three, is there an opportunity to drive like true incremental sales or better outcomes for your merchant constituents as opposed to just the banks? Ryan McInerney -- Chief Executive Officer Yes. Dan, thanks for the question on AI. First of all, to frame it is we are all in on GenAI at Visa as we've been all in on predictive AI for more than a decade. We're applying it in two broad-based different ways. One is sort of adopting across the company to drive productivity and we're seeing real results there. We're seeing great results, great adoption, great productivity increases from technology to accounting to sales all across the company. The second is applying generative AI to enhance the entire payment ecosystem. And to the latter part of your question, absolutely. I guess, I'd give you one set of examples or some of the risk tools and capabilities that we've been deploying in the market. I mentioned the risk products that we're using on RTP and account-to-account payments. That is an opportunity to reduce fraud, both for merchants and for issuers. I think, I mentioned on a previous call, we have our Visa Provisioning Intelligence Service, which is using artificial intelligence to help predict token provisioning fraud before it happens. That also is a benefit to both issuers and merchants. And the list goes on. So we are very optimistic about the positive impact that generative AI can have, not just on our own productivity but on our ability to help drive increased sales and lower fraud across the ecosystem. Operator For our final question, we'll go to the line of Harshita Rawat from Bernstein. Please go ahead. Harshita Rawat -- Analyst Ryan, Chris, U.S. card volume growth of 5% in surface kind of suggests a little bit more of a mature market. Now I understand the category differences between card volume growth and PC growth, which influence the delta here. Ryan, you discussed your global data estimate of $20 trillion in consumer payments for Visa. How should we think about the secular digitization opportunity and the growth algorithm for the U.S., which is your biggest market? Ryan McInerney -- Chief Executive Officer OK. It was a little hard for us to hear you, Harshita, but I think I got the gist of your question around the growth algorithm for consumer payments, especially in mature markets. So as I've said before, we see more than $20 trillion of opportunity around the world. About a quarter of that is in the U.S., by the way. And that's cash, that's check, that's ACH, that's electronic transactions, that's cards that run on domestic networks and the like. And we're capturing that opportunity through a few different ways. One is continuing to expand acceptance and expand the places where people can use cards. In the U.S., rent would be a great example. We've been having some really good success penetrating the rent vertical. The second is making it easier to drive e-commerce growth and e-commerce transactions, which has an outsourced impact on our ability to drive growth on Visa for those types of things. And third is just continuing to innovate with new products and services that make our issuers want to issue Visa and consumers want to use them. We announced a full slate of new product innovations at our Visa Payments Forum this year. And those are the types of products that we believe are going to help us win in the marketplace and help us capture and digitize a big chunk of that opportunity on the Visa network. Jennifer Como -- Senior Vice President, Head of Global Investor Relations And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or email our investor relations team. Thanks again, and have a great day. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Earnings call: Visa posts strong Q3 results, EPS up 12%, eyes AI growth By Investing.com

Visa Inc . (NYSE:V) reported robust financial results for the third quarter of fiscal year 2024, with a net revenue of $8.9 billion, marking a 10% increase year-over-year. The company's earnings per share (EPS) also rose by 12%. Visa's payments volume experienced a 7% growth globally, with U.S. payments volume increasing by 5% and international payments volume by 10%. Strategic partnerships and a focus on technology, such as artificial intelligence (AI), were key factors in driving the company's performance. Despite facing a legal setback with a court rejecting a settlement for the injunctive relief class, Visa remains optimistic about future growth opportunities, particularly in consumer payments, new flows, and value-added services. Visa Inc. (V) continues to demonstrate its robust financial health and commitment to shareholder value, as evidenced by its impressive track record of raising dividends. According to InvestingPro Tips, Visa has raised its dividend for 16 consecutive years, illustrating a strong and consistent return to shareholders. This dedication to dividend growth is particularly noteworthy for investors seeking stable income alongside capital appreciation. In terms of valuation, Visa is trading at a high P/E ratio relative to near-term earnings growth, signaling that the market has high expectations for the company's future performance. With a P/E ratio of 29.61 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 28.05, investors may be pricing in the company's leadership position in the Financial Services industry and its potential for sustained earnings growth. InvestingPro Data metrics further reveal that Visa's revenue growth remains solid, with a 10.19% increase over the last twelve months as of Q2 2024. This aligns with the company's reported 10% increase in net revenue for Q3 FY 2024 in the article, demonstrating its ability to maintain revenue momentum. Additionally, the company's gross profit margin stands at an impressive 97.81%, underscoring its operational efficiency and ability to translate sales into profits effectively. For more detailed analysis and additional InvestingPro Tips, such as Visa's low price volatility and the prediction of profitability this year, investors can explore https://www.investing.com/pro/V. There are currently 9 more tips available that can provide deeper insights into Visa's financial and market performance. To access this valuable information, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. Operator: Welcome to Visa's Fiscal Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin. Jennifer Como: Thank you. Good afternoon, everyone, and welcome to Visa's fiscal third quarter 2024 earnings call. Joining us today are Ryan McInerney, Visa's Chief Executive Officer; and Chris Suh, Visa's Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC's website and the Investor Relations section of our website. Our comments today regarding our financial results will reflect revenue on a GAAP basis and all other results on a non-GAAP nominal basis unless otherwise noted. The related GAAP measures and reconciliation are available in today's earnings release and related materials available on our IR website. And with that, let me turn the call over to Ryan. Ryan McInerney: Good afternoon, everyone. Thank you for joining us. We delivered strong third quarter results with $8.9 billion in net revenue, up 10% year-over-year, and EPS up 12%. Our key business drivers were relatively stable as compared to Q2, adjusted for leap year. In constant dollars, overall payments volume grew 7% year-over-year, U.S. payments volume grew 5%, and international payments volume grew 10%. Cross-border volume excluding intra-Europe, rose 14%, and processed transactions grew 10% year-over-year. We recently received the results from our annual Global Client Engagement Survey where Visa achieved a Global Net Promoter Score, or NPS, of 76, up three points from last year. We saw NPS increases across all of our client types, merchants, issuers, fintechs, and processors and across our regions, the results remain strong, with a notable 6-point NPS improvement in North America. I want to thank all of our 30,000 employees who helped deliver these fantastic results. And as I review some highlights from the quarter, you'll see how this focus on serving our clients by meeting their needs, innovating, and helping them grow is fueling our success across consumer payments, new flows, and value-added services. Let's start with consumer payments, where we see more than $20 trillion of opportunity to capture cash, check, ACH, domestic schemes and other forms of electronic payment. In our client engagement survey, our clients ranked our strategic partnership and our brand as two of the most important factors to our successful relationships. I'll share some examples of how each of these played out this quarter. In strategic partnerships, we are constantly seeking ways to add more value and grow together with our clients. We are pleased to have been named the Preferred Network (LON:NETW) Partner by Lloyds Banking Group (LON:LLOY), renewing our debit relationship and significantly expanding our relationship in credit, winning 10 million additional credit credentials across the Group's consumer and commercial business. Also in the U.K., NatWest (LON:NWG) has launched a new Visa Travel Reward credit card, following the signing of our partnership last year. They will also be utilizing many value-added services, including transaction controls and card benefits. On the European continent, we worked with Raiffeisen Bank International AG, a leading bank in several markets. And recently, in the Czech Republic and Romania, we renewed our commercial business and expanded our consumer debit and credit business totaling over two million potential new credentials. In Korea, we deepened our partnership with leading issuer KB Kookmin Card. Already a user of Visa Direct cross-border money movement and a Visa consumer and commercial issuer, they will grow their consumer credit and debit portfolios with Visa and use value-added services, including consulting and marketing services. In Peru, we extended our partnership with leading issuer, Banco de Credito de Peru, across consumer and commercial portfolios with plans to launch additional new flows offerings and value-added services. In the U.S., we extended our agreement with Wells Fargo (NYSE:WFC). This will allow us to continue to support Wells Fargo's strategy to reinvent their credit business and provide additional growth by leveraging key Visa assets like consulting and Visa sponsorships such as FIFA and the Olympic and Paralympic Games. On the brand front, with the Olympic Games opening ceremony later this week, it is exciting to see the engagement with the Visa brand and activation across the world in marketing campaigns, cardholder experiences and Olympic and Paralympic-branded Visa issuance, which I am happy to report in Europe is at nearly six million cards compared to the five million number I quoted just last quarter. We have also added nearly 100,000 new merchant locations in France in advance of the event. Our brand also plays an important role in winning co-brand partnerships. In India, growing credit issuance and reaching affluent and cross-border consumers remain areas of focus. We are excited about the launch of a co-brand card with Adani One and ICICI Bank as India's first co-branded credit card with rich airport-linked benefits for their target base of 400 million customers through the Adani One platform. We also signed an agreement to launch a new co-brand card with Tata Digital, along with an Indian banking partner, building on the success of our existing credit co-brand relationship. This new co-brand offering consists of a multicurrency prepaid foreign exchange card that will target travelers from India, also benefiting from the rewards of the Tata Digital Super App, Tata Neu. Across seven countries in Latin America, we will work with Unicomer, a major retailer and financial services provider with numerous brands to deliver a co-brand credit card in addition to using CyberSource. And in CEMEA, we reached a de novo co-brand arrangement with BinDawood, a leading grocer in the Kingdom of Saudi Arabia with 88 outlets and over five million loyalty program members. On the travel side, we extended our relationship with Malaysia Airlines from a prepaid co-brand card targeting millennials and Gen Z customers to also launch a new co-brand credit card for the travel-minded affluent. And in the U.S., Turkish Airlines have chosen Visa to be their exclusive network partner for their new Miles and Smiles co-brand credit card. Our consumer payment strategy is focused on growing credentials as we are doing across all the partnerships I just mentioned and increasing acceptance locations. And wallets are a great example of where this comes together, where Visa can be a funding source, an embedded credential, and an accepted form of payment by wallet merchants. This increases the value proposition for wallet providers and their users. Two wallet highlights this quarter are in Peru and Vietnam. Yape is a Peruvian super app with more than 15 million users who already have a Visa credential that enables them to send money across P2P apps via Visa Direct. And just recently, they launched Tap to Phone functionality for their more than two million merchants to accept Visa. And in Vietnam, a country with approximately 50 million wallet users, the three leading digital wallets, MoMo, VNPAY, and ZaloPay are now enabling their users to utilize Visa cards as a funding source for transactions at over 500,000 QR acceptance points managed by these wallets. One additional area that we are very focused on is delivering simple, easy, and secure checkout experiences. Let me share a few recent examples. First, we are integrating Click to Pay and the Visa Payment Passkey Service, enabling a customer to authenticate themselves using biometrics. Already, we have hundreds of issuers enabled for passkeys in Europe and a number of issuers who represent more than 50% of our e-commerce payments volume in Europe piloting the solution. Second, we crossed 10 billion tokens this quarter, a significant milestone. And in 2023 alone, Visa tokens helped generate more than an estimated $40 billion in incremental e-commerce revenue for businesses globally and saved more than $600 million in fraud. Third is the ability to tap for more use cases on a mobile device. With tapping as one of the best in-person commerce experiences, we want to provide Visa users with more ways to tap, including Tap to Pay, tap to authenticate an identity, tap to add a card, or tap to send money to family or friends. And finally, this quarter, Tap to Pay grew four percentage points from last year to 80% of face-to-face transactions globally, excluding the U.S. In the U.S., we surpassed 50% and have 30 U.S. cities above 60% penetration. Now moving on to new flows. This quarter, new flows revenue grew 18% year-over-year in constant dollars with Visa Direct overall transactions growing 41% for the quarter to 2.6 billion and commercial volumes up 7% year-over-year in constant dollars. Let me provide some updates, starting with B2B, where we have focused on penetrating new verticals and delivering innovative products and solutions. In healthcare, we will work with AXA and Paysure to launch a commercial virtual card solution to simplify the claims processes for their customers worldwide. We have also expanded our virtual card acceptance with a key business services provider, Cintas (NASDAQ:CTAS), who offers uniform, safety, and fire protection services to over one million customers. Together with our partner, Billtrust, we will help Cintas streamline their payments, automate processes, and manage costs on Billtrust's Business Payments Network or BPN. We also just recently extended our long-standing BPN collaboration with Billtrust that connects suppliers and buyers to facilitate straight-through processing of virtual card payments with rich data that optimizes acceptance costs. Our products and solutions in B2B remain very important in winning and growing our business. One such solution is the enhanced B2B data that we can provide. In Brazil, together with Solero, a leading business financial management solution, we will provide issuers with enhanced visibility into small business spend by aggregating data across cards, bank accounts, boletos and more, enabling them to better manage their client relationships and offer compelling products. Another solution is Spend Clarity, which provides expense program management, including card issuance, controls, and reporting. Wells Fargo has white-labeled our solution called Wells One Expense Manager, which has now onboarded 6,000 corporate clients representing over one million users, providing access to their spend data. Now moving on to Visa Direct. We continued to grow our transactions through expanded and new relationships. Over the past year, total Visa Direct cross-border P2P transactions have nearly doubled, with Europe and CEMEA being the largest regions. In CEMEA, we are very excited to have renewed our Visa Direct relationship with fintech Monobank in addition to renewing their consumer and commercial credit, debit, and prepaid portfolios. In Asia Pacific, we are partnering with China Zhongsheng Bank on cross-border capabilities, including Visa Direct and Currencycloud, allowing the bank to support cross-border payments for their merchant clients. Canadian fintech Nuvei has extended its agreement with us for Visa Direct across all cross-border use cases in more than 30 countries for their merchant clients and recently became the first Visa Direct enabler in Colombia. We also executed our first global agreement with WorldRemit and Sendwave, enabling their customers to eventually send Visa Direct cross-border remittances from 50 countries to recipients in 130 countries. Quickly, a leading South Asian marketplace, has enabled Visa Direct cross-border remittance solutions for U.S. customers to send money to relatives and friends in India and the rest of South Asia. And in earned wage access, we reached an agreement with Weaver, a U.K.-based embedded finance provider. In addition to card issuance, they will be utilizing Visa Direct to enable Weaver's business clients to offer employee expense reimbursement, reward and recognition, and earned wage access. Earned wage access provider PayActiv, who serves 4,000 businesses has renewed its agreement with us and will enable Visa+ for payouts. Similarly, we expanded our relationship with enabler, Astra. In addition to domestic disbursements, Astra will now offer cross-border remittances, implement Visa+ to reach domestic wallets in the U.S., and expand to additional use cases, including payroll, earned wage access and marketplaces. Visa+ is still in the early stages but is fully rolled out and live for PayPal (NASDAQ:PYPL) and Venmo users and more providers continue to join the platform. Wrapping up new flows, we also renewed an agreement with FIS, an important issuer processing partner to enable a suite of value-added services and new flows capabilities for their clients, including Visa Direct. And now on to value-added services, where revenue was up 23% in the third quarter in constant dollars. Let me highlight some of the progress we have made in driving adoption and growth among our value-added services portfolio. First in issuing solutions. One area of strong revenue growth this quarter was in card benefits, where we enable our clients to offer unique value propositions tailored to their customer base in travel, entertainment, restaurants, insurance and more. Strong issuance in premium cards across most of our regions has fueled this growth in the third quarter. For example, in Latin America, travel benefits have grown with over 370,000 unique visits to our Visa Infinite Airport Lounge in Brazil, representing customers from a number of leading issuers. In addition, since its launch in 2022, our Visa Infinite Fast Pass in Brazil, which allows cardholders to get through airport security more quickly, has screened over one million travelers. These are among the top five card benefits in Brazil and deliver value to customers, issuers and Visa. We continue to add more benefits like the recently launched partnership with OpenTable to offer eligible Visa cardholders access to coveted restaurant reservations and experiences in the U.S., with plans to expand into Canada and Mexico. In Acceptance Solutions, third quarter growth was driven by increasing utilization across both token and e-commerce-related services. In e-commerce, one such example is with iFood, the largest food delivery platform in Brazil who is utilizing our Verifi solution to help prevent disputes before they become chargebacks. In addition, they will be using our authentication solutions. In Risk & Identity Solutions, we continued to see strong adoption by new and existing clients, driven in part by growth in card-not-present transactions. In North America, acquirer Worldpay will be expanding their use of our authentication solutions from CardinalCommerce, fostering collaboration and real-time enhanced data exchange between Worldpay merchants and issuers during card-not-present transactions, reducing fraud and allowing more transactions to be properly authenticated and authorized securely. We are also pleased that the pilot of our account-to-account risk scoring solution Visa Protect with Pay.UK has had great results, showing an average 40% uplift in fraud detection over the 3-month pilot period. In addition, we are now launching Visa Protect in Argentina with a core payments technology company, Celsa after successfully piloting the solution there as well. The last two value-added services are open banking and advisory services. We continue to sign new partners with Tink in Europe and the U.S. And as I mentioned earlier, we continue to see strong growth in client demand for our consulting and marketing services, particularly around marquee events such as the Olympic and Paralympic Games. Our value-added services portfolio solutions is strong and is driving meaningful growth for our clients and for Visa. Before I close, I wanted to speak to the fact that the settlement reached for the injunctive relief class was rejected by the court. We are, of course, disappointed with this decision. We believe that the prior settlement provided meaningful relief to all merchants and we will continue to work towards another settlement. To close, so far this fiscal year, we have seen strong revenue and EPS growth as a result of relatively stable volume and transaction growth. I remain very excited about the opportunity that lies ahead of us. At Visa, we come to work in service of our clients and partners and are focused on building and deploying the best solutions possible across consumer payments, new flows, and value-added services. Now over to Chris. Chris Suh: Thanks, Ryan. Good afternoon, everyone. In Q3, we had another strong quarter with relatively stable growth across payments volume, cross-border volume, and processed transactions when compared to Q2, adjusted for leap year. In constant dollars, global payments volume was up 7% year-over-year and cross-border volumes, excluding intra-Europe, was up 14% year-over-year. Processed transactions grew 10% year-over-year. Fiscal third quarter net revenue was up 10% in both GAAP and constant dollars, in line with our expectations. EPS was up 12% year-over-year and 13% in constant dollars. Now let's go into the details. In the U.S., payment volumes growth numbers were generally in line with Q2 adjusted for leap year, with total Q3 payments volume growing 5% year-over-year, with credit and debit also growing 5%. Card-present volume grew 2% and card-not-present volume grew 7%. In the U.S., while growth in the high spend consumer segment remained stable compared to prior quarters, we saw a slight moderation in the lower spend consumer segment. Moving to international markets. Total payments volume was up 10% in constant dollars, relatively stable with Q2 when adjusted for leap year. Payments volume growth rates were strong for the quarter in most major regions, with Latin America, CEMEA, and Europe ex U.K. each growing more than 16% in constant dollars. Asia Pacific payments volume slowed to less than 0.5 point of year-over-year growth in constant dollars for the quarter, driven primarily by the macroeconomic environment, most notably in Mainland China. Now to cross-border volume, which I will speak to today in constant dollars and excluding intra-Europe transactions. Total cross-border volume was up 14% in Q3, relatively stable to Q2 adjusted for leap year. Cross-border card-not-present volume growth, excluding travel and adjusted for cryptocurrency purchases, was in the mid-teens, helped by continued strength in retail. Cross-border travel volume growth was also up in the mid-teens or 157% indexed to 2019. This quarter, we saw the inbound Asia Pacific Index improve nine points at a similar pace to Q2 to 151% of 2019. The improvement in Asia Pacific outbound travel, however, slowed from Q2 with the index increasing by less than one point to 125% of 2019. We continue to see the same primary drivers as last quarter with some additional pressure from macroeconomic conditions. Now let's review our third quarter financial results. I'll start with the revenue components. Service revenue grew 8% year-over-year versus the 8% growth in Q2 constant dollar payments volume, with revenue yield improving sequentially and versus last year due to improving utilization of card benefit. Data processing revenue grew 9% versus 10% processed transaction growth with the revenue yield generally in line sequentially and versus last year. International transaction revenue was up 9% versus the 14% increase in constant dollar cross-border volume, excluding intra-Europe, impacted by lapping higher currency volatility from last year. Volatility levels remain consistent on average to last quarter. Other revenue grew 31%, primarily driven by strong consulting and marketing services revenue related to the Olympics and, to a lesser extent, pricing. Client incentives grew 11%. Now on to our three growth engines. Consumer payments growth was driven by relatively stable payments volume, cross-border volume and processed transaction growth. New flows revenue grew 18% year-over-year in constant dollars. Visa Direct transactions grew 41% year-over-year, helped by growth in Latin America for interoperability among P2P apps. Commercial volumes rose 7% year-over-year in constant dollars. In Q3, value-added services revenue grew 23% in constant dollars to $2.2 billion, primarily driven by Issuing and Acceptance Solutions and Advisory Services. Operating expenses grew 14%, primarily due to increases in general and administrative personnel and marketing expenses, including spend related to the Olympics. FX was 0.5 point drag versus the 1.5 point benefit we expected. Pismo represented an approximately one point drag. Nonoperating income was $73 million. Our tax rate was 18.8% and EPS was $2.42, up 12% over last year, inclusive of an approximately 1.5 point drag from exchange rates and an approximately 0.5 point drag from Pismo. In Q3, we bought back approximately $4.8 billion in stock and distributed over $1 billion in dividends to our stockholders. At the end of June, we had $18.9 billion remaining in our buyback authorization. Now let's move to what we've seen so far in July through the 21st with volume growth in constant dollars. Cross-border is excluding intra-Europe. U.S. payments volume was up 4% with debit up 4% and credit up 3% year-over-year. The slight deceleration from Q3 does not appear to be from any one factor but likely a number of smaller factors such as weather, timing of promotional shopping events, and the technology outage, among others. Cross-border volume grew 13% year-over-year, below Q3 levels with travel-related volume growing slightly less, which continued to be impacted by Asia Pacific and card-not-present ex travel volume growing at similar levels to Q3. Processed transactions grew 9% year-over-year. Now on to our expectations. Remember that adjusted basis is defined as non-GAAP results in constant dollars and excludes acquisition impacts. You can review these disclosures in our earnings presentation for more detail. Let's start with the fourth quarter. We expect payments volume and processed transactions to grow at a similar rate to Q3. For total cross-border volume growth, we are expecting to end up slightly below Q3. Currency volatility continues to average around 4-year lows through July 21. And as such, we are making an adjustment to currency volatility expectations for Q4, now assuming volatility will stay in line with Q3 levels. Incentives are expected to be at their lowest growth rate all year. Pulling it all together, we expect adjusted net revenue growth in the low double digits, which equates to a slight improvement from the 10% adjusted revenue growth rate in the third quarter. We expect our Q4 adjusted operating expenses to grow in the high single digits. Nonoperating income is expected to be between $40 million and $50 million. The tax rate is expected to be between 19% and 19.5% in Q4, which puts Q4 adjusted EPS growth rate in the high end of low double digits. Moving to the full year. With three quarters now complete, our expectations for full year adjusted net revenue growth remains unchanged from what we shared at the start of the year. Whilst absorbing the impact of lower currency volatility and the macroeconomic challenges in Asia, which have affected volumes, we still expect to reach low double-digit adjusted net revenue growth for the full year. Full year adjusted operating expense growth will be in the high single digit to low double digits, reflecting the less favorable impact of FX. This keeps full year adjusted EPS growth in the low teens. In closing, we delivered strong results this quarter, with new flows and value added services revenue growing faster than consumer payments. We extended our existing relationships, one new clients and invested to develop innovative products and solutions, all positioning us for continued growth into the future. But now Jennifer, it's time for some Q&A. Jennifer Como: Thanks Chris. And with that, we're ready to take questions. Operator: [Operator Instructions] Our first question comes from Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller: Hi, thanks guys. Look, let me just start. The U.S. volume growth rate obviously is a bit softer. And if you could help us distill what you consider structural versus cyclical, I think that'd be a good place to start. But adding on to it really is, just the ability for you to grow double-digit revenue with only four, five, six, mid-single-digit U.S. volume growth is, coming from value added services. It's coming from cross border. Can you help us understand if that kind of trend, you believe the company has that capability to grow those rates on revenues, even in this context of U.S. volume trends? Thanks guys. Chris Suh: Yes. Hi Darrin. So let me start with the U.S. Let me start with the first part of your question, and then we'll maybe get into zoom out and talk about maybe the longer question. So in the U.S. in Q3, we did see stable drivers relative to Q2, once you adjust for leap year. That's 5% payment volumes growth in the third quarter. In the 21 days since in July, that number did tick down to 4%. Maybe I'll just sort of give you the full arc of what we're seeing. So 4%, we'll just level set on those numbers, 4% in the 21 days versus 5% in Q3. And so for that, we did stare at a lot of the drivers, the factors that impacted those three weeks. And there was a lot going on and I referenced a few of them on the call and maybe I'll expand on those a bit. First, we had a major hurricane, Hurricane Beryl, and it impacted Texas and other parts of the U.S. nearby. The second, I referenced the timing of promotional e-commerce events. Maybe I can expand on that a little bit. The timing this year was later and then e-commerce customers are billed, when the goods are shipped. And so, some of that shipping periods fell out of that 21 period. So we had a little bit of difference in the 21 day period, to the comparable year ago. And third, obviously the major tech outage that happened at the end of last week, that also had some impact. So, when we look at that, no single factor drove that one point of change from Q3, to the first part of July. But all things considered, we actually feel pretty good about the three week results. Now the second part of your question really was around sort of the low double-digits in the context of cross-border, VAS and CMS. I'll sort of back into the question. We've had consistent strong performance in VAS, over $2 billion of revenue, over 20% growth for many quarters consecutively. And we're seeing strength across the business in issuing solutions and acceptance and advisory. That's a business that we feel great about the momentum in. With our new flows business, 18% growth, as Ryan talked about, in the quarter, that's the second quarter in a row, where we're seeing growth in the teens, great execution, stable volumes, and visa direct transactions growing at a high level. As you know, that business also, quarter-to-quarter, can vary a little bit in the growth rates, as we saw in the first half of the year. But all in all, feel really good about the continued strength in that business. And then cross-border, well, cross-border, maybe I'll just zoom out a little bit and talk about cross-border and what we've seen over the course of time. If you recall, pre-pandemic, cross-border grew, travel grew in the high single-digits to low double-digits. And e-commerce, which was about a third of the business, grew into the teens, sometimes into the mid-teens. Obviously, the pandemic happened, travel really contracted, e-commerce grew faster. And since then, now post-pandemic, what we're seeing now is that e-commerce is roughly 40% of the business. And the growth rate has normalized. It's stabilized back to pre-pandemic levels. And so let's say, teens growth on e-commerce on 40% of the cross-border business. Travel after the post-pandemic run-up has normalized. It's a little hard to tell exactly where it's going to stabilize at, but we've seen high growth. We've seen it continue to normalize. But what we do know structurally, is that with e-commerce being a bigger portion of the business, that's a tail into the total cross-border growth. And so, we are confident that that will continue to be healthy relative to the domestic spend. I'll pause there and certainly if there's anything else to add, Ryan, or others, please jump in. Operator: Next, we'll go to the line of Andrew Jeffrey from William Blair. Please go ahead. Andrew Jeffrey: Hi. Good afternoon. Appreciate you taking the question. Very impressive value-added services growth this quarter at 23%. And I think as you mentioned, Chris, it's approaching 25% of total revenue, so perhaps driving more than half your consolidated revenue growth. Can you talk a little bit about at what point we might expect value-added services to sort of bend up the growth curve of Visa consolidated? Ryan McInerney: It's Ryan, Andrew. Thanks for the question. And yes, we're very excited about not only what we delivered, in terms of value-added services growth for the quarter. What we've been delivering consistently for several years now, since we shared with you all the strategy, and kind of became very purposeful about our go-to-market approach. I mean, you go back to I think it was 2021, we did about $5 billion in revenue, 2022, $6 billion. Last year was $7 billion. Like you said, we did $2.2 billion this quarter, up 23%. So I think what we've shown, is that we have delivered consistent growth quarter-after-quarter, and year-after-year in these businesses. And we're super optimistic about where we go from here. I mean, we think about the opportunities really in three different segments. The first is, we have a series of value-added services, some of which Chris outlined in his previous answer that, are very focused on enhancing value for Visa transactions. Risk products like Visa Secure, dispute tools like Visa Resolve Online, card benefits, like I mentioned in my prepared remarks. And we've - that has historically been the largest part of our value-added services business. And we've shown that we can drive great growth in that area. Increasingly, we're building out a set of services that add value for non-Visa transactions. We've done some things in this space before. Some of our platforms like CyberSource, Authorize.Net, Verifi. But then you've heard me talk in the last couple of quarters about expanding our risk capabilities. For example, to not just other card networks, but also to RFCP and account-to-account services. And I mentioned the great results we've had in both the U.K. and in Argentina on that front. And then the third area of opportunity for us, is expanding our value-added services beyond payments. Historically, we've had things like Visa Consulting and Analytics and our marketing services And some of the open banking services delivered by Tink, but we're continuing to build out a portfolio of value-added services, for our clients and partners beyond payments things like the cyber protection capabilities that we've been bringing to market. So, we've demonstrated consistent growth. We believe we'll be able to continue to demonstrate consistent growth. We've got a product pipeline, and a go-to-market approach all over the world with a diverse set of clients, and we feel good about the opportunity. Bryan Keane: Hi guys, good afternoon. Chris, just want to ask about incentives, being the lowest expectation will be for the fourth quarter. Can you just talk a little bit about how much of that is volume-driven, versus the amount of renewals you're seeing? And just trying to think about, as we head into next fiscal year, just what kind of growth or sustainable growth should we think about for incentives? Thanks. Chris Suh: Thanks for the question. I'll even take us back a little bit about the expectations that, we had for incentives coming into the fiscal year. As we ended fiscal '23, that was a high year for us in terms of volume of renewals, a little higher than our typical sort of normal cadence. That did impact how we thought about the incentive volumes in FY '24. And even last year, we had sort of a different growth rate in the first half and the second half of the year. And so as we looked across this year, we had a slightly lower volume of renewals this year. Obviously, year-to-date incentives have played out slightly differently, largely due to client performance, deal timing, things like that. And overall, it's been better than, as it's been lower, I guess, than what we anticipated. When we go into Q4, sort of the same trend applies. We still expect Q4 to benefit from the lapping of the high incentives that, we saw in the second half of last year, which informs, again, the growth rate that we anticipate in Q4. We don't have a lot to share about FY 2025 at this point, but we'll share plenty in the next earnings call. Jennifer Como: Next question, please. Operator: Next, we'll go to the line of Ken Suchoski from Autonomous Research. Please go ahead. Ken Suchoski: Hi, good afternoon. Thanks for taking the question. I wanted to ask about VAS and I think the team has talked about, how some of the VAS revenue is correlated with transaction growth. But you also have parts of that business that are more recurring, or less recurring in nature. So can you just help us understand how, you think about the cyclicality of VAS, and how that business might perform in a lower volume growth environment? And I also think the team has talked about pricing, for value in VAS. So how much more room is left to go there? And how does that help with the resiliency of the business? Thank you. Ryan McInerney: Yes Ken, it's Ryan. On the second part of your question, our ability to price for value is a function of the value that we bring to the market, and we feel great about the value that we're bringing to the market. And I think you see it in our results. Across the various different areas of issuing solutions, Acceptance Solutions, Risk & Identity Solutions, Advisory. I mean, we just continue to bring products and services that are ultimately, helping our clients grow their business, helping our clients reduce fraud, grow authorizations, those types of things. And we believe we'll continue to do that, and we believe we'll be able to continue to price for value. As I think I was saying earlier, there is - the biggest portion of our value-added services, are a function of Visa transactions. And so obviously, Visa transactions, as they go up or down, have an impact on that, but so does our ability to sell more services. On previous calls, I've talked about the fact that we still have the majority of our clients that have yet to have the type of penetration and depth that, we've been able to achieve with others. So, as we continue to penetrate our clients, all around the world in the various markets that we deliver, as I was saying earlier, to the earlier question, I'm very optimistic about our ability to continue to grow this business as we have. Tien-Tsin Huang: Hi, thanks, good afternoon. Just curious if you're - if you've updated your U.S. outlook here in the second half, are you still expecting transaction sizes to accelerate in the U.S., especially in the fourth quarter? Chris Suh: Hi, Tien-Tsin. Thanks for the question. Yes, we had forecasted ATS, as you know, growth to improve throughout the pace of this year from quarter-to-quarter, and we did see that. We saw ATS improve in the third quarter. Specifically in the U.S., ATS was slightly better in Q3 than in Q2. It got to basically flat year-over-year in Q3. We saw improvement in a number of categories, sequentially, restaurant, QSR fuel, telecom, utilities, insurance, to name a few. And we do anticipate in Q4 that we'll continue to see, slight improvement sequentially again. The one thing - the one watch out I'll call out is the fuel prices could impact that trajectory and so, we'll watch that closely. So yes, it is playing out as we anticipated. The pace is slightly varied from what we anticipated, but it is continuing to improve. And I think that's the important thing. Jennifer Como: Next question, please. Operator: Next, we'll go to the line of Gus Gala from Monness, Crespi, Hardt. Please go ahead. Gus Gala: Hi, guys. Thank you. Can we talk a little bit about the contactless payments penetration? Can you maybe highlight maybe what the gap is in penetration rates, across maybe some of your older cardholders or young cardholders? Just trying to get around to what a terminal level of penetration could look like? Thanks. Ryan McInerney: I mean, yes, maybe just back up first in the big picture of things. The fact that outside of the United States, eight out of 10 of all the Visa face-to-face transactions around the entire planet are Tap to Pay now, I mean, that just tells you right there that it's all segments, all demographics, all use cases, all product types. I mean, we're at 80% overall around the world. We've got, I think, more than 55 countries that are now more than 90% contactless penetration. So increasingly, in most countries for most customers, for most products all around the world, that's just the default way that people are paying. And in the U.S., the curve is maturing exactly how we'd expect it based on what we've seen in 100-plus countries all around the world. As I said in my prepared remarks, now one out of every two transactions in the U.S. are taps. In a place like New York City, where many of you on the call spend time, we're above 75% now. So in New York City, where - which is one of the early adopters of transit, we're above, I think, 75%-plus of all face-to-face transactions. That's up from just 50% two years ago. So again, at that level of penetration in a market the size of New York City, it's across the board in terms of products and issuers, and segments and the like. So, I think as we continue to see this growth happen, buyers, sellers, they love tapping as a way to pay. And we're going to continue to see that growth accelerate in a place like the U.S. Will Nance: Hi, guys. Thanks for taking the question. We've been getting a lot of questions around the litigation updates, and I totally understand the level of uncertainty is a lot higher now. But I guess the most common investor question that we're getting is, around the potential impacts to the overall ecosystem, if we see a much greater reduction in interchange rates from what was proposed. And I guess specifically how the production and interchange rates, could reverberate through renewal negotiations with issuers, and then longer term, how this may impact the trajectory of incentives and net yields. So just wondering if we could hear kind of your perspective, about the potential reduction, or a larger reduction in the overall size of sort of ecosystem revenue, and if that changes the direction of any of the key indicators that we're focused on over time? Thanks. Ryan McInerney: Hi, Will. Thanks for the question. And you're asking about the MDL litigation. I guess I'll just back up. The first thing I would say is we strongly disagree with the judge's decision. We believe the settlement was fair. We believe the settlement provided meaningful relief to all merchants. The second thing, I would say is the decision failed to take into consideration a number of things, especially the complex multisided ecosystem that we operate in. The role that - the complicated role that many different players in the ecosystem delivered. So, but having said that, we're pursuing a revised settlement. It's too early to speculate on what that settlement is. So I just - I won't do that today. But I would ask everybody to keep in mind, a settlement can occur at any point before, during, or even after the trial. So just keep that in mind as the process plays out. Jennifer Como: Next question, please. Operator: Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead. Timothy Chiodo: Hi. Thanks for taking the question. I want to hit on that at the same time tackles, both incentives and value-added services revenue. So it's the concept of value in-kind incentives. I was hoping you could talk a little bit about whether or not, these are becoming more prominent, meaning you're using them a little bit more in discussions with issuers. And then, if you could just briefly recap some of the mechanics around the revenue recognition, the contra revenue, the addition to deferred revenue. And then eventually, the value-added services revenue? Thanks a lot. Ryan McInerney: Yes. I'll just give you the high level on this. The value in-kind is a great way for us to, as it says, to deliver value to our clients. And increasingly, our clients, as you see in our performance are preferring to buy our value-added services, versus just take incentives that might drop to the bottom line. So that is absolutely something that, our clients are asking for more of. It's something that is helping our clients grow their businesses. And I talked earlier about just the last several years about our product pipeline, how we've gone to market, how we built new products to solutions and services for our clients. And that's what's driving the demand. So that's kind of become a more important part of our client renewals and our client renewal discussions. And increasingly value-added services are becoming a way for us to differentiate ourselves with our clients, and grow our consumer payments business. Do you want to talk about the organics? Chris Suh: Tim, to the second part of your question, maybe I'll just give you a high-level summary. I think you have sort of the pieces you called out. At a high level, when value in-kind is offered in lieu of a cash incentive, it can - it would be recognized as a contra revenue at the time that it's granted or earned, depending on the nature of the contract. And then on the other side, when the client is able to utilize that value in-kind for services from Visa, commonly in our value-added services business, that's then recognized as revenue and the associated costs are also recognized in our P&L. James Faucette: Great. Thank you very much. I wanted to just ask a follow-up question on near-term trends. We've seen a little bit of further slowing in credit than in debit over the last couple of months, and in the past has been a little bit of an indication of consumer stress. And I'm just wondering how you're thinking about that. And it seems like you're looking for the rest of the September quarter that, there's a little bit of a re-acceleration, as we get past some of the issues that you identified in July. Just want to make sure that I'm understanding that correctly, and kind of how we should interpret a little bit of the divergence in credit and debit growth right now? Thanks. Ryan McInerney: Let me just give a little context on it and then Chris, feel free to add or correct. Like Chris said, we're three weeks into the quarter. We had a hurricane. We had a tech outage across the country. We had a number of things happen. So, we're not kind of taking three weeks as a trend. We'll see kind of how things progress from here, in just terms kind of what happens for the rest of the quarter. I don't know if you want to talk about the credit-debit divergence. Chris Suh: Yes. Well, I think I'll refer back to a little bit of a comment that we made, and we're seeing the July results. I also commented on the call that we are seeing a little bit of moderation in what I would call the lower spend band cohorts. And I think that's a little bit correlated, to some of the volume numbers that we're seeing in the quarter, related to credit versus debit. But all in all, when we look at it relative to, again, Q2 and Q3, we see it to be relatively stable once you factor in sort of the days mix with the leap year. Jennifer Como: Next question, please. Operator: Next, we'll go to the line of Bryan Bergin from TD Cowen. Please go ahead. Bryan Bergin: Hi, good afternoon. Thank you. Wanted to ask on new flows here. So you had a nice acceleration in growth really over the last two quarters on consistent comps. Can you add more color on the particular areas of strength that have picked up? I know Visa Direct was one of those. I'm just curious if you think you could sustain that level of expansion, or may that moderate a bit? Chris Suh: Yes. Thanks for the question. 18% growth, as I mentioned, feel really good about the execution and the momentum in the business. It is an enormous opportunity that we have in front of us, across both our commercial business and money movement with Visa Direct. I think you're familiar with the numbers, 41% growth in the transactions and stable commercial volumes as well. I think what - this acceleration that you're referring to, we had a unique situation in Q1 where we had some onetime items that really kind of depressed the growth, reported growth in Q1. And if you look at the last couple of quarters, it's more reflective, I think, of the underlying health in the business. That said, as we saw in Q1, that growth rate can vary from quarter-to-quarter, based on deal timing and terms and one-time items like the one that impacted Q1. And so overall, I'd say at the macro level, good momentum. The underlying business is healthy, and we're continuing to see that level of growth. And the growth rate should be healthier, and should continue to grow faster than consumer payments, with some normal expected variability quarter-to-quarter. Ryan McInerney: And just to build on Chris' points, I think we're in the very early stages of Visa Direct growth. We spent many, many years investing and building the platform, the infrastructure, the connectivity, domestic cross-border, working with issuers and acquirers and processors. And now we're able to be out there selling all around the world, finding new use cases, some of which I highlighted in my prepared remarks. You go back to 2019, we did 2 billion Visa Direct transactions. We did 2.6 billion transactions this quarter. So this is just another great example of, when we go and we systematically identify the need in the market, we spend the time, we build the infrastructure. We build 8.5 billion end points, the connectivity, the reliability, the security, the fraud capabilities. I just think we're in the very early stages of what we're going to see, in terms of the growth of this business and the number of use cases and partners, many of which I highlighted in my prepared remarks that, are going to want to build their use cases on this platform. Jennifer Como: Next question, please. Operator: Next, we'll go to the line of Sanjay Sakhrani from KBW. Please go ahead. Sanjay Sakhrani: Thank you. I guess most of my questions have been asked and answered. But just on that last point, Ryan, you were making, I'm just wondering, where are we in the evolution of yield there? Can those go higher as you continue to expand in some of those categories with Visa Direct? And then just in terms of Reg II, is the full impact of Reg II now in the run rate, or should we expect there be any uncertainties related to that? Thank you. Ryan McInerney: Yes. I'll take both of them. On the first one, we're still in the early evolution of the use cases. I mean, we weren't even talking about earned wage access a couple of years ago, Sanjay. And so as we've got - I think we've got 65 or so use cases now on the platform, our teams are finding new use cases all the time. So I think we're continuing to see the evolution of all of that and the economics of all that will play out. What I would point you back to, is what I mentioned in my prepared remarks, the tremendous success we're having in cross-border. We've had great success in selling new use cases, and driving cross-border transaction growth in Visa Direct. As you know, the yields are higher in cross-border, given the value that we add. So again, feel good about all of that. Listen, I want to just emphasize in terms of Reg II, the e-commerce debit market is a very competitive market, and is going to be competitive for as far as we can see. So while Chris noted, I think noted that the impact has remained the same, we haven't seen any change in impact, and I don't - and we're not expecting any change in impact for the fourth quarter. It is a competitive business. We are out there with clients day in and day out, helping them understand the benefits of processing transactions on Visa. And there are a lot of them, which is why we feel good so far in the evolution of Reg II, about how we've been able to grow that business. We feel great about the capabilities that a Visa data transaction offers, many of which I've talked about on these calls in the past. So we're out there, we're competing, we're selling, we're delivering our products, and we feel good about our win rate. Jason Kupferberg: Thanks guys. So just a clarification on revenue, and then a question on volumes for this fiscal year. So it sounds like for Q4, you're looking for revenue growth of, call it, 11% to 12%. I think that would put you at the low end of the low double-digit guide, you're maintaining for the year. So that's what I wanted to clarify. And then just a question on volumes. I think you said Q4 should be in line with Q3, which I think would bring the full year to around 7%, versus the high single-digit updated guide last quarter. So just as we start to tune our models for next year, what are some of the potential accelerants off that 7% level we should be considering? Chris Suh: Hi, Jason, let's unpack that. You had a couple of things in there, and I just want to - I think this is important, so we'll just be super clear. For Q4, my guidance, our guidance for our Q4 adjusted net revenue would be low double-digits. And sort of the directional guidance I also gave is it would be slightly above the Q3 level that we reported, which was the 10% growth in the quarter. And so sort of take that - take those two points and I would triangulate around that. And that would still get you sort of to the math of the low end of low double-digits, as you called it, for the full year. The second point was on drivers from Q3 to Q4. I did say that payment volume, payment transactions, we anticipate Q4 to be consistent with Q3. The one exception to that is in cross-border, where I did say it'd be slightly below the Q3 levels. And that really is based on the travel circumstances and situation in Asia that we've talked about extensively, with outbound travel in Asia, in particular, being impacted and recovering slower than we anticipated at the beginning of the year. And so, those are the two variables in terms of the - to get the Q4 guidance consistent with the intent - that I communicated. And then as far as FY '25 goes, we're at the beginning end of planning, and as we always do, we'll share our expectations on '25 at the end of Q4. Jennifer Como: Next question, please. Operator: Next, we'll go to the line of Dan Perlin from RBC Capital Markets. Please go ahead. Dan Perlin: Thanks. I guess more of a big picture question here, Ryan. So your AI and gen AI investment, you've talked about, I think at conferences, your desire to kind of build out your own large language model. So I'm wondering, one, where do those investments stand today? I guess, two, what would be your expectation for early use cases of those investments, and kind of the payback period? And then three, is there an opportunity to drive, like true incremental sales, or better outcomes for your merchant constituents as opposed to just the banks? Thanks. Ryan McInerney: Yes. Hi, Dan, thanks for the question on AI. First of all, to frame it is, we are all in on gen AI at Visa as we've been all in on predictive AI, for more than a decade. We're applying it in two broad-based different ways. One is, sort of adopting across the company to drive productivity, and we're seeing real results there. We're seeing great results, great adoption, great productivity increases from technology, to accounting to sales all across the company. The second is applying generative AI to enhance the entire payment ecosystem. And to the latter part of your question, absolutely. I guess I'd give you one set of examples or some of the risk tools and capabilities that we've been deploying in the market. I mentioned the risk products that we're using on RTP and account-to-account payments. That is an opportunity to reduce fraud, both for merchants and for issuers. I think I mentioned on a previous call, we have our Visa Provisioning Intelligence Service, which is using artificial intelligence to help predict token provisioning fraud before it happens. That also is a benefit to both issuers and merchants. And the list goes on. So, we are very optimistic about the positive impact that generative AI can have, not just on our own productivity, but on our ability to help drive increased sales and lower fraud across the ecosystem. Jennifer Como: We'll do one more question, please. Operator: For our final question, we'll go to the line of Harshita Rawat from Bernstein. Please go ahead. Harshita Rawat: Good afternoon. Ryan, Chris U.S. card volume growth of 5% in surface kind of suggests a little bit more of a mature market. Now I understand the category differences between card volume growth and DC growth, which influence the delta here. Ryan, you discussed your global down estimate of $20 trillion in consumer payments for Visa. How should we think about, the secular digitization opportunity and the growth algorithm for the U.S., which is your biggest market? Thank you. Ryan McInerney: Okay. It was a little hard for us to hear you, Harshita, but I think I got the gist of your question around the growth algorithm for consumer payments, especially in mature markets. So as I've said before, we see more than $20 trillion of opportunity around the world. About a quarter of that is in the U.S., by the way. And that's cash, that's check, that's ACH, that's electronic transactions, that's cards that run on domestic networks and the like. And we're capturing that opportunity through a few different ways. One is continuing to expand acceptance and expand the places, where people can use cards. In the U.S., rent would be a great example. We've been having some really good success, penetrating the rent vertical. The second is making it easier to drive e-commerce growth and e-commerce transactions, which has an outsourced impact on our ability to drive growth on Visa, for those types of things. And third is just continuing to innovate with new products and services that, make our issuers want to issue Visa and consumers want to use them. We announced a full slate of new product innovations at our Visa Payments Forum this year. And those are the types of products that, we believe are going to help us win in the marketplace, and help us capture and digitize a big chunk of that opportunity on the Visa network. Jennifer Como: And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day. Operator: Thank you, all, for participating in the Visa fiscal third quarter 2024 earnings conference call. That concludes today's conference. You may disconnect at this time, and please enjoy the rest of your day.

Fiserv (FI) Q2 2024 Earnings Call Transcript

Frank Bisignano - Chairman, President, Chief Executive Officer Bob Hau - Chief Financial Officer Julie Chariell - Senior Vice President, Investor Relations Welcome to the Fiserv second quarter 2024 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 Julie Chariell, Senior Vice President of Investor Relations at Fiserv. Julie Chariell 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 on this call, along with a reconciliation of those measure 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 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. Thank you Julie, and thank you all for joining us today to discuss second quarter results that bring us closer to another year of double-digit organic revenue and adjusted earnings per share growth. Fiserv delivered strong results across our businesses with second quarter adjusted earnings per share of $2.13, up 18% driven by continued healthy revenue growth and further operating margin expansion. Adjusted revenue growth was 7% and adjusted operating margin rose 160 basis points to 38.4%. Organic revenue growth was 18%. We can point to many highlights in our business during the quarter, including Clover revenue of 28%, accelerated organic revenue growth in financial solutions to 8%, multiple wins with marquee clients including Verizon and Apple, plus new clients in important verticals such as petro, gaming, government and healthcare. Our free cash flow was $1 billion in the quarter and $4 billion over the last 12 months, and we returned $1.5 billion to shareholders via share repurchases. This month, we are celebrating the 40 anniversary of Fiserv, along with the fifth anniversary of the merger between Fiserv and First Data. Our vision back in 2019 was that if we brought together scaled platforms supporting a full breadth of solutions, merchant acquiring, debit and credit issuer services, digital payments of all kinds and core bank account systems modernized with cloud technologies, then clients would find value in the combination and the integration and Fiserv would become a partner of choice with unparalleled global reach. Today, we can see that's exactly what has happened. As we realized revenue and cost synergies over this time, we increased our investment in technology innovation. Our purpose has been to deliver solutions to clients of all kinds, established and new, large and small, local and global, spanning all verticals. With the proper amount of disrupting ourselves then and now, Fiserv is better able to run, optimize and grow our business, and now we find ourselves at this moment, singular in our ability to deliver a breadth of leading products across a diverse base of clients and demonstrating accelerated growth for the past three years. After five years of innovation, in some ways what's old is new again. Let me share three examples of how our clients are engaging in some of our traditional businesses as new ways to add and retain their own customers. First in merchant acquiring, banks are adding this service as a way to grow with small and medium sized business customers and choosing Fiserv for its leading solutions, including Clover. We already have nearly 900 financial institutions who offer merchant processing services to their small business clients, and thousands more who can still benefit from doing so. As an example, in Q2 we signed a merchant agreement with Connecticut Online Computer Center, known as COCC, which is a client-owned provider of banking technology. The 150 community banks and credit unions on the COCC platform now have access to our acquiring services in support of their own hundreds of thousands of merchants. Second in digital payments, CashFlow Central takes the best of consumer bill pay and turns it from a cost center within banks to a revenue generator that appeals to small business with bill payment and presentment capability. In the second quarter, we signed two more CashFlow Central deals with multi-billion dollar banks for a total of six in the few months since we introduced this solution. CashFlow Central will go live this quarter and the pipeline remains full. We are finding that as they go down this path, financial institutions are revitalizing the consumer bill pay offerings as well, answering the competition from the direct biller model. First Citizens, a top 20 U.S. bank with more than $200 billion in assets was one such consumer bill pay win in Q2. As a reminder, Fiserv is the largest provider of bank consumer bill pay services with over 20 million users on our check-free platform. Both merchant acquiring solutions and CashFlow Central are compelling because they provide revenue generating opportunities for our financial institution clients. They also demonstrate a distinct value proposition for small businesses which includes other products across our issuing and banking businesses. Next, we are integrating these solutions with Experience Digital, or XD, our new online and mobile banking solution; and third, traditional enterprise merchants are turning to software that surround their payments functionality to enhance revenue and improve data integration. As we've seen from small businesses, the large and midmarket merchants who have been migrating to our omnichannel platform are increasingly integrating our value-added solutions. These include SnapPay, our ERP-integrated B2B bill presentment platform; gift solutions, where we support multiple leading retail and QSR enterprise clients; and data analytics, which I'll discuss a bit later. We continue to invest in new solutions such as our new dedicated platform for paybacks, which is gaining momentum. In the second quarter, for instance, we were selected by Cantaloupe, a major provider of unattended payment devices such as vending machines, for our Exchange payback platform, and we continue to integrate solutions across our two segments. One example is our new partnership with Apple that will enable new Apple Pay functionality with two of our next-generation solutions. One is pay with points, where the loyalty points residing on the card accounts of our issuer clients can be redeemed for a transaction in the Apple Pay wallet at checkout, serving as currency. We are a natural partner given the breadth of our card accounts on file and our technical capability to maintain account point balances, convert and accept those points as payments, and then reconcile the balances. A second solution is installment loans on credit cards. This is a new feature that presents the consumer with the choice to pay for a purchase in a set of installments when using Apple Pay at checkout. This is differentiating in that consumers have only been provided with the option to pay for a purchase in installments after making a purchase on a credit card. With Apple, we will move this installment loan feature into the checkout flow, giving the consumer choice at the point of purchase. Having this functionality at the point of sale from a digital wallet can drive greater card conversion, card usage, and spending power. It also enables our issuing partners to more directly compete with Buy Now, Pay Later using their existing credit card products. Fiserv is unique in its reach across all parties involved here: the consumer, the digital wallet provider, the issuer and the merchant, so we see multiple opportunities ahead as we enable this network effect to be a win-win across the ecosystem. Let's turn to our outlook for the business. Based on strong performance in the quarter and conviction in our unique opportunity set, we are raising our adjusted earnings per share outlook to $8.65 to $8.80, an increase of $0.05 across the range. Our revenue outlook is unchanged at 15% to 17% organic growth. This performance for 2024 would represent the 39 consecutive year of double-digit adjusted EPS growth. Turning to our segment highlights, in merchant solutions starting with small business, we posted 4% volume growth, slightly ahead of the sales volume growth for the Fiserv Small Business Index, which rose 3.2% in Q2 as the pace of growth slowed from April to June. There are multiple reasons why our growth can differ from this U.S.-only index, including our global presence and different weightings across verticals. For Clover, we have a very active second half of the year for new product rollouts. We plan to launch additional restaurant software features that target our sweet spot in casual dining to enhance table management, kitchen operations, inventory and cost management. In the fourth quarter, we'll be rolling out new software offerings in our two other target verticals, services and retail. We are very pleased with initial sales of our restaurant order kiosks and now we look forward to two new hardware opportunities. First is the Clover Compact, which we rolled out this month, giving us a broader market opportunity with smaller merchants, and next an important solution for our restaurant clients, order and pay at the table via a new handheld Clover Flex Pocket, coming in August. We are on pace with our international expansion. Pilots are set to go live in Brazil and Mexico in August, and then in September in Australia ahead of the 2025 launch. In the enterprise merchant business, a key driver is the ongoing adoption of Commerce Hub, the orchestration layer that allows for easy integration with our growing portfolio of value-added solutions. We now have 230 clients live on Commerce Hub and signed several more in Q2, including two large petro retailers to extend our leading position in this vertical. Our financial solutions segment posted strong organic revenue growth at 8% in the quarter, above the high end of our 2024 guidance range. We delivered faster organic growth in our banking business while our core banking and credit union clients continued to drive strong growth in our digital payments business. We are adding new clients as well. In the second quarter, we had another example of winning the core account processing business in an M&A transaction. In this latest case, Sunflower Bank chose Fiserv after announcing their intent to acquire HomeStreet Bank to create a $17 billion bank by assets in January. In issuing, we manage the credit and loan accounts for some of the world's leading issuers and provide technology to issuers and lenders in healthcare, government and education. In June, we were very pleased to have won a strategic outsourcing agreement with Verizon to support their device financing activity and manage device payment agreements on Fiserv's Optis platform. Verizon chose Fiserv for the flexibility, optionality and resiliency of our platform on the foundation of a trusted longstanding relationship that spans multiple solutions. This is another example of extending our issuer and loan processing capability into adjacent verticals. In fact, we won another point of sale financing deal with an industrial equipment manufacturer to offer short term loans through its dealer network across the globe using our First Vision platform. With that, I'll turn it over to Bob to discuss more on outperformance and financials. Bob Hau Thank you Frank, and good morning everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on Slide 4. Our performance in the second quarter showcased our ability to sustain strong revenue growth and margin expansion. Second quarter total company adjusted revenue grew 7% to $4.8 billion, and adjusted operating income grew 12% to $1.8 billion, resulting in an adjusted operating margin of 38.4%, an increase of 160 basis points versus the prior year. For the first half of the year, adjusted revenue grew 7% to $9.3 billion, and adjusted operating income grew 13% to $3.5 billion, resulting in an adjusted operating margin of 37.2%, an increase of 180 basis points versus the prior year. Organic revenue grew 18% in the quarter with strength in both segments. The transitory contribution from Argentina was five points to our total organic growth in the quarter, down from seven points in Q1. In the first six months of the year, organic revenue grew 19%. Second quarter adjusted earnings per share was $2.13 compared to $1.81 in the prior year, up 18% and above previous full year guidance of 4% to 16%. Year to date, our adjusted earnings per share increased 18% to $4 compare to $3.38 in the prior year. Free cash flow for the quarter was $1 billion and $1.5 billion for the first half of the year. We expect free cash flow to be much higher in the second half of this year due to the timing of cash flows for the green tax credit program. Turning to performance by segment, starting on Slide 5, organic revenue growth in the merchant solutions segment was 28% in the quarter and 32% year to date. For the quarter, this includes a 10-point benefit from above average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 18%. On Slide 6, we've again included a summary of the impact of excess Argentine inflation and interest on total Fiserv and merchant segment revenue, along with the offsetting headwind from currency devaluation which impacts adjusted revenue. Adjusted revenue growth for merchant solutions was 9% in the quarter and 11% year to date. The quarterly results include a 19 percentage point currency headwind largely from the Argentine peso after a sharp devaluation in late December last year. Similar to Q1, the currency headwind to adjusted revenue growth was much higher than the inflation and interest tailwind in Q2. Moving to the business lines, small business organic and adjusted revenue growth in the quarter was 35% and 13% respectively. Clover revenue grew 28% in the second quarter on an annualized payment volume growth of 17%. The spread between revenue and volume growth continues to reflect a higher penetration of value-added solutions, continued channel mix shift, and value-based pricing. VAS penetration stayed constant sequentially at 20% in Q2, an improvement from prior years where we typically see a seasonal decline from Q1 to Q2. VAS penetration was driven by growth in Clover Capital and the Clover SaaS package and should expand with several new offerings coming in the second half. Overall, we remain on pace to meet our 2026 targets. Enterprise organic and adjusted revenue growth in the quarter was 27% and 9% respectively, driven by transactions growth of 8% and higher VAS penetration. As with small business, organic growth at enterprise includes some transitory benefit from excess inflation and interest in Argentina. We're pleased with the pace of client uptake and growth in Commerce Hub. Daily transactions in Commerce Hub are up 3.5 times from Q1 levels and clients are increasingly connecting to enhanced solutions. Three of the most popular are pay by bank, which allows consumers to pay via ACH payment from their bank account at the point of sale; online EVT, which lets merchants grow by offering payment via government benefit programs; and digital payouts, which merchants increasingly use to pay employees and vendors. Finally, processing organic and adjusted revenue in the quarter declined by 7% and 8% respectively. This business represents the bank end processing we do for our partners, where they own the merchant relationship. A few large processing clients experienced declines in their volumes and revenue in Q2. Year to date, processing organic and adjusted revenue are both up 1%, similar to our guidance for flat adjusted revenue over the medium term. Turning to some merchant highlights outside the U.S., first in EMEA, the general tone of business is improving as inflation is easing and consumer confidence begins to rise across the region. We had a good quarter for new wins and renewals with follow-on business, and we are finding that our professional services capability in the region is a competitive differentiator that reinforces our right to win. We expanded our strategic partnership with BNP Paribas, one of the leading banks in Europe, allowing it to extend its current merchant acquiring footprint into Germany. Also in Germany, H&M Group, the second-largest clothing retailer in the world, selected us as their strategic partner for point of sale, building on our existing relationship in Mexico and highlighting the value we bring to multi-national retail clients. We are also working with Lloyd's Banking Group, one of the leading banks in the U.K. and a key partner for Fiserv, on a major business transformation program for Cardnet, our merchant acquiring joint venture. Together, we will deliver tailored solutions including Clover, dynamic currency conversion and merchant cash advance to add new and grow existing merchant relationships. We've also been selected by Deutsche Bahn, the national railway company of Germany and one of the largest railway companies in the world, to provide terminals, network services and value-added solutions. We extended our relationship with Absa, one of Africa's largest diversified financial services groups. We will be implementing our full AQaaS solution, or acquiring as a service, which will allow Absa to process ecommerce transactions in nine African countries. AQaaS integrates multiple value-added solutions including payment gateway, merchant onboarding, merchant portal, omnipay back office, open FX, and real time fraud monitoring. Finally, we've extended our merchant acquiring relationship with Żabka Polska, the largest convenience store chain in central and eastern Europe, based in Poland, with over 11,000 stores. We've grown to provide more than 20 products to this innovative client, most recently adding merchant cash advance, a growing value-added solution for us in the region. Moving to Latin America, in Brazil the extension of our Caixa relationship to their bill pay locations has begun to ramp with sequential volume growth of over 20% in Q2. In addition, we went live with our pilot for our Pix platform to act as a payment service provider to over 30 merchants. This capability came through the acquisition of Sled in November of 2023 and will open up new growth opportunities from instant payment activity in Brazil. Overall, we continue to grow our instant payment transactions in Brazil and Argentina. In Brazil, we reached more than 400 million transactions in Q2, up 21% from Q1 levels, and we doubled our number of transactions in Argentina. In Asia Pacific, we went live with our pilot merchant acquiring services in New Zealand, a new market for Fiserv. We plan to target omnichannel merchants primarily in the hospitality and retail segments, as well as ecommerce-only merchants, aggregation partners and payfacs. Adjusted operating income in the merchant solutions segment increased 18% to $882 million in the quarter, with adjusted operating margin up 290 basis points to 36.6%. Year to date, adjusted operating income increased 23% to $1.7 billion with adjusted operating margin up 360 basis points to 35.4%. As noted last quarter, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in operating income, merchant adjusted operating margins would have expanded 220 basis points for the quarter and 300 year to date. Turning to Slide 7 on the financial solutions segment, organic revenue grew 8% in the quarter and 6% year to date, in line with our full year outlook of 5% to 7%. Looking at the business lines, digital payments organic and adjusted revenue each grew by 8% in the quarter. Growth in Zelle transactions continued to be strong at 43%, and we signed one of our largest bank clients yet on Zelle, First Horizon Bank with $82 billion in assets, and the pipeline includes other large prospects. We continued to see strong demand from clients for FedNow and RTP integration. In Q2, we signed 32 FIs to FedNow, bringing our total signed to nearly 300. In issuing, organic and adjusted revenue grew 9% and 4% respectively in the quarter, driven by account growth internationally and new loan accounts in North America. Another growth vertical that we've been highlighting is government, where we continue to win and convert large programs, including the California Employment Development Department, which has enrolled over 1 million of our money network prepaid cards, funding nearly $5 billion. In Q2, we won an electronic funds transfer mandate with a major U.S. agency which should help extend our double-digit growth in the federal market. We also won several state and local deals on the merchant side of the business, including Texas, Arizona, North Carolina, and the City of San Francisco. Meanwhile, we are continuing to make strides with prior large wins, implementing the first phase of a target program with output services, though we expect the vast majority of revenue will start in Q1 2025, when the Circle card accounts begin to go live. Issuing has a meaningful and growing presence outside the U.S., and we have been investing to roll out the next generation of First Vision, our international operating platform. In Q2, we won our first client on the new First Vision platform in Brazil. Banking organic and adjusted revenue grew 6% and 4% respectively in the quarter. Excluding periodic revenue, organic revenue grew 4% in the quarter. We had two Finxact wins this quarter, including Metropolitan Commercial Bank, a $7 billion bank and an existing Fiserv core client that has decided to build a migration path to Finxact. The pipeline remains robust, including embedded finance opportunities, and we completed the integration of Finxact with Commerce Hub. This allows our enterprise merchants to embed a robust suite of financial services for their customers across shopping and checkout experiences. Second quarter adjusted operating income for the financial solutions segment was up 6% to $1.1 billion, and adjusted operating margin was consistent with a very strong second quarter last year at 45.9%. Year to date, adjusted operating income for the segment was up 6% to $2.1 billion, with adjusted operating margin up 80 basis points to 45%. Now let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $134 million in the quarter and $282 million year to date, in line with our expectations. The adjusted effective tax rate in the quarter was 19.9% and 18.1% for the first half, and we continue to expect the full year rate to be approximately 20%. Total debt outstanding was $25.5 billion on June 30. Our debt to adjusted EBITDA ratio was steady at 2.8 times, within our target leverage range. During the quarter, we repurchased 10 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to just over $5 billion, and nearly $15 billion since the 2015 merger. We had 32 million shares remaining authorized for repurchase at the end of the quarter. Turning to Slide 9, as Frank said earlier, we are raising our full year adjusted earnings per share outlook to a range of $8.65 to $8.80, up from $8.60 to $8.75, and an acceleration in forecasted adjusted EPS growth to 15% to 17%, from 14% to 16%. We are maintaining our 2024 organic revenue growth outlook of 15% to 17%, and raising our estimate for adjusted operating margin expansion to more than 135 basis points compared to at least 125 basis points. Previously, our organic growth guidance assumed seven points of contribution from excess inflation and interest in Argentina, but during Q2 we saw a faster than expected decline in both measures. This more rapid return to historic average is good news for our Argentine business and overall stability in the region; however, the extra revenue contribution will now be less this year. Based on the latest economist consensus, we now assume four points of benefit from excess inflation and interest this year, down from seven points. Nevertheless, we are reiterating our previous organic growth guidance for the year despite exogenous shifts affecting our business. This capability has become a hallmark of Fiserv today. It is a testament to the adaptability of our business model that comes from a broad product portfolio, diverse client base, resourceful management team, and global reach. This quarter, we offset the lower inflation and interest benefit in Argentina with additional anticipation revenue, another quarter of dólar turista revenue, and other growth across the company. Our full year outlook of 15% to 17% total company organic growth less the four-point transitory benefit from inflation and interest in Argentina puts our normalized growth at 11% to 13% for 2024. This is in line with our medium term guidance of 9% to 12%, which assumes macro factors from Argentina continue to normalize. The forecasted impact from foreign currency exchange remains 8.5%, and we anticipate will continue to be a stronger though declining headwind to adjusted revenue growth relative to the tailwind from excess inflation and interest. Wrapping up with free cash flow, first I'd like to note a change to our cash flow reporting. We moved the Clover Capital and LATAM anticipation activity to the investing section of the cash flow statement, beginning in the second quarter. We re-evaluated the presentation in our cash flow statement given a significant increase in the merchant cash advance activity. This change is consistent with how our peers account for these activities and the additional disclosure will provide greater transparency to our investors. This move affected our free cash flow since those amounts are no longer included in cash flows from operating activities, so we are adjusting our full year free cash flow outlook accordingly by increasing our guidance to $4.7 billion from $4.5 billion, since we expected $200 million of outflows for merchants' cash advances when we originally set our 2024 outlook. With that, let me turn the call back to Frank for some closing remarks. Frank Bisignano Thanks Bob. There is another value creation opportunity within post-merger Fiserv, and that's data. The proposition for us in extracting intelligence from the massive amounts of data that we generate daily is significant and can be an important growth driver beyond the medium term. Three years ago, long before AI was the hot topic it is today, we assembled a team of internal and external experts in the fields of data science and AI. We gave them a mandate to harness all of the data naturally captured through Fiserv transactions and account processing activity to drive actionable intelligence for us, the marketplace, and our merchant and financial institution clients. There are three advantages that Fiserv has in its data. Ours is available in real time, it's granular to the transaction level, and it's multi-faceted in that it spans merchant, issuing and banking activity. This makes our data quite powerful to apply in anti-fraud solutions which we are doing internally, with plans for a client-facing solution this fall. Our first great application to the market is the Fiserv Small Business Index, a real time assessment of consumer spending at millions of small businesses published monthly. It maximizes the features of Fiserv data with its timely release two days after month end, a detailed look at trends by industry and geography, and the inclusion of non-card spending data such as cash and checks. We're also working to support clients in their AI journeys as they invest to process and understand their own data. Clients are recognizing that we can efficiently add Fiserv data and intelligence to help take decision making to the next level. It's a major value-added solution that we're already testing with several of our largest clients and on the Clover platform. We are still in the early stages of delivering our data and intelligence solutions, but the opportunity is significant given the power of our integrated platforms and our unmatched scale, breadth and investment. Finally, I'd like to thank our more than 40,000 employees for their steadfast commitment to our vision and hard work on the day to day execution. It's clearly led to our leadership in product and innovation and the strong results you're seeing us report today. Together, we strive to achieve excellence every day on behalf of our clients, partners and shareholders. Thank you for your time today, and now Operator, please open the line for questions. Thank you. We would now like to open the phone lines for questions. [Operator instructions] For our first question, we'll go to the line of David Togut from Evercore ISI. Please go ahead. David Togut Thank you, good morning Frank and Bob. Appreciate the update on new product launches for Clover, and also the vertical market expansion into services and retail. Could you update us on the international expansion in Brazil and Mexico? Frank, you called out some initiatives in Brazil, but in terms of the broader new market launch post friends and family, what are your expectations for the back half of this year and into 2025? Frank Bisignano Yes, I think first of all, when you look at what we're doing on global penetration, we have--you know we talked about Mexico, Australia and Brazil. You should expect Brazil and Mexico in August as a pilot. I would see it as a full ramp in 2025, I'd treat August like a friends and family. But remember, our business in Brazil, the things we've done with Caixa, the things we've done growing the business, you know, probably eight, nine years ago from a start-up into a tremendous competitor, so we have growth projections for that market that we would expect it to perform as our business has in Brazil. Mexico - you know, we've built a business there, we continue to grow that business. We feel our Mexico and Brazil build is very similar, that's why you see them coming out together. Once again, a friends and family in August [indiscernible], and obviously we'll watch that build through the fourth quarter and then full effect in '25. We feel really great about our position on Australia and what we're going to do in Australia. You'll see us in September, and that as a friends and family. We have expectations of larger partner wins there also that are very, very highly motivated to have Clover in market in '25, so. I don't think you'll get a ton of growth out of it this year. We'll update you later in the year on our expectations in '25, but those builds are in full force. We have partners who want it bad, and we see the market demand for all that. Thanks for that question. You know, David, we got on the call and talked about a celebration that we're really having right now, which is the 40 anniversary of Fiserv and the fifth anniversary of the merger. But I think what I realized when I got up this morning is we're actually celebrating your retirement from Evercore, and if my information's right, because you know we love to count everything here, you've covered Fiserv for 29 years and that's spanned four CEOs, and I'm fortunate to stand on the shoulders of those who became before me, so I cherish our time together. Then I think I'm right in 32 years on First Data - I can't really account for all the CEOs that came before me specifically post KKR, but thank you for everything you've done for the industry. Thank you for the work, and I think it's a celebration of your career and your retirement from Evercore. Thanks for being here with us today. David Togut Thank you so much, Frank. That really means a lot to me. I really enjoyed working with you, Bob and Julie, and in the tradition of your predecessors, you continue to create tremendous shareholder value, so I'll continue to watch your progress with great interest. Next, we'll go to the line of Tien-Tsin Huang with JP Morgan. Please go ahead. Tien-Tsin Huang I was going to say, I can't remember any First Data or Fiserv call without David Togut on it, so I echo that. My question for you guys, just on the margin outlook that was raised, can you give us a little bit more specifics on the sources of the upside there? Then just a clarification on the merchant processing side, was that related to some bank losses? I heard a comment that there were some declines on the bank side, so I wanted to clarify if that was line specific or due to attrition. Thank you. Bob Hau Yes, thanks Tien-Tsin, good morning. First on the margin outlook, as you heard in our prepared remarks, we raised our margin outlook actually for the second quarter in a row, and now greater than 135 basis points. The original guide back in February was greater than 100 basis points. That's really driven by two factors. One is just the scale and volume of the company - as we add more revenue, it drops through to the company average--excuse me, better than company average rates, and continue to see good growth. The second one, of course, is ongoing productivity - we continue on an ongoing basis, as Frank said earlier, measure everything, and we continue to see progress towards achieving increased productivity across the organization, and so the combination of very strong organic growth, 15% to 17% this year plus productivity allows us to continue to expand margin on a multiple year basis. Then in the merchant processing side, as you know, the processing business line for us is where our clients own the merchant contracts, and so we are providing the back end processing for those clients. In many cases, it's banks, could be wholesale ISOs, and what we saw is some volume decline out of those processing contracts in the second quarter. Of course, on a year-to-date basis, we are plus-1% for the first half of the year, and that's in line with our ongoing expectation that it's roughly flat in this business line going forward. Next, we'll go to the line of Jason Kupferberg from Bank of America Merrill Lynch. Please go ahead. Jason Kupferberg Good morning guys. Thanks for taking the question. Great to see the ongoing revenue performance here. I was curious just to ask about some of the underlying metrics - small business volume growth, enterprise transaction growth. We did some slowdown there in Q2, probably more than can likely be explained just by leap year, so was hoping you could unpack those a little bit in terms of where you saw some of the softness. Was it certain verticals or higher income versus lower income consumers, and then just anything you can give us on what you've seen in July so far? We heard from Visa last night about a little bit of softness related to hurricane and CrowdStrike. Thank you. Bob Hau Yes Jason, good morning. There's obviously lots of variables in both of those, both for small business and the enterprise business lines. Generally, we saw a bit of a slowing, and in fact through the second quarter, April and May were in line with our expectations, July came in a little bit slower. But I would emphasize that that was in line with our expectations, so it's partly why we're maintaining our full year organic growth rate at 15% to 17%, and in fact for the merchant segment holding at the 25% to 28% despite acceleration in easing of that transitory benefit down in Argentina. Generally, the business is performing at or better than we had previously expected outside of that slowing in the transitory benefit, which by the way, we think is a good thing for the Argentine economy. A more normalized growth rate in inflation and interest is good long term, and so we're encouraged by how that's going and how the overall business is responding. Frank Bisignano Yes, maybe I'd make a couple other general macro comments. One, when you looked at--you know, we're very, very proud of what we believe we've created with the FSBI and our ability to track it. Obviously we talked about how our numbers don't exactly mirror the FSBI because of our international presence and the fact that we have verticals that we think outperform. We see a slowness in July, but we see growth in July as we look at it right now. It's in line with really Q2 if you look at it, and slightly ahead of June. I think also as you look across our book and our total portfolio, you'll also see the slowing in credit originations across our book which covers retail private label and general purpose, but all of this within our expectation range. I'd also make a secondary point around volume and revenue. We are no longer a volume-only shop. We have lots of VAS, both at the enterprise level and at the SMB level, and it really was the design of how to proceed. We have great feeling about our ability to grow merchants globally, and that's inclusive of the U.S., so that all falls into our expectation set and I think in total when you look at the business performance and the portfolio size and scope, our hedge is very, very strong. Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead. Timothy Chiodo Great, thank you for taking the question. I wanted to hit up on CashFlow Central, just given it's about to go live here. It's six large clients you mentioned. In terms of the monetization, I believe it's a combination of subscription fees and then also transaction fees, including some interchange revenue potentially. I was hoping you could break that down a little bit more, and then also talk a little bit about how the revenue will be recognized across the two segments. Thanks a lot. Frank Bisignano Yes, maybe I'll elevate it a hair, just so we have pure clarity on our SMB strategy here, both with FIs and on our other direct channels. We referred to it in our prior comments, but I want to be very, very clear - first of all, those wins are large institutional wins before the product's in the market in that fashion, and our pipeline is tremendously strong. Remember, we're also going to bring this product to Clover, and we're bringing the product to our ISV channels also. Then what we talk about is, as I like to call it, an SMB bundle. That SMB bundle will include Clover, CashFlow Central, the ability to integrate that information, bring it to Active D, which is also winning heavily in the market right now as our new digital banking platform, and Spendlabs. So I think what you're going to find--and banks, FIs love the bundle, right? Yes, they're buying CashFlow Central, but this will be a long-term growth engine, and you also heard us talk about our ability to go yes, we have 900 financial institutions, we plan on continuing to grow that number. CashFlow Central by itself is a standout product, which Bob will walk you through the economics, but I want you to focus on the SMB strategy that is an integrated strategy. I think we're one of a kind in the ability to deliver digital banking, deliver card spend, deliver Clover, and deliver something like CashFlow Central AR/AP to this SMB set. Our banks are loving it. We've got two shots at helping our banks generate revenue through it. I didn't want to minimize the question without articulating the strategy, which is a long term growth strategy for our total portfolio. Bob Hau And Tim, I'd say we feel very good about signing up six large banks before we've gone live. We're quite encouraged on the demand from those financial institutions and the excitement they have. As Frank points out, it's a revenue generator with them, it allows them to bring themselves closer to their small business client, which is an important client base for them, and for us, the opposite of our consumer bill pay solution which is a fee that the banks pay us but typically do not charge consumers, and so it's an expense item. For CashFlow Central, it's actually a revenue generator - they'll likely charge their small business clients a subscription, again generate revenue for themselves and obviously for us as transactions flow, so feel very good about the opportunity and very encouraged on the very, very early read. Next, we'll go the line of Dave Koning from Baird. Please go ahead. I guess my question, in the banking sub-unit, you grew 4% ex periodic revenue. That's the best we can see in the six quarters or so since you've given the new segment data. Is there something about the market that's getting better or something that you're doing more specifically, and is this higher level sustainable? Frank Bisignano Yes, maybe I'd cover that. I realize in my comments about business generation and demand, I didn't include that we see large demand for our services out of the financial institutions, and that's beyond this merchant and CFC capability, which both have tremendous demand. It goes to [indiscernible], which is winning the marketplace. You heard us talk about our Finxact wins. Our clients are growing, and you can look at things that we've done on Finxact with one, which has been a tremendous opportunity. I do think, you know, and you could point to recent surveys published that we've differentiated ourselves in the service area from where we might have been a couple years ago with the delivery of a commitment tracker, which allows us and our clients to have 100% synchronization on our commitments and our delivery rate. I think those have really, really distinguished ourselves. Our relationship management model is making a difference and will continue. Demand is strong, so I think it's all those variables that gives us confidence about our ability to be the grower that we talked about to you back on i-day. Next, we'll go the line of Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller Hey, thanks guys. If we could just hone in and just give a little bit more of a broad update on the financial solutions segment, just given the strength we're seeing, obviously CashFlow Central is strong and then you have Zelle and some other implementations. But help us understand the driving forces of that growth going from where it is today, and then I know you've talked about it accelerating again into--like, through '25 and into '26 at your investor day. Is that still what you see happening, and what are the major drivers affecting that? Bob Hau Yes Darrin, so our expectation, our outlook for this year for the financial solutions segment is 4% to 6%--excuse me, 5% to 7%. Year to date, we're at 6%, so we're right at the midpoint of that full year outlook. We anticipate as we go into '25 and '26, our medium term outlook for the financial solutions segment increases a point to 6% to 8%, so 5% to 7% this year, we're right at midpoint halfway through the year, and we expect that to accelerate into '25 and 2026. That's really driven by the benefits of exactly what you called out - CashFlow Central coming online, growth in XD, our digital banking solution, Finxact, and a broad suite of capabilities that we have continuing to take hold and meet the demands of our financial solutions client base. We also have on the issuing side, as you heard us talk about back in November at the investor day, several large client wins that will go live in 2025 and beyond, things like Verizon and Target and Desjardins all giving us a lift, so we feel quite good about where we are first half of the year and what we see going into '25 and '26. Next, we'll go to the line of Dan Dolev from Mizuho Securities. Please go ahead. I just wanted to go back to the more sort of guidance in merchant and macro - I mean, pretty impressive results despite, I'd say, the more muted tone at Visa yesterday. Can you maybe provide just a little bridge in terms of what needs to happen for the guide, or the fact that you maintained the guide for the year? Is there anything--is it all idiosyncratic wins, etc., which is what we suspect, or is there anything else in there? And again, congrats. Bob Hau Yes, thanks Dan. Overall, maintaining our total company organic growth at 15% to 17%, in order to do that, we expect the merchant segment to grow 25% to 28% organically first half of the year. We're ahead of that slightly at the top end, good growth overall. We talked a little bit in our prepared remarks about the easing of the transitory benefit of inflation and interest. You've seen in our slides that that number has come down. Our previous expectation for the full year was that that would provide a 14-point benefit to merchant solutions, now a 9-point benefit, yet we're maintaining our full year outlook, and that's the strength of things like Clover selling very well, value-added solutions both in our small business and in our enterprise business. CommerceHub continues to see good uptake from our large enterprise clients. We definitely saw an increase in anticipation activity down in Latin America we talked about in our prepared remarks, as well as an additional quarter benefit of Dólar turista, so maybe a little bit of that idiosyncratic view from your point on the Dólar turista, expect that to go away at the tail end of this quarter, third quarter, but generally, growth across the business. I think this is one of the hallmarks of Fiserv over the 40 years that we've been in business, anticipating that 2024 will be our 39 consecutive year of double-digit EPS growth. We are incredibly resilient and we respond to changes in the marketplace. We respond to changes in the macroeconomic environment and it's the breadth and depth of our capability, of our product set, of our client base and our distribution channels. Next, we'll go the line of James Faucette from Morgan Stanley. Please go ahead. James Faucette Great, thank you very much, and thanks for all of the color and detail here. I want to go back to Clover and Clover growth. One of the questions we get a lot is you talked at your analyst meeting back in November about using Clover and how the back book could contribute a little bit more going forward to that growth. But I'm wondering if you can talk to a little bit the sale cycle there and where your existing customer is seeing value on Clover, and how you're feeling about that and maintaining those customers from a competitive standpoint, if they are re-evaluating solutions, etc. You know, we've been really, really feeling good about the Clover strategy and continuing to refine it. Obviously we know there will be a day where we're going to come back to you and say, we hit it directly into the back book, but we see so much front book activity opportunity between our international, between our ISV, between how we're thinking about the verticals like services, like restaurants, that we're continuing to build that product set, that VAS. Obviously it's an outperformer in attrition across the total book, and we have the benefit of looking at attrition rates from everything. We look at them from what our ISO portfolios are attriting versus our ISV portfolios attriting, versus our agent versus our direct book, and we feel really, really good about how it's performed. We're continuing to ramp up our investment in value-added services and vertical expertise there. We've made a set of commitments - you know, 3.5 and then 4.5 and pen rates, and you know, we think about the merchant business being $10 billion, then $12 billion, and all of those feels really, really tight and on track. Obviously--you know, I always have to say we started Clover with seven engineers and three [indiscernible], and now we've got a global franchise, so it's straight in our sites. Obviously we have lots of other great things in our portfolio, but it also is a key to why we have 900 financial institutions, and I would expect over a period of time on this journey that if you ask me, we haven't ever made a commitment or guided to any financial institution, but you should expect us to continue to grow that at a double-digit number every year. For our final question, we'll go to the line of Ramsey El-Assal from Barclays. Please go ahead. Ramsey El-Assal Hi, thanks for squeezing me in here. I wanted to ask about M&A, and I guess specifically given the valuation, multiples on the public company side seem to be much lower than on the private side. Does that tilt the opportunity set for you guys more towards acquiring public peers? Would you have an appetite to move in that direction, Frank? Frank Bisignano Well, I don't--you know, it's not like I think about public-private. I think about--first of all, we have a tried and true capital deployment philosophy, which I think we've been performing well at. I frequently say, gee, I wish we had acquired more, and I frequently--and I always say, but there's nothing that traded that I wish we had acquired, so I think it's about value, it's about long term value creation. Remember, we have the best distribution with our financial institutions, our ISVs. Our ability now to take financial products and bring them to our merchants - you know, we didn't really talk about embedded finance at all today, but that is still an engine that's moving for us. It's where is value creation, how do we bring it to our clients and our shareholders, and I'm really not thinking public versus private as much as being involved in looking at everything humanly possible. That would be--I think that's kind of where we are. Frank Bisignano I'd like to thank everybody for their attention today. Obviously we've got a great IR team, so reach out to them with any further questions. Have a great day, and I look forward to talking to you in the future. Thank you all for participating in the Fiserv second quarter 2024 earnings conference call. That concludes today's conference. Please disconnect at this time and have a great rest of your day.

Visa (V) Q3 2024 Earnings Call Transcript | The Motley Fool

Welcome to Visa's fiscal third quarter 2024 earnings conference call. [Operator instructions] Today's conference is being recorded. [Operator instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, senior vice president and global head of investor relations. Thank you. Good afternoon, everyone, and welcome to Visa's fiscal third quarter 2024 earnings call. Joining us today are Ryan McInerney, Visa's chief executive officer; and Chris Suh, Visa's chief financial officer. This call is being webcast on the investor relations section of our website at investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC's website and the investor relations section of our website. Our comments today regarding our financial results will reflect revenue on a GAAP basis and all other results on a non-GAAP nominal basis unless otherwise noted. The related GAAP measures and reconciliation are available in today's earnings release and related materials available on our IR website. And with that, let me turn the call over to Ryan. Ryan McInerney -- Chief Executive Officer Good afternoon, everyone. Thank you for joining us. We delivered strong third quarter results with $8.9 billion in net revenue, up 10% year over year, and EPS up 12%. Our key business drivers were relatively stable as compared to Q2, adjusted for leap year. In constant dollars, overall payments volume grew 7% year over year, U.S. payments volume grew 5%, and international payments volume grew 10%. Cross-border volume, excluding intra-Europe, rose 14%, and processed transactions grew 10% year over year. We recently received the results from our annual global client engagement survey where Visa achieved a global net promoter score, or NPS, of 76, up 3 points from last year. We saw NPS increases across all of our client types, merchants, issuers, fintechs, and processors and across our regions, the results remain strong, with a notable 6-point NPS improvement in North America. I want to thank all of our 30,000 employees who helped deliver these fantastic results. And as I review some highlights from the quarter, you'll see how this focus on serving our clients by meeting their needs, innovating, and helping them grow is fueling our success across consumer payments, new flows, and value-added services. Let's start with consumer payments, where we see more than $20 trillion of opportunity to capture cash, check, ACH, domestic schemes and other forms of electronic payment. In our client engagement survey, our clients ranked our strategic partnership and our brand as two of the most important factors to our successful relationships. I'll share some examples of how each of these played out this quarter. In strategic partnerships, we are constantly seeking ways to add more value and grow together with our clients. We are pleased to have been named the Preferred Network Partner by Lloyds Banking Group, renewing our debit relationship and significantly expanding our relationship in credit, winning 10 million additional credit credentials across the group's consumer and commercial business. Also in the U.K., NatWest has launched a new Visa Travel Rewards credit card, following the signing of our partnership last year. They will also be utilizing many value-added services, including transaction controls and card benefits. On the European continent, we worked with Raiffeisen Bank International AG, a leading bank in several markets. And recently, in the Czech Republic and Romania, we renewed our commercial business and expanded our consumer debit and credit business totaling over 2 million potential new credentials. In Korea, we deepened our partnership with leading issuer KB Kookmin Card. Already a user of Visa Direct cross-border money movement and a Visa consumer and commercial issuer, they will grow their consumer credit and debit portfolios with Visa and use value-added services, including consulting and marketing services. In Peru, we extended our partnership with leading issuer, Banco de Crédito del Perú, across consumer and commercial portfolios with plans to launch additional new flows offerings and value-added services. In the U.S., we extended our agreement with Wells Fargo. This will allow us to continue to support Wells Fargo's strategy to reinvent their credit business and provide additional growth by leveraging key Visa assets like consulting and Visa sponsorships such as FIFA and the Olympic and Paralympic Games. On the brand front, with the Olympic Games opening ceremony later this week, it is exciting to see the engagement with the Visa brand and activation across the world in marketing campaigns, cardholder experiences and Olympic and Paralympic-branded Visa issuance, which I am happy to report in Europe is at nearly 6 million cards, compared to the 5 million number I quoted just last quarter. We have also added nearly 100,000 new merchant locations in France in advance of the event. Our brand also plays an important role in winning co-brand partnerships. In India, growing credit issuance and reaching affluent and cross-border consumers remain areas of focus. We are excited about the launch of a co-brand card with Adani One and ICICI Bank as India's first co-branded credit card with rich airport-linked benefits for their target base of 400 million customers through the Adani One platform. We also signed an agreement to launch a new co-brand card with Tata Digital, along with an Indian banking partner, building on the success of our existing credit co-brand relationship. This new co-brand offering consists of a multicurrency prepaid foreign exchange card that will target travelers from India, also benefiting from the rewards of the Tata Digital super app, Tata Neu. Across seven countries in Latin America, we will work with Unicomer, a major retailer and financial services provider with numerous brands to deliver a co-brand credit card in addition to using CyberSource. And in CEMEA, we reached a de novo co-brand arrangement with BinDawood, a leading grocer in the Kingdom of Saudi Arabia with 88 outlets and over 5 million loyalty program members. On the travel side, we extended our relationship with Malaysia Airlines from a prepaid co-brand card targeting Millennials and Gen Z customers to also launch a new co-brand credit card for the travel-minded affluent. And in the U.S., Turkish Airlines have chosen Visa to be their exclusive network partner for their new Miles&Smiles co-brand credit card. Our consumer payment strategy is focused on growing credentials as we are doing across all the partnerships I just mentioned and increasing acceptance locations. And wallets are a great example of where this comes together, where Visa can be a funding source, an embedded credential, and an accepted form of payment by wallet merchants. This increases the value proposition for wallet providers and their users. Two wallet highlights this quarter are in Peru and Vietnam. Yape is a Peruvian super app with more than 15 million users who already have a Visa credential that enables them to send money across P2P apps via Visa Direct. And just recently, they launched Tap to Phone functionality for their more than 2 million merchants to accept Visa. And in Vietnam, a country with approximately 50 million wallet users, the three leading digital wallets, MoMo, VNPAY, and ZaloPay are now enabling their users to utilize Visa cards as a funding source for transactions at over 500,000 QR acceptance points managed by these wallets. One additional area that we are very focused on is delivering simple, easy, and secure checkout experiences. Let me share a few recent examples. First, we are integrating Click to Pay and the Visa Payment Passkey Service, enabling a customer to authenticate themselves using biometrics. Already, we have hundreds of issuers enabled for passkeys in Europe and a number of issuers who represent more than 50% of our e-commerce payments volume in Europe piloting the solution. Second, we crossed 10 billion tokens this quarter, a significant milestone. And in 2023 alone, Visa tokens helped generate more than an estimated $40 billion in incremental e-commerce revenue for businesses globally and saved more than $600 million in fraud. Third is the ability to tap for more use cases on a mobile device. With tapping as one of the best in-person commerce experiences, we want to provide Visa users with more ways to tap, including tap to pay, tap to authenticate an identity, tap to add a card, or tap to send money to family or friends. And finally, this quarter, Tap to Pay grew 4 percentage points from last year to 80% of face-to-face transactions globally, excluding the U.S. In the U.S., we surpassed 50% and have 30 U.S. cities above 60% penetration. Now moving on to new flows. This quarter, new flows revenue grew 18% year over year in constant dollars with Visa Direct overall transactions growing 41% for the quarter to 2.6 billion and commercial volumes up 7% year over year in constant dollars. Let me provide some updates, starting with B2B, where we have focused on penetrating new verticals and delivering innovative products and solutions. In healthcare, we will work with AXA and Paysure to launch a commercial virtual card solution to simplify the claims processes for their customers worldwide. We have also expanded our virtual card acceptance with a key business services provider, Cintas, who offers uniform, safety, and fire protection services to over 1 million customers. Together with our partner, Billtrust, we will help Cintas streamline their payments, automate processes, and manage costs on Billtrust's Business Payments Network, or BPN. We also just recently extended our long-standing BPN collaboration with Billtrust that connects suppliers and buyers to facilitate straight-through processing of virtual card payments with rich data that optimizes acceptance costs. Our products and solutions in B2B remain very important in winning and growing our business. One such solution is the enhanced B2B data that we can provide. In Brazil, together with Celero, a leading business financial management solution, we will provide issuers with enhanced visibility into small business spend by aggregating data across cards, bank accounts, boletos and more, enabling them to better manage their client relationships and offer compelling products. Another solution is Spend Clarity, which provides expense program management, including card issuance, controls, and reporting. Wells Fargo has white-labeled our solution called Wells One Expense Manager, which has now onboarded 6,000 corporate clients representing over 1 million users, providing access to their spend data. Now moving on to Visa Direct. We continued to grow our transactions through expanded and new relationships. Over the past year, total Visa Direct cross-border P2P transactions have nearly doubled, with Europe and CEMEA being the largest regions. In CEMEA, we are very excited to have renewed our Visa Direct relationship with fintech Monobank in addition to renewing their consumer and commercial credit, debit, and prepaid portfolios. In Asia Pacific, we are partnering with China ZheShang Bank on cross-border capabilities, including Visa Direct and Currencycloud, allowing the bank to support cross-border payments for their merchant clients. Canadian fintech Nuvei has extended its agreement with us for Visa Direct across all cross-border use cases in more than 30 countries for their merchant clients and recently became the first Visa Direct enabler in Colombia. We also executed our first global agreement with WorldRemit and Sendwave, enabling their customers to eventually send Visa Direct cross-border remittances from 50 countries to recipients in 130 countries. Quicklly, a leading South Asian marketplace, has enabled Visa Direct cross-border remittance solutions for U.S. customers to send money to relatives and friends in India and the rest of South Asia. And in earned wage access, we reached an agreement with Weavr, a U.K.-based Embedded Finance provider. In addition to card issuance, they will be utilizing Visa Direct to enable Weavr's business clients to offer employee expense reimbursement, reward and recognition, and earned wage access. Earned wage access provider, PayActiv, who serves 4,000 businesses has renewed its agreement with us and will enable Visa+ for payouts. Similarly, we expanded our relationship with enabler, Astra. In addition to domestic disbursements, Astra will now offer cross-border remittances, implement Visa+ to reach domestic wallets in the U.S., and expand to additional use cases, including payroll, earned wage access and marketplaces. Visa+ is still in the early stages but is fully rolled out and live for PayPal and Venmo users and more providers continue to join the platform. Wrapping up new flows, we also renewed an agreement with FIS, an important issuer processing partner to enable a suite of value-added services and new flows capabilities for their clients, including Visa Direct. And now, on to value-added services, where revenue was up 23% in the third quarter in constant dollars. Let me highlight some of the progress we have made in driving adoption and growth among our value-added services portfolio. First in issuing solutions. One area of strong revenue growth this quarter was in card benefits, where we enable our clients to offer unique value propositions tailored to their customer base in travel, entertainment, restaurants, insurance and more. Strong issuance in premium cards across most of our regions has fueled this growth in the third quarter. For example, in Latin America, travel benefits have grown with over 370,000 unique visits to our Visa Infinite airport lounge in Brazil, representing customers from a number of leading issuers. In addition, since its launch in 2022, our Visa Infinite Fast Pass in Brazil, which allows cardholders to get through airport security more quickly, has screened over 1 million travelers. These are among the Top 5 card benefits in Brazil and deliver value to customers, issuers and Visa. We continue to add more benefits like the recently launched partnership with OpenTable to offer eligible Visa cardholders access to coveted restaurant reservations and experiences in the U.S., with plans to expand into Canada and Mexico. In Acceptance Solutions, third quarter growth was driven by increasing utilization across both token and e-commerce-related services. In e-commerce, one such example is with iFood, the largest food delivery platform in Brazil who is utilizing our Verifi solution to help prevent disputes before they become chargebacks. In addition, they will be using our authentication solutions. In Risk and Identity Solutions, we continued to see strong adoption by new and existing clients, driven in part by growth in card-not-present transactions. In North America, acquirer Worldpay will be expanding their use of our authentication solutions from CardinalCommerce, fostering collaboration and real-time enhanced data exchange between Worldpay merchants and issuers during card-not-present transactions, reducing fraud and allowing more transactions to be properly authenticated and authorized securely. We are also pleased that the pilot of our account-to-account risk scoring solution Visa Protect with Pay.UK has had great results, showing an average 40% uplift in fraud detection over the three-month pilot period. In addition, we are now launching Visa Protect in Argentina with a core payments technology company, COELSA, after successfully piloting the solution there as well. The last two value-added services are open banking and advisory services. We continue to sign new partners with Tink in Europe and the U.S. And as I mentioned earlier, we continue to see strong growth in client demand for our consulting and marketing services, particularly around marquee events such as the Olympic and Paralympic Games. Our value-added services portfolio solutions is strong and is driving meaningful growth for our clients and for Visa. Before I close, I wanted to speak to the fact that the settlement reached for the injunctive relief class was rejected by the court. We are, of course, disappointed with this decision. We believe that the prior settlement provided meaningful relief to all merchants and we will continue to work toward another settlement. To close, so far this fiscal year, we have seen strong revenue and EPS growth as a result of relatively stable volume and transaction growth. I remain very excited about the opportunity that lies ahead of us. At Visa, we come to work in service of our clients and partners and are focused on building and deploying the best solutions possible across consumer payments, new flows, and value-added services. Thanks, Ryan. Good afternoon, everyone. In Q3, we had another strong quarter with relatively stable growth across payments volume, cross-border volume, and processed transactions when compared to Q2, adjusted for leap year. In constant dollars, global payments volume was up 7% year over year and cross-border volumes, excluding intra-Europe, was up 14% year over year. Processed transactions grew 10% year over year. Fiscal third quarter net revenue was up 10% in both GAAP and constant dollars, in line with our expectations. EPS was up 12% year over year and 13% in constant dollars. Now let's go into the details. In the U.S., payment volumes growth numbers were generally in line with Q2 adjusted for leap year, with total Q3 payments volume growing 5% year over year, with credit and debit also growing 5%. Card-present volume grew 2% and card-not-present volume grew 7%. In the U.S., while growth in the high spend consumer segment remained stable compared to prior quarters, we saw a slight moderation in the lower spend consumer segment. Moving to international markets. Total payments volume was up 10% in constant dollars, relatively stable with Q2 when adjusted for leap year. Payments volume growth rates were strong for the quarter in most major regions, with Latin America, CEMEA, and Europe ex U.K. each growing more than 16% in constant dollars. Asia Pacific payments volume slowed to less than 0.5 point of year-over-year growth in constant dollars for the quarter, driven primarily by the macroeconomic environment, most notably in Mainland China. Now to cross-border volume, which I will speak to today in constant dollars and excluding intra-Europe transactions. Total cross-border volume was up 14% in Q3, relatively stable to Q2 adjusted for leap year. Cross-border card-not-present volume growth, excluding travel and adjusted for cryptocurrency purchases, was in the mid-teens, helped by continued strength in retail. Cross-border travel volume growth was also up in the mid-teens or 157% indexed to 2019. This quarter, we saw the inbound Asia Pacific Index improve 9 points at a similar pace to Q2 to 151% of 2019. The improvement in Asia Pacific outbound travel, however, slowed from Q2 with the index increasing by less than 1 point to 125% of 2019. We continue to see the same primary drivers as last quarter with some additional pressure from macroeconomic conditions. Now let's review our third quarter financial results. I'll start with the revenue components. Service revenue grew 8% year over year versus the 8% growth in Q2 constant dollar payments volume, with revenue yield improving sequentially and versus last year due to improving utilization of card benefit. Data processing revenue grew 9% versus 10% processed transaction growth with the revenue yield generally in line sequentially and versus last year. International transaction revenue was up 9% versus the 14% increase in constant dollar cross-border volume, excluding intra-Europe, impacted by lapping higher currency volatility from last year. Volatility levels remain consistent on average to last quarter. Other revenue grew 31%, primarily driven by strong consulting and marketing services revenue related to the Olympics and, to a lesser extent, pricing. Client incentives grew 11%. Now on to our three growth engines. Consumer payments growth was driven by relatively stable payments volume, cross-border volume and processed transaction growth. New flows revenue grew 18% year over year in constant dollars. Visa Direct transactions grew 41% year over year, helped by growth in Latin America for interoperability among P2P apps. Commercial volumes rose 7% year over year in constant dollars. In Q3, value-added services revenue grew 23% in constant dollars to $2.2 billion, primarily driven by issuing and acceptance solutions and advisory services. Operating expenses grew 14%, primarily due to increases in general and administrative, personnel and marketing expenses, including spend related to the Olympics. FX was 0.5-point drag versus the 1.5-point benefit we expected. Pismo represented an approximately 1-point drag. Nonoperating income was $73 million. Our tax rate was 18.8% and EPS was $2.42, up 12% over last year, inclusive of an approximately 1.5-point drag from exchange rates and an approximately 0.5-point drag from Pismo. In Q3, we bought back approximately $4.8 billion in stock and distributed over $1 billion in dividends to our stockholders. At the end of June, we had $18.9 billion remaining in our buyback authorization. Now let's move to what we've seen so far in July through the 21st with volume growth in constant dollars. Cross-border is excluding intra-Europe. U.S. payments volume was up 4% with debit up 4% and credit up 3% year over year. The slight deceleration from Q3 does not appear to be from any one factor but likely a number of smaller factors such as weather, timing of promotional shopping events, and the technology outage, among others. Cross-border volume grew 13% year over year, below Q3 levels with travel-related volume growing slightly less, which continued to be impacted by Asia Pacific and card-not-present ex travel volume growing at similar levels to Q3. Processed transactions grew 9% year over year. Now on to our expectations. Remember that adjusted basis is defined as non-GAAP results in constant dollars and excludes acquisition impacts. You can review these disclosures in our earnings presentation for more detail. Let's start with the fourth quarter. We expect payments volume and processed transactions to grow at a similar rate to Q3. For total cross-border volume growth, we are expecting to end up slightly below Q3. Currency volatility continues to average around four-year lows through July 21. And as such, we are making an adjustment to currency volatility expectations for Q4, now assuming volatility will stay in line with Q3 levels. Incentives are expected to be at their lowest growth rate all year. Pulling it all together, we expect adjusted net revenue growth in the low double digits, which equates to a slight improvement from the 10% adjusted revenue growth rate in the third quarter. We expect our Q4 adjusted operating expenses to grow in the high single digits. Nonoperating income is expected to be between $40 million and $50 million. The tax rate is expected to be between 19% and 19.5% in Q4, which puts Q4 adjusted EPS growth rate in the high end of low double digits. Moving to the full year. With three quarters now complete, our expectations for full year adjusted net revenue growth remains unchanged from what we shared at the start of the year. Whilst absorbing the impact of lower currency volatility and the macroeconomic challenges in Asia, which have affected volumes, we still expect to reach low double-digit adjusted net revenue growth for the full year. Full year adjusted operating expense growth will be in the high single digit to low double digits, reflecting the less favorable impact of FX. This keeps full year adjusted EPS growth in the low teens. In closing, we delivered strong results this quarter with new flows and value-added services revenue growing faster than consumer payments. We extended our existing relationships, won new clients and invested to develop innovative products and solutions, all positioning us for continued growth into the future. So now, Jennifer, it's time for some Q&A. Jennifer Como -- Senior Vice President, Head of Global Investor Relations Thanks, Chris. And with that, we're ready to take questions. Operator [Operator instructions] Our first question comes from Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller -- Analyst Look, let me just start. The U.S. volume growth rate, obviously, is a bit softer. And if you could help us distill what you consider structural versus cyclical, I think that would be a good place to start. But adding on to it really is just the ability for you to grow double-digit revenue with only 4%, 5%, 6% -- mid-single-digit U.S. volume growth is coming from value-added services, it's coming from cross-border. Can you help us understand if that kind of trend you believe the company has that capability to grow those rates on revenues even in this context of U.S. volume trends? Chris Suh -- Chief Financial Officer Darrin, so let me start with the U.S., let me start with the first part of your question, and then we'll maybe get in to zoom out and talk about maybe the long-term question. So in the U.S. in Q3, we did see stable drivers relative to Q2 once you adjust for leap year. That's 5% payment volumes growth in the third quarter. In the 21 days since, in July, that number did tick down to 4%. Maybe I'll just sort of give you the full arc of what we're seeing. So 4%, to just level set on those numbers, 4% in the 21 days versus 5% in Q3. And so, for that, we did stare at a lot of the drivers, the factors that impacted those three weeks, and there was a lot going on. I referenced a few of them on the call and maybe I'll expand on those a bit. First, we had a major hurricane, Hurricane Beryl. It impacted Texas and other parts of the U.S. nearby. The second, I referenced the timing of promotional e-commerce events. Maybe I can expand on that a little bit. The timing this year was later and in e-commerce customers are billed when the goods are shipped. And so, some of that shipping period fell out of that 21 period, so we had a little bit of difference in the 21-day period to the comparable a year ago. And third, obviously, the major tech outage that happened at the end of last week, that also had some impact. So when we look at that, no single factor drove that 1 point of change from Q3 to the first part of July. But all things considered, we actually feel pretty good about the three-week results. Now the second part of your question really was around sort of the low double digits in the context of cross-border, VAS, and CMS. I'll sort of back into the question. We've had consistent strong performance in VAS, over $2 billion of revenue, over 20% growth for many quarters consecutively. And we're seeing strength across the business in issuing solutions and acceptance and advisory. That's a business that we feel great about the momentum in. With our new flows business, 18% growth, as Ryan talked about, in the quarter. That's the second quarter in a row where we're seeing growth in the teens. Great execution, stable volumes and Visa Direct transactions growing at a high level. As you know, that business also quarter to quarter can vary a little bit in the growth rates that we saw in the first half of the year. But all in all, I feel really good about the continued strength in that business. And then, cross-border, well, cross-border. Maybe I'll just zoom out a little bit and talk about cross-border and what we've seen over the course of time. If you recall pre pandemic, cross-border grew, travel grew sort of in the high single digits to low double digits, and e-commerce, which is about one-third of the business, grew into the teens, sometimes into the mid-teens. Obviously, the pandemic happened. Travel really contracted, e-commerce grew faster and since then. Now post pandemic, what we're seeing now is that e-commerce is roughly 40% of the business. And the growth rate has normalized, it stabilized back to pre-pandemic levels. And so, let's say, teens growth on e-commerce on 40% of the cross-border business. Travel after the post-pandemic run-up has normalized. It's a little hard to tell exactly where that -- where it's going to stabilize at but we've seen high growth. We've seen it continue to normalize. But what we do know structurally is that with e-commerce being a bigger portion of the business, that's a tailwind to the total cross-border growth. And so, we are confident that that will continue to be healthy relative to the domestic spend. I'll pause there and certainly, if there's anything else to add, Ryan or others, please jump in. Next, we'll go to the line of Andrew Jeffrey from William Blair. Please go ahead. Andrew Jeffrey -- Analyst Very impressive value-added services growth this quarter at 23%, and I think as you mentioned, Chris, it's approaching 25% of total revenue, so perhaps driving more than half of your consolidated revenue growth. Can you talk a little bit about at what point we might expect value-added services to sort of bend up the growth curve of Visa consolidated? Ryan McInerney -- Chief Executive Officer It's Ryan, Andrew. Thanks for the question. And yes, we're very excited about not only what we delivered in terms of value-added services growth for the quarter. What we've been delivering consistently for several years now since we shared with you all the strategy and kind of became very purposeful about our go-to-market approach. I mean, you go back to I think it was 2021, we did about $5 billion in revenue; 2022, $6 billion. Last year was $7 billion. Like you said, we did $2.2 billion this quarter, up 23%. So I think what we've shown is that we have delivered consistent growth quarter after quarter and year after year in these businesses. And we're super optimistic about where we go from here. I mean, we think about the opportunities really in three different segments. The first is we have a series of value-added services, some of which Chris outlined in his previous answer that are very focused on enhancing value for Visa transactions. Risk products like Visa Secure, dispute tools like Visa Resolve Online, card benefits, like I mentioned in my prepared remarks. And we've -- that has historically been the largest part of our value-added services business, and we've shown that we can drive great growth in that area. Increasingly, we're building out a set of services that add value for non-Visa transactions. We've done some things in this space before. Some of our platforms like CyberSource, Authorize.net, Verifi. But then, you've heard me talk in the last couple of quarters about expanding our risk capabilities, for example, to not just other card networks but also to RTP and account-to-account services. And I mentioned the great results we've had in both the U.K. and in Argentina on that front. And then, the third area of opportunity for us is expanding our value-added services beyond payments. Historically, we've had things like Visa Consulting and Analytics and our marketing services and some of the open banking services delivered by Tink, but we are continuing to build out a portfolio of value-added services for our clients and partners beyond payments. Things like the cyber protection capabilities that we've been bringing to market. So we've demonstrated consistent growth. We believe we'll be able to continue to demonstrate consistent growth. We've got a product pipeline and a go-to-market approach all over the world with a diverse set of clients, and we feel good about the opportunity. Operator Next, we'll go to the line of Bryan Keane from Deutsche Bank. Please go ahead. Bryan Keane -- Analyst Chris, just want to ask about incentives being the lowest expectation will be for the fourth quarter. Can you just talk a little bit about how much of that is volume-driven versus the amount of renewals you're seeing? And just trying to think about as we head into next fiscal year, just what kind of growth or sustainable growth should we think about for incentives? Chris Suh -- Chief Financial Officer Thanks for the question. I'll even take us back a little bit about the expectations that we had for incentives coming into the fiscal year. As we ended fiscal '23, that was a high year for us in terms of volume of renewals, a little higher than our typical sort of normal cadence. That did impact how we thought about the incentive volumes in FY '24. And even last year, we had sort of a different growth rate in the first half and the second half of the year. And so, as we looked across this year, we had a slightly lower volume of renewals this year. Obviously, year-to-date incentives have played out slightly differently, largely due to client performance, deal timing, things like that. And overall, it's been better than -- it's been lower, I guess, than what we anticipated. When we go into Q4, sort of the same trend applies. We still expect Q4 to benefit from the lapping of the high incentives that we saw in the second half of last year, which informs, again, the growth rate that we anticipate in Q4. We don't have a lot to share about FY 2025 at this point, but we'll share plenty in the next earnings call. Operator Next, we'll go to the line of Ken Suchoski from Autonomous Research. Please go ahead. Ken Suchoski -- Autonomous Research -- Analyst I wanted to ask about VAS and I think the team has talked about how some of the VAS revenue is correlated with transaction growth. But you also have parts of that business that are more recurring or less recurring in nature. So can you just help us understand how you think about the cyclicality of VAS and how that business might perform in a lower volume growth environment? And I also think the team has talked about pricing for value in VAS. So how much more room is left to go there? And how does that help with the resiliency of the business? Ryan McInerney -- Chief Executive Officer Ken, it's Ryan. On the second part of your question, our ability to price for value is a function of the value that we bring to the market, and we feel great about the value that we're bringing to the market. And I think you see it in our results. Across the various different areas of issuing solutions, acceptance solutions, risk and identity solutions, advisory, I mean, we just continue to bring products and services that are ultimately helping our clients grow their business, helping our clients reduce fraud, grow authorizations, those types of things. And we believe we'll continue to do that, and we believe we'll be able to continue to price for value. As I think I was saying earlier, there is -- the biggest portion of our value-added services are a function of Visa transactions. And so, obviously, Visa transactions, as they go up or down, have an impact on that, but so does our ability to sell more services. On previous calls, I've talked about the fact that we still have the majority of our clients that have yet to have the type of penetration and depth that we've been able to achieve with others. So as we continue to penetrate our clients all around the world in the various markets that we deliver, as I was saying earlier, to the earlier question, I'm very optimistic about our ability to continue to grow this business as we have. Operator Next, we'll go to the line of Tien-Tsin Huang from J.P. Morgan. Please go ahead. Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst Just curious if you're -- if you've updated your U.S. outlook here in the second half, are you still expecting transaction sizes to accelerate in the U.S., especially in the fourth quarter? Chris Suh -- Chief Financial Officer Tien-Tsin, thanks for the question. Yes, we had forecasted ATS, as you know, growth to improve throughout the pace of this year from quarter to quarter, and we did see that. We saw ATS improve in the third quarter. Specifically in the U.S., ATS was slightly better in Q3 than in Q2. It got to basically flat year over year in Q3. We saw improvement in a number of categories, sequentially, restaurant, QSR, fuel, telecom, utilities, insurance, to name a few. And we do anticipate in Q4 that we'll continue to see slight improvement sequentially again. The one thing -- the one watch out I'll call out is the fuel prices could impact that trajectory, and so, we'll watch that closely. So yes, it is playing out as we anticipated. The pace is slightly varied from what we anticipated but it is continuing to improve, and I think that's the important thing. Operator Next, we'll go to the line of Gus Gala from Monness, Crespi, and Hardt. Please go ahead. Gus Gala -- Monness, Crespi, Hardt, and Company -- Analyst Can we talk a little bit about the contactless payments penetration? Can you maybe highlight maybe what the gap is in penetration rates across maybe some of your older cardholders versus young cardholders? Just trying to get around to what a terminal level of penetration could look like. Ryan McInerney -- Chief Executive Officer You're asking -- just so I heard, you're asking about Tap to Pay? I mean, yes, maybe just back up first in the big picture of things. The fact that outside of the United States, eight out of 10 of all the Visa face-to-face transactions around the entire planet are Tap to Pay now, I mean, that just tells you right there that it's all segments, all demographics, all use cases, all product types. I mean, we're at 80% overall around the world. We've got, I think, more than 55 countries that are now more than 90% contactless penetration. So increasingly, in most countries for most customers, for most products all around the world, that's just the default way that people are paying. And in the U.S., the curve is maturing exactly how we'd expect it based on what we've seen in 100-plus countries all around the world. As I said in my prepared remarks, now one out of every two transactions in the U.S. are taps. In a place like New York City, where many of you on the call spend time, we're above 75% now. So in New York City, where -- which is one of the early adopters of transit, we are above, I think, 75%-plus of all face-to-face transactions. That's up from just 50% two years ago. So again, at that level of penetration in a market the size of New York City, it's across the board in terms of products and issuers and segments and the like. So I think as we continue to see this growth happen, buyers, sellers, they love tapping as a way to pay. And we're going to continue to see that growth accelerate in a place like the U.S. Operator Next, we'll go to the line of Will Nance from Goldman Sachs. Please go ahead. Will Nance -- Goldman Sachs -- Analyst We've been getting a lot of questions around the litigation updates, and I totally understand the level of uncertainty is a lot higher now. But I guess, the most common investor question that we're getting is around the potential impacts to the overall ecosystem, if we see a much greater reduction in interchange rates from what was proposed. And I guess, specifically how the production and interchange rates could reverberate through renewal negotiations with issuers, and then longer term, how this may impact the trajectory of incentives and net yields. So just wondering if we could hear kind of your perspective about the potential reduction or a larger reduction in the overall size of sort of ecosystem revenue, and if that changes the direction of any of the key indicators that we're focused on over time. Ryan McInerney -- Chief Executive Officer Will, thanks for the question. And you're asking about the MDL litigation. I guess, I'll just back up. The first thing I would say is we strongly disagree with the judge's decision. We believe the settlement was fair. We believe the settlement provided meaningful relief to all merchants. The second thing I would say is the decision failed to take into consideration a number of things, especially the complex multisided ecosystem that we operate in, the role that -- the complicated role that many different players in the ecosystem delivered. But having said that, we are pursuing a revised settlement. It's too early to speculate on what that settlement is. So I just won't do that today. But I would ask everybody to keep in mind a settlement can occur at any point before, during, or even after the trial. So just keep that in mind as the process plays out. Operator Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead. Timothy Chiodo -- UBS -- Analyst I want to hit one that at the same time tackles both incentives and value-added services revenue. So it's the concept of value in-kind incentives. I was hoping you could talk a little bit about whether or not these are becoming more prominent, meaning you're using them a little bit more in discussions with issuers. And then, if you could just briefly recap some of the mechanics around the revenue recognition, the contra revenue, the addition to deferred revenue and then eventually the value-added services revenue. Ryan McInerney -- Chief Executive Officer Yes. I'll just give you the high level on this. The value in-kind is a great way for us, as it says, to deliver value to our clients. And increasingly, our clients, as you see in our performance are preferring to buy our value-added services versus just take incentives that might drop to the bottom line. So that is absolutely something that our clients are asking for more of. It's something that is helping our clients grow their businesses. And I talked earlier about just the last several years about our product pipeline, how we've gone to market, how we built new products to solutions and services for our clients. And that's what's driving the demand. So that's kind of become a more important part of our client renewals and our client renewal discussions. And increasingly value-added services are becoming a way for us to differentiate ourselves with our clients and grow our consumer payments business. Do you want to talk about the organics? Chris Suh -- Chief Financial Officer Tim, to the second part of your question, maybe I'll just give you a high-level summary. I think, you have sort of the pieces you called out. At a high level, when value in-kind is offered in lieu of a cash incentive, it would be recognized as a contra revenue at the time that it's granted or earned, depending on the nature of the contract. And then, on the other side, when the client is able to utilize that value in-kind for services from Visa, commonly in our value-added services business, that's then recognized as revenue and the associated costs are also recognized in our P&L. Operator Next, we'll go to the line of James Faucette from Morgan Stanley. Please go ahead. James Faucette -- Analyst I wanted to just ask a follow-up question on near-term trends. We've seen a little bit of further slowing in credit than in debit over the last couple of months, and in the past has been a little bit of an indication of consumer stress. And I'm just wondering how you're thinking about that. And it seems like you're looking for the rest of the September quarter that there's a little bit of a reacceleration as we get past some of the issues that you identified in July. Just want to make sure that I'm understanding that correctly and kind of how we should interpret a little bit of the divergence in credit and debit growth right now. Ryan McInerney -- Chief Executive Officer Let me just give a little context on it and then Chris, feel free to add or correct. Like Chris said, we're three weeks into the quarter. We had a hurricane. We had a tech outage across the country. We had a number of things happen. So we're not kind of taking three weeks as a trend. We'll see kind of how things progress from here in just terms of kind of what happens for the rest of the quarter. I don't know if you want to talk about the credit-debit divergence. Chris Suh -- Chief Financial Officer Yes. Well, I think I'll refer back to a little bit of a comment that we made, and we're seeing the July results. I also commented on the call that we are seeing a little bit of moderation in what I would call the lower spend band cohorts. And I think that's a little bit correlated to some of the volume numbers that we are seeing in the quarter related to credit versus debit. But all in all, when we look at it relative to, again, Q2 and Q3, we see it to be relatively stable once you factor in sort of the days mix with leap year. Operator Next, we'll go to the line of Bryan Bergin from TD Cowen. Please go ahead. Bryan Bergin -- Analyst Wanted to ask on new flows here. So you had a nice acceleration in growth really over the last two quarters on consistent comps. Can you add more color on the particular areas of strength that have picked up? I know Visa Direct was one of those. I'm just curious if you think you could sustain that level of expansion or may that moderate a bit? Chris Suh -- Chief Financial Officer Thanks for the question. 18% growth, as I mentioned, feel really good about the execution and the momentum in the business. It is an enormous opportunity that we have in front of us across both our commercial business and money movement with Visa Direct. I think, you're familiar with the numbers, 41% growth in the transactions and stable commercial volumes as well. I think, what -- this acceleration that you're referring to, we had a unique situation in Q1 where we had some onetime items that really kind of depressed the growth, reported growth in Q1. And if you look at the last couple of quarters, it's more reflective, I think, of the underlying health in the business. That said, as we saw in Q1, that growth rate can vary from quarter to quarter based on deal timing and terms and onetime items like the one that impacted Q1. And so, overall, I'd say at the macro level, good momentum. The underlying business is healthy, and we are continuing to see that level of growth. And the growth rate should be healthier and should continue to grow faster than consumer payments with some normal expected variability quarter to quarter. Ryan McInerney -- Chief Executive Officer And just to build on Chris' points, I think we're in the very early stages of Visa Direct growth. We spent many, many years investing and building the platform, the infrastructure, the connectivity, domestic cross-border, working with issuers and acquirers and processors. And now, we're able to be out there selling all around the world, finding new use cases, some of which I highlighted in my prepared remarks. You go back to 2019, we did 2 billion Visa Direct transactions. We did 2.6 billion transactions this quarter. So this is just another great example of when we go and we systematically identify the need in the market, we spend the time, we build the infrastructure. We build 8.5 billion endpoints, the connectivity, the reliability, the security, the fraud capabilities, I just think we're in the very early stages of what we're going to see in terms of the growth of this business and the number of use cases and partners, many of which I highlighted in my prepared remarks that are going to want to build their use cases on this platform. Operator Next, we'll go to the line of Sanjay Sakhrani from KBW. Please go ahead. Sanjay Sakhrani -- Analyst I guess, most of my questions have been asked and answered. But just on that last point, Ryan, you were making, I'm just wondering, where are we in the evolution of yield there? Can those go higher as you continue to expand in some of those categories with Visa Direct? And then, just in terms of Reg 2, is the full impact of Reg 2 now in the run rate or should we expect there be any uncertainties related to that? Ryan McInerney -- Chief Executive Officer Yes. I'll take both of them. On the first one, we're still in the early evolution of the use cases. I mean, we weren't even talking about earned wage access a couple of years ago, Sanjay. And so, as we've got -- I think we've got 65 or so use cases now on the platform, our teams are finding new use cases all the time. So I think we're continuing to see the evolution of all of that and the economics of all that will play out. What I would point you back to is what I mentioned in my prepared remarks, the tremendous success we're having in cross-border. We've had great success in selling new use cases and driving cross-border transaction growth in Visa Direct. As you know, the yields are higher in cross-border, given the value that we add. So again, feel good about all of that. Listen, I want to just emphasize in terms of Reg 2, the e-commerce debit market is a very competitive market and is gonna be competitive for as far as we can see. So while Chris noted, I think noted that the impact has remained the same, we haven't seen any change in impact, and we're not expecting any change in impact for the fourth quarter. It is a competitive business. We are out there with clients day in and day out, helping them understand the benefits of processing transactions on Visa. And there are a lot of them, which is why we feel good so far in the evolution of Reg 2 about how we've been able to grow that business. We feel great about the capabilities that a Visa data transaction offers, many of which I've talked about on these calls in the past. So we're out there, we are competing, we're selling, we're delivering our products, and we feel good about our win rate. Operator Next, we'll go to the line of Jason Kupferberg from Bank of America. Please go ahead. Jason Kupferberg -- Analyst So just a clarification on revenue and then a question on volumes for this fiscal year. So it sounds like for Q4, you're looking for revenue growth of, call it, 11% to 12%. I think that would put you at the low end of the low double-digit guide you're maintaining for the year. So that's what I wanted to clarify. And then, just a question on volumes. I think, you said Q4 should be in line with Q3, which I think would bring the full year to around 7% versus the high single-digit updated guide last quarter. So just as we start to tune our models for next year, what are some of the potential accelerants off that 7% level we should be considering? Chris Suh -- Chief Financial Officer Jason, let's unpack that. You had a couple of things in there, and I just want to -- I think this is important so we'll just be super clear. For Q4, my guidance, our guidance for our Q4 adjusted net revenue would be low double digits. And sort of the directional guidance I also gave is it would be slightly above the Q3 level that we reported, which was the 10% growth in the quarter. And so, sort of take that -- take those two points and I would triangulate around that. And that would still get you sort of to the math of the low end of low double digits, as you called it, for the full year. The second point was on drivers from Q3 to Q4. I did say that payment volume, payment transactions, we anticipate Q4 to be consistent with Q3. The one exception to that is in cross-border, where I did say it'd be slightly below the Q3 levels. And that really is based on the travel circumstances and situation in Asia that we've talked about extensively, with outbound travel in Asia, in particular, being impacted and recovering slower than we anticipated at the beginning of the year. And so, those are the two variables in terms of the -- to get the Q4 guidance consistent with the intent that I communicated. And then, as far as FY '25 goes, we're at the beginning end of planning, and as we always do, we'll share our expectations on '25 at the end of Q4. Operator Next, we'll go to the line of Dan Perlin from RBC Capital Markets. Please go ahead. Daniel Perlin -- Analyst I guess, more of a big picture question here, Ryan. So your AI and GenAI investment, you've talked about, I think at conferences, your desire to kind of build out your own large language model. So I'm wondering, one, where do those investments stand today? I guess, two, what would be your expectation for early use cases of those investments and kind of the payback period? And then, three, is there an opportunity to drive like true incremental sales or better outcomes for your merchant constituents as opposed to just the banks? Ryan McInerney -- Chief Executive Officer Yes. Dan, thanks for the question on AI. First of all, to frame it is we are all in on GenAI at Visa as we've been all in on predictive AI for more than a decade. We're applying it in two broad-based different ways. One is sort of adopting across the company to drive productivity and we're seeing real results there. We're seeing great results, great adoption, great productivity increases from technology to accounting to sales all across the company. The second is applying generative AI to enhance the entire payment ecosystem. And to the latter part of your question, absolutely. I guess, I'd give you one set of examples or some of the risk tools and capabilities that we've been deploying in the market. I mentioned the risk products that we're using on RTP and account-to-account payments. That is an opportunity to reduce fraud, both for merchants and for issuers. I think, I mentioned on a previous call, we have our Visa Provisioning Intelligence Service, which is using artificial intelligence to help predict token provisioning fraud before it happens. That also is a benefit to both issuers and merchants. And the list goes on. So we are very optimistic about the positive impact that generative AI can have, not just on our own productivity but on our ability to help drive increased sales and lower fraud across the ecosystem. Operator For our final question, we'll go to the line of Harshita Rawat from Bernstein. Please go ahead. Harshita Rawat -- Analyst Ryan, Chris, U.S. card volume growth of 5% in surface kind of suggests a little bit more of a mature market. Now I understand the category differences between card volume growth and PC growth, which influence the delta here. Ryan, you discussed your global data estimate of $20 trillion in consumer payments for Visa. How should we think about the secular digitization opportunity and the growth algorithm for the U.S., which is your biggest market? Ryan McInerney -- Chief Executive Officer OK. It was a little hard for us to hear you, Harshita, but I think I got the gist of your question around the growth algorithm for consumer payments, especially in mature markets. So as I've said before, we see more than $20 trillion of opportunity around the world. About a quarter of that is in the U.S., by the way. And that's cash, that's check, that's ACH, that's electronic transactions, that's cards that run on domestic networks and the like. And we're capturing that opportunity through a few different ways. One is continuing to expand acceptance and expand the places where people can use cards. In the U.S., rent would be a great example. We've been having some really good success penetrating the rent vertical. The second is making it easier to drive e-commerce growth and e-commerce transactions, which has an outsourced impact on our ability to drive growth on Visa for those types of things. And third is just continuing to innovate with new products and services that make our issuers want to issue Visa and consumers want to use them. We announced a full slate of new product innovations at our Visa Payments Forum this year. And those are the types of products that we believe are going to help us win in the marketplace and help us capture and digitize a big chunk of that opportunity on the Visa network. Jennifer Como -- Senior Vice President, Head of Global Investor Relations And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or email our investor relations team. Thanks again, and have a great day.

Earnings call: Lockheed Martin reports robust Q2 financials, raises outlook By Investing.com

Lockheed Martin Corporation (NYSE: NYSE:LMT) has reported a 9% increase in sales year-over-year and a sequential growth of 5%, with strong performance in the second quarter of 2024. The defense contractor's backlog is nearly $160 billion, over twice its annual revenue, indicating a solid foundation for future earnings. The company's leadership discussed both financial results and operational achievements, including advancements in the F-35 program and strategic collaborations in defense technologies. With over $17 billion in new orders and a commitment to delivering up to 110 F-35 aircraft in the latter half of 2024, Lockheed Martin is poised for continued growth. The company also emphasized its dedication to shareholder returns, having distributed over 100% of its $1.5 billion free cash flow through dividends and share repurchases. Lockheed Martin's second-quarter earnings call painted a picture of a company with strong financial health and strategic foresight. The company's leadership, including CEO Jim Taiclet and financial officer Jay Malave, provided insights into operational successes and financial strategies that are driving growth. With a significant backlog and a clear focus on shareholder value, Lockheed Martin is setting the stage for sustained performance in the defense sector. Lockheed Martin Corporation's (NYSE: LMT) latest earnings report reflects a company on the rise, with a substantial backlog and a commitment to shareholder value. Delving deeper into the financial health and strategic positioning of Lockheed Martin, InvestingPro data and tips provide further insights. InvestingPro Tips highlight that management has been proactively buying back shares, showcasing confidence in the company's value. Additionally, Lockheed Martin has not only raised its dividend for 21 consecutive years but has also maintained dividend payments for an impressive 41 consecutive years, underlining its consistency in returning value to shareholders. From a data standpoint, Lockheed Martin boasts a market capitalization of $120.28 billion, affirming its substantial presence in the aerospace and defense industry. The company's P/E ratio stands at 18.16, which is considered attractive when paired with near-term earnings growth. Furthermore, the PEG ratio of 0.69 suggests that the stock may be undervalued relative to its earnings growth potential. For those interested in further insights and tips, InvestingPro offers additional information that can guide investment decisions. Currently, there are 14 more InvestingPro Tips available for Lockheed Martin at https://www.investing.com/pro/LMT. Readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable insights. Lockheed Martin's robust financial metrics and strategic initiatives, as reflected in the latest data and tips, reinforce the company's strong position in the market. With a forward-looking approach and a track record of delivering shareholder value, Lockheed Martin remains a key player to watch in the defense sector. Operator: Good day, and welcome, everyone, to the Lockheed Martin Second Quarter 2024 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the conference over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead. Maria Ricciardone: Thank you, Lois, and good morning. I'd like to welcome everyone to our second quarter 2024 earnings call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer; and Jay Malave, our Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We've posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'd like to turn the call over to Jim. Jim Taiclet: Thanks, Maria. Good morning, everyone, and thank you for joining us on our second quarter 2024 earnings call. Over the past few months, Lockheed Martin's people, systems and platforms have again demonstrated their ability to enhance security in Eastern Europe, the Red Sea and the Middle East. From the PAC-3s critical role in air defense, to the Aegis Combat System with AI augmentation to the F-35 of this advanced sensor and data management capabilities, our company has made major contributions to Allied and Partner defense. We continue to demonstrate the impact of our 21st Century security strategy by harnessing the latest digital technologies to continuously improve mission effectiveness, strengthening and scaling defense production system, and expanding industrial cooperation among our allies and partners. Consequently, demand for our defense technology solutions remains robust, with a backlog of nearly $160 billion greater than two times our annual revenue. Our strong performance so far in 2024 extends beyond blast backlog as well giving us confidence to raise our 2024 full year outlook for sales, segment operating profit and EPS. In the second quarter, sales increased 9% year-over-year and 5% sequentially and reflected growth in all four of our business segments. The supply chain continues to improve and defense outlays also continue to increase. Our focus on operational execution helped us achieve segment operating margins of 11.3%, up 20 basis points compared to last year's second quarter and free cash flow of more than $1.5 billion, an increase both year-over-year and sequentially. Jay and Maria will talk more about the specifics of the quarterly results in a moment, but suffice it to say, we are pleased with our financial performance and momentum so far in 2024. I'm especially happy to report the progress we have made on the F-35 program. As announced last week, we began deliveries of the first Technology Refresh 3 or TR-3 configured F-35 aircraft to the US government. The TR-3 upgrade and further Block 4 enhancements represent a critical evolution in capability and their full development remains a top priority for us. These and further software updates over the life of the program will ensure that F-35 remains an effective deterrent to aggression and the cornerstone of Joint All-Domain operations now and decades into the future. We continue to produce at a rate of 156 aircraft per year and expect to deliver 75 to 100 aircraft in the second half of 2024. Over 95% of TR-3 capabilities are currently being flight-tested and we look forward to delivering full TR-3 combat capability to the customer. In addition, we expect deliveries of F-35 aircraft to exceed production for the next few years. Jay will talk about the financial aspects of our current status in a moment. Continued close collaboration with the joint program office, or the JPO as known and across our industry partners has been and will be essential to meet and exceed expectations of this critical national defense program in a timely and cost-effective manner. I met with my F-35 industry CEO colleagues in Fort Worth recently to set plans for enhancing the cooperation on our software and hardware and test integration processes, among other initiatives to increase speed and efficiency in the program. The TR-3 hardware and software provide a significant upgrade in computing power that enables major improvements and capability to our airmen, sailors and marine as well as to our partner and allied nations. International customers continue to recognize the superior capabilities of this, the most advanced fighter aircraft in the world in key aircraft node in the DoD's Joint All-Domain architecture. On the international front, Israel announced a third squad of F-35As, increasing their fleet by 50%. Greece is in the final stages discussion with the U.S. government to procure the F-35 and we continue to see interest from Romania as well as a potential new customer. Beyond the F-35 is the quarterback of Joint All-Domain operations our ongoing collaboration with the U.S. military during major exercises with deployed operational units exemplifies our commitment and ability to enhance readiness and integrate capabilities across all of our customers' missions and priorities. In June, new advanced capabilities from across Lockheed Martin contributed to the tenth iteration of U.S. Indo-Pacific Command's Valiant Shield exercise. During this exercise, there were several significant milestones demonstrating how we are continually improving our forces capabilities and enhancing our deterrence posture. One example is that we successfully integrated digital command and control capabilities with the Indo-Pacific Command's Joint Fires network, enhancing real-time decision-make commanders and operational agility for the forest. Our operational planning data fusion engine was employed to coordinate joint operations using live real-time data producing actual tasking orders at combat relevant speed. And another example from the same exercise, Lockheed Martin Space and Lockheed Martin Aeronautics jointly demonstrated the ability to autonomously optimize intelligence, surveillance and reconnaissance, or ISR, collection and enhance their imagery for quick, automated target detection and classification, facilitating data delivery across a wide range of space-based and airborne platforms like never before. In addition, the U.S. Army tested our Precision Strike Missile, or PrSM, against the moving maritime target in the Pacific Ocean. This next-generation missile enables further improved range and precision to deter potential adverse series from even greater distances. According to the Army, this test is a significant step in the PrSM programs progress. We've also moved toward realizing the 21st Century Security Joint All-Domain vision with the signing of a landmark agreement with Australia's Department of Defense to build their future joint air battle management system. They call it Project AIR6500 Phase 1. As we've discussed before, this system will provide the Australian defense force with leading-edge integrated air and missile defense capability using next-generation technologies to combat high-speed threats and establish Australia's integrated air and missile defense as one of the most highly advanced in the world. We also continued to demonstrate 21st Century security in other innovative ways. In May, our Skunk Works Tactical artificial intelligence team successfully executed their second set of flight tests with the University of Iowa's, Operator Performance Laboratory. RAI flew an L29 jet aircraft by means of heading, speed and altitude command sent directly to the onboard autopilot than to the plans flight controls. This test has shown our AI team can rapidly develop, iterate and integrate artificial intelligence technology for autonomous flight operations. We're also making great progress in another leading-edge defense tech initiative, hypersonic strike, which is a critical element of deterrence in today's world. As announced by the Department of Defense in June, the US Navy and US Army completed an end-to-end all up ground flight test of a common person missile, core to the Navy's conventional prompt strike or CPS and the army's long-range hypersonic weapons programs. The test marked a major step forward for the nation's development of hypersonic systems by Lockheed Martin. Pivoting to the supply chain, we continue to explore opportunities to drive our concept of anti-fragility across the global defense industrial base. For example, we recently signed a collaborative memorandum of understanding with Ryan Mittal to work together on land, air and naval opportunities. One of our first initiatives is the new Global Mobile Artillery Rocket System or GMARS is a highly interoperable two-pod launcher system intended to fire the MLRS-based munitions. Combining these combat-proven systems will help address the growing demand for long-range rocket capabilities in Europe and elsewhere. On our PAC-3 program, international collaboration remains strong as well, including development of indigenous capabilities with the opening of a PAC-3 MSE launch tube production line in Poland, as well as a memorandum of understanding with Grupo Oesía in Spain to provide an opportunity to manufacture factory MSE parts for worldwide customers. Spain and the United States also formalized an agreement for Spain to purchase pack free MSE missiles and related support, making Spain PAC-3s 16th partner nation. I'd also like to briefly discuss the latest status of the US defense budget. The House approved their version of the FY '25 defense appropriations. So the focus now shifts to the Senate where the process continues before the reconciliation phase later this year. We believe our portfolio is well-aligned to current and future customer mission priorities, including air superiority with the F-35 and CH-53K and Black Hawk or UH-60M. Our integrated air and missile defense with PAC-3 and NGI, hypersonics with CPS and the LRHW I just mentioned a minute ago and tactical strike weapons and munitions with JASSM, LRASM, PrSM, JAVELIN and GIMLERS. Ultimately, we look forward to the conclusion of the USG appropriations process and the continued utilization of the existing supplement mental funding. On the international front, I was encouraged by conversations I had at the recent NATO Summit a few weeks ago in Washington. International partners and allies remain steadfast in their pursuit of elevated defense spending to strengthen the overall integrated deterrence posture of the alliance given the tragic and ongoing conflict in Ukraine. I'll now turn it over to Jay for award highlights and additional commentary on our financial results. Jay Malave: Thanks, Jim. Similar to last quarter, I'll provide an overview of consolidated financials and touch on a handful of operational items before handing off to Maria, who will cover business area financials, and then I'll come back to discuss the updated outlook. Starting on chart 4. The positive momentum we had to begin the year continued into the second quarter with sales up 9% to over $18 billion, led by RMS and MFC. As Jim mentioned, throughput remained strong reflecting an improving supply chain and internal operating cadence. Segment operating profit of $2 billion was up 10% year-over-year, and consolidated margins were 11.3%. With all four business areas achieving double-digit return on sales, the first time since the third quarter of 2022. Net favorable profit adjustments in the quarter were higher than prior year and were 21% of segment operating profit, driving the stronger margins. GAAP earnings per share of $6.85 increased 3% year-over-year, driven by higher profit and lower share count, partially offset by severance impairment charges at RMS and Sikorsky, higher interest expense and lower pension income. On the new business front, we recorded over $17 billion of orders in the second quarter for a book-to-bill ratio just below one. We generated $1.5 billion of free cash flow in the quarter, bringing our year-to-date total to just under $2.8 billion, and we continue to make the necessary investments in innovation and infrastructure to position the company and our customers for future success with $400 million -- $405 million in research and development and $370 million in capital expenditures the second quarter. Finally, we returned over 100% of our free cash flow to shareholders via share repurchases and dividends. Now, I'll touch on a few business activities in more detail. The order strength continued at MFC with a book-to-bill over two in the quarter, led by the $4 billion plus Army award spanning multiyear PAC-3 delivery requirements and supporting our production ramp projections. And Poland officials signed a letter of acceptance to purchase 400 JASSM ERs, the largest international order and program history, providing another ally with the latest generation JASSM variant. At Sikorsky, its platforms remain in high demand as the US State Department announced approval for four foreign military sales of Black Hawk to Austria, Brazil and Sweden. This opens the door to the potential sale of 36 Black Hawks, adding 12 helicopters each to each country's existing Blackhawk fleet. In addition, the government of Greece signed a letter of offer and acceptance for 35 UH-60M BLACK HAWK helicopters. These upgraded aircraft will support the Hellenic Ministry of Defense's ongoing modernization. It will serve as a dependable multi-role helicopter with unmatched interoperability to support vital national and allied security missions. In the space domain, late last month, NASA selected Lockheed Martin to develop and build the nation's next-generation weather satellite constellation for NOAA known as Geostationary Extended Observations, or GeoXO. This award builds on our prior work with environmental sensing technologies, which recently culminated with the launch of GOES-U, which will leverage advanced instruments and rapid updates to provide crucial data for weather forecasting, severe storm tracking and climate monitoring. Let me stop here and hand it over to Maria to get into the business area of financial detail. Maria Ricciardone: Thanks, Jay. Today, I'll discuss second quarter year-over-year results for the business areas, starting with Aeronautics on Chart 5. Second quarter sales at Aero were up 6% year-over-year. The increase was primarily due to higher volumes across F-35 and the continued production ramp on the F-16 program. Segment operating profit increased 5% with higher volume and favorable mix being offset by lower profit booking rate adjustments. Regarding aircraft deliveries, we resumed F-35 deliveries in Q3, as Jim shared, and we've delivered our 1,000 F-35s. On F-16, we delivered four in the second quarter and are targeting around 20 for the year. For 130J, we delivered five in the quarter, reaching a milestone of 2,700 deliveries of this critical tactical airlifter and expect around 20 deliveries for this year. Turning to Missiles and Fire Control on Chart 6. MFC had another strong quarter with sales up 13% from the prior year, driven by production ramps on a handful of our precision fires programs within the tactical and strike missile segment, primarily Guided Multiple Launch Rocket System, GMLRS and Long Range Anti-Ship Missile, LRASM. Segment operating profit increased 21% year-over-year due to higher profit booking rate adjustments led by the PAC-3 and Apache programs margins returned to 14.5%, which is more in line with historical rates. MFC backlog reached a record level of almost $35 billion in Q2 supported by continued global demand for several of our missile ammunition programs. Key awards included the PAC-3 award that Jay mentioned as well as $1.3 billion in combined awards for launchers, including HIMARS, and M270 upgrades and a $500 million follow-on production contract for JAGM and HELLFIRE to support U.S. and international customers. On the delivery front, I'll highlight a few of the key program quantities in the quarter. We delivered 100 PAC-3 interceptors, more than 2,000 GMLRS rockets, over 2,700 HELLFIRE missiles and 11 HIMARS systems. Shifting to rotary emission systems on Chart 7. Sales increased 17% in the quarter to over $4.5 billion primarily driven by higher volume at integrated warfare systems and sensors on radar and laser programs as well as the Canadian Surface Combatant program. Sikorsky programs also saw higher volume led by BLACK HAWK and CH-53K. Also of note in the quarter, we delivered five S-70 helicopters to international customers, which resulted in about $115 million of revenue on a passage of title POT basis. Operating profit increased 9% year-over-year due to higher volume, partially offset by lower profit booking rate adjustments. Now, for a brief summary of helicopter deliveries. In addition to the five S-70 helicopters I mentioned, Sikorsky delivered five Black Hawks, four combat rescue helicopters, and one VH-92 Presidential helicopter in the quarter. On the delivery front, a few of the key program quantities in the second quarter, we -- yes, sorry about that. Let's go to space. Finally, with space on Chart 8. Sales increased 1% year-over-year. The growth was driven by higher volume on strategic and missile defense programs, primarily hypersonics and Fleet Ballistic Missile, FBM. Partially offsetting this growth was lower volume on classified programs and Orion. Operating profit increased 11% compared to Q2 2023, driven by favorable mix and higher profit booking rate adjustments. Now, I'll turn it back over to Jay to wrap-up prepared remarks. Jay Malave: All right. Thanks Maria and let's shift over to the outlook on Chart 9. Given our strong year-to-date performance, sustained back position, and improving visibility into key programs, we're raising our expectations for Lockheed Martin's 2024 financial outlook for sales, segment operating profit, and earnings per share. We're increasing sales by $1.75 billion at the midpoint and tightening the range to $70.5 billion to $71.5 billion. The new midpoint reflects a solid 5% growth from 2023 with increases across all four business areas. We're also increasing segment operating profit expectation based on the higher sales with the new range of $7.35 billion to $7.5 billion and anticipate consolidated segment operating profit margins to remain at 10.5%. Business area margins remained consistent with our prior guidance at Aero and MFC, while RMS is down about 50 basis points at the midpoint and space is up 40 basis points at the midpoint. The RMS reduction is driven by Sikorsky as the business faces continued cost pressure and absorption headwinds, the impact of which have exceeded benefits from its cost reduction programs. Conversely, space is benefiting from solid performance and proactive reduction efforts. Moving to earnings per share on Chart 11. We're increasing the midpoint by $0.35 to $26.35 with a range of $26.10 to $26.60 for the full year. Primary drivers of the change are shown on this chart with increases coming from incremental profit of $0.49 and other below-the-line items of $0.13. Partially offsetting those items are the RMS charges totaling $0.29 and from the severance actions and the asset write-downs taken in the second quarter. As Jim mentioned, we're encouraged by the F-35 delivery restart and continuous progress being made towards delivering full combat capability. We're holding our free cash flow expectation in the range of $6 billion to $6.3 billion, which absorbs a potential unfavorable impact from longer deferrals of final F-35 delivery payments. This is made possible by proactive actions taken across the company to offset these potential headwinds. On the cash deployment side, we still expect over $3 billion of IR&D and capital investments, while the dividend, along with the expected $4 billion of share repurchases, maintain attractive shareholder returns. Lastly, on backlog, we continue to expect backlog to grow in 2024 even with the higher sales outlook, which provides a line of sight to future growth. Before I wrap, I'd like to highlight a few other key assumptions regarding the updated outlook. First, we expect F-35 18/19 to be awarded this year, maintaining program funding and continuity. Second, we continue to expect $325 million of losses on the MFC classified program, of which $100 million has been recognized year-to-date. And third, this outlook does not assume any pension contributions in 2024. So in summary on Chart 12, our solid first half results give us confidence in raising the full year outlook for sales, profit and EPS, while holding the cash flow outlook, reflecting our ongoing efforts to deliver predictable, and improving operating and financial performance as is expected of us. It all starts with a relentless focus on executing to our programmatic commitments and delivering critical 21st Century security mission capabilities where we strive to continuously improve. To that end, we are investing in our people, processes and systems through the 1LMX transformation, with the goal of unlocking step changes in efficiency, velocity and program execution that delivers security capabilities in ahead of ready speed to our customers. And we're confident that these management priorities and actions convert to a compelling long-term value proposition for customers and shareholders alike. With that, Lois, let's open up the call for Q&A. Operator: Thank you [Operator Instructions] The first question comes from the line of Kristine Liwag from Morgan Stanley (NYSE:MS). Please go ahead. Kristine Liwag: Hi, Jim, Jay and Maria. Release from Farnborough, the F-16 is flying in the background right now. So apologies for the grower in the background. Jim Taiclet: Let's call it the sound of Freedom, Christine, it's good. Kristine Liwag: I mean, it's a crazy or beautiful aircraft here. So the delivery guidance for the F-35 in the second half of this year is still fairly wide. Can you talk about the scenarios where there are lower and upper? What would have to happen for you to hit the lower upper end of the range? And also with production at 156 per year, when should deliver and production catch up for the program? Jim Taiclet: So Kristine, I'll start and emphasize that we're going to do this unwind and conduct the deliveries with safety and quality is our number one priority. So just starting with that foundation, we actually have the ability to add resources, which have already been identified and designated. And that's test pilots, maintenance team, software and hardware engineers to get the flight test done that we need to, be at the higher end of that range. But we want to make sure that if it's weather, if it's pilot, crew rest issues, anything like that, we will accommodate for those. But we should -- we have the resources in place, I'll say, that should enable us to get to the higher end of that range, if you will. Jay Malave: Yes. Let me just add, just to reiterate, Kristine, we expect anywhere between 75 to 110. Yes, with less than six months left, it is a wide range. I would say, over the next few months, we'll get much better insights into the induction and flow of aircraft going into the test and production cycle, really bringing in aircraft that are parked as well as aircraft that are coming outside of the -- from the production flow. And as we get those learnings, we'll be able to get a better assessment what the delivery requirements will be and what we expect for the year. And so it will take us a couple of months just to make sure we get that process learned out. It's well planned, but we actually have to demonstrate it in actual practice. As far as the future, from terms of reducing on the backlog of aircraft, our target is anywhere between 12 to 18 aircraft deliveries per month and really to burn down the aircraft backlog. And so that will take us a number of years here to get through that. We've already made progress so far. Since the announcement of the restart, we've delivered 10 aircraft as of Monday yesterday, six with the TR-3 configuration and four with the TR-2 configuration. So we think we're off to a very good start. But again, we really need to have a -- just to monitor the operating cadence of being able bring aircraft from two different flows into one test -- flight test flow. And again, we'll tighten that up later on in the year. Operator: Thank you. The next question is from Cai von Rumohr from TD Cowen. Please go ahead. Cai von Rumohr: Yes. Thanks so much. So I think you did say that next year, you're going to deliver more F-35s than you will produce. And I think at one point, you mentioned that you get paid $7 million upon each delivery. Walk us through -- you mentioned also the deferral of some payments. So next year, what happens to accrued revenues, because I think with higher deliveries, I assume the final delivery payment basically is incremental even though under POC, the work itself should be relatively level. And then secondly, the cash flow impact. I know that there's a deferral on the payments, but if it was really $7 million, that's potentially a substantial cash flow plus. Thanks so much. Jay Malave: Okay. Cai, let me just say, first of all, as Jim mentioned, restarting delivery was an important first step really towards delivering the fully combat capable aircraft. Aircraft, the withhold -- the aircraft withhold this final delivery payment is a timing item, as you mentioned. And we're working with the customer to finalize the terms of those final delivery payments. We're making excellent progress, but it would be immature or premature to give details of that because it remains subject to negotiation. Suffice it to say that you will see timing benefit over the next few years as we deliver, but I think we still need to work through and finalize this agreement with the customer. As far as the revenue, I really wouldn't see -- expect much of an incremental benefit in terms of revenue. We continue to build at a 156 rate. We are seeing production a little bit higher this year. But for the most part, we should expect that to be, I think, fairly stable. And yes, we'll see incremental activity in terms of test activity, which does increase penetration on a percent complete basis. But I don't really view that being all that material. And so we just hold the production. We'll expect F-35 to grow mostly from sustainment next year and in the years to come. I think it's important to mention as well that we are -- the headwind on funnel delivery payments are here in 2024. We're holding our outlook, so we're absorbing that with better performance in the rest of the portfolio. Yes, we will see the timing benefits downstream. But as I mentioned before, we have to get just the whole delivery cadence straight. And I just want to make sure I had it straight in terms of the last question. We're targeting anywhere between 12 to 18 months to fully deliver on these parked aircraft. And as I mentioned, we just need to learn out the process over the next few months here and get -- to be able to give better guidance on that. Scott Deuschle: Jay, you've been seeing some nice momentum on revenue and now you're seeing some of it on margins as well. I guess at what point do you think you'll be ready to start talking about maybe a better medium-term free cash flow per share growth outlook in this mid-single-digit rate you've been talking about for a while. Do you just need to let these pension headwinds next year and see a bit more growth acceleration? And then you're there. Just curious for how you're thinking about that? thanks. Jay Malave: Yes. No, I appreciate the question. We've said over the last few months and really the last year or so that our goal has been to increase absolute free cash flow in the low single-digit clip, and then that augmented with share repurchase would get us to a mid-single-digit free cash flow per share expectation. That remains of the outlook. We'll go through our multiyear forecast over the next few months here, we'll be able to give you a better update in the October timeframe. I think given the fact that we're at a higher level in 2024 is a positive, and we continue to expect to grow in 2025 off this higher baseline. So, that in and of itself should result in a higher cash flow baseline as well. But there's a lot of work to be done between now and then. And so I would like to have the benefit of going through that in more detail, and we'll update that to you at least preliminarily in October. Gavin Parsons: Maybe sticking on revenue. You guys have talked about supply chain kind of being a bottleneck, is the upside more on the demand front or on the unlocking of the supply chain side? And if latter, can you just talk a little bit more about supply chain and what you expect going forward in the second half, because I think the second half a lot less growth? Jay Malave: Well, I'd say it's a combination of both. We ended the year in 2023 with a $160 billion backlog, which was a record. We ended here in the second quarter at $158 billion was slightly below where it ended a record with significantly higher sales than we thought through the first half of the year. We expect -- our continue -- as I mentioned in my prepared remarks, that we continue to expect the backlog to increase at end of this year, which gives us more visibility into further growth in 2025 and beyond. So, we're very bullish on where that stands from a backlog standpoint. As far as supply chain, we did see improvement. We are seeing continued improvement there and on-time delivery. The part shortages continue to come down. Having said that, there are still areas where we're -- particularly where we're ramping up some of our major programs where we still have some work to be done there. And we're still going through many of the initiatives and actions that -- proactive actions that we've talked about in the past, which is some in-sourcing on some capabilities, dual sourcing, where it makes sense. Also, we have deployed, and we continue to deploy personnel to provide on-site assistance at our suppliers. And of course, we also continue to look at product redesign. But I'd say, by and large, we are seeing an improvement in the in the supply chain, which also gives us confidence for that continued growth in the future. Jim Taiclet: And Gavin, I just give you some qualitative background on demand side. Our strategy includes driving the latest digital technologies kind of through an open architecture, standard-based system to the DoD. And by doing that and making our product services platforms compliant or in line with those future concepts of open architecture and standards to pull through those products, services and platforms. So we're starting to see that already. And we're demonstrating whether it's exercises or in real conflict like the Red Sea, doing things like over-the-air updates to the AEGIS system, which is decades old, but it can be improved very quickly now just like when you download overnight on your Tesla (NASDAQ:TSLA), we can do a download overnight over the air on the AEGIS radar and combat control system and double, triple the effectiveness against things like low flying drones and cruise missiles. So we're actually implementing those kinds of things on a standard base architecture into our products and services today, which I expect will continue to pull them through. Gavin Parsons: Great. Appreciate the detail. Operator: Thank you. Our next question is from Pete Skibitski from Alembic Global. Please go ahead. Pete Skibitski: Hey, good morning, guys. Guys on missiles and fire control, if you think about what was appropriate in the 2024 baseline budget and the Ukraine supplemental, how much order flow is still to come there for you guys at MFC? And also, just if we think about the growth cadence there, you talked about $750 million a year in the past, you're going to be well above that this year. So I'm just wondering if that cadence is going to come back into play 2025 on a higher baseline. Thanks. Jay Malave: Sure. I mean there's still plenty of runway in orders at MFC. As I mentioned, the book-to-bill in the quarter was above 2%, and we're still expecting additional orders at the end of the year, particularly in JASSM/LRASM in second half here. They're still even under supplemental, there's some opportunity there to continue to build their backlog and so we've talked about $750 million. You're right. They're going to be above that this year. We see continued growth there next year, and they're going to be, again, the highest grower within Lockheed Martin for the next three to five years. So we're pretty bullish on that. Much of that is already in the backlog, but there's still plenty more to come in terms of build -- continuing to build that backlog. The key for us is to make sure that we can meet the demand and ramp up all these programs to our customers' requirements. And the team has been laser-focused on making sure they can do that, and you're seeing the benefits of that this year with the sales coming in higher. So again, we keep our head down, continue to deliver. The demand is both domestic and international at MFC. And again, they're going to be a significant source of growth for Lockheed Martin or for the next three to five years. Jim Taiclet: And Pete, it's Jim. Again, on a qualitative perspective, I tell our teams and our executives internally we're in the aerospace and defense industry, but we're in the deterrence business. right? So if you step back and say what contributes to deterrence from an MFC, for example? And I think anybody that's everyone watching Clint Eastwood would movie will know that, if we run out of ammunition, you're in a lot of trouble, right? So part of deterrence is showing that, a, you have enough ammunition stocks to prevail and sustain your operations from an aggressor. That's the first thing. Second thing is you also - it's helpful to demonstrate that you can produce at rate and ramp that rate quickly. That's our anti-fragility program. And the third piece of it is you can produce and repair MFC and other products in the local theater and not have to bring them all the way back to the US to fix them or drive that production up. That's the third part of our strategy. So everything we do is based on deterrents and strengthening that. And MSC has a huge role in making sure that adversaries know that we've got enough stocks in MFC type products, and we can ramp that rate and we can produce in different places and repair in different places should they act. And that's really kind of a qualitative underpinning of what Jay was talking about. Seth Seifman: Hey. Thanks very much and good morning. Probably just a quick one. Sorry about the background noise here. Just a quick one and kind of big picture. I think, Jay, I think you've said in the past that there was good potential for growth to be at least as strong as 2024 and 2025 and good potential for that growth rate to accelerate. Is that still the case off of the higher revenue base and a higher growth rate here in 2025 -- in 2024? Jay Malave: Yeah. It's a good question, Seth. And as I mentioned before, we're going -- just going through our process to lay out our multiyear outlook, including 2025 here over the next few months. What I would tell you is that the backlog visibility that we have would support another year similar to 2024. We have to have to go through though, and the operational. The practical operational capability to deliver that is something we go through. And so the demand is there. We have to make sure the supply can meet that as well. That's a pretty significant step change over really a two-year span on some of these ramp programs that we're dealing with. And as I mentioned before, we're still dealing with some programs that are still working through trying to get off to the ramp rates. Operator: Our next question is from Sheila Kahyaoglu from Jefferies. Please go ahead. Sheila Kahyaoglu: Good morning, guys. Thank you. Maybe if we could talk about profitability. If we look at first half profitability of 10.7, second half implied in the low 10s. Can you walk through some of the moving pieces, maybe in terms of supply chain productivity, I know volumes are lower and how we think about the exit rate for the year? Jay Malave: Yeah. The second half of the year, Sheila, is -- I mean the most significant would be the program loss at MFC that we have to record in the second half. So as I mentioned in my prepared remarks, we recorded about $100 million here year-to-date. In the second half, we expect about another $225 million. So that will put pressure on margins in back half. The second piece I would say is that, we would have -- even though we had a very strong and solid profit adjustment first half that slows down a little bit in the back half of the year just based on program timing, the timing of risk retirements -- and so just the risk retirements and profit adjustments are not all linear, they incur different aspects of a program life cycle. But what I would say is we feel comfortable with where we're headed. We've talked about 2024 being a low watermark for all net-net margins, and we expect it to improve gradually over the next few years, and we still feel confident that can take place. Operator: Thank you. The next question is from Ken Herbert from RBC Capital Markets. Please go ahead. Ken Herbert: Yes. Hi. Good morning. I just wanted to see and apologies if I missed this, but can you comment on your view of NGAD, and how you're thinking about that now moving forward? And what we might be thinking about in terms of the next catalyst for you on this particular program? Jim Taiclet: Sure, Ken. It's Jim here. So when it comes to NGAD as a program, we're not authorized an industry to speak to the details of that. So you'd have go to the U.S. government to get insight into that particular program. But I can tell you what we're doing to prepare for the next-generation combat aircraft. So on the investment front, since 1920 -- or 2021 rather, we opened the gates on four high-tech facilities that have the clearance -- the security clearance capability to produce NGAD type components, let's call them, all right? One of them is in Florida, Skunk Works in California, opened a new major factory that I was there to see. We have it in Alabama, two in Georgia. So we have these accredited facilities up and running ahead of the demand, and we're working on programs and products in that classified capability space. So we've already got these facilities up and running. The other resource we have is human in Skunk Works, Marietta and in Fort Worth and other places that can design, test and build using our digital transformation engineering technologies and the digital twin these kind of components, aircraft and others that might go into a NGAD concept. So I can just tell you that Lockheed Martin is ready to produce. We're ready to design. We're ready to build. We are in the process of making sure we're capable in the arenas that the Air Force and the Navy are going to need us to be. So that's really all we can say about that. But I can assure you that we are competitive and ready to go in this space if and when the government pulls a trigger on a real competition and want somebody will be able to produce, we can do it. Operator: Thank you. And the next question comes from the line of Rob Spingarn from Melius Research. Please go ahead. Rob Spingarn: Hey, good afternoon, or I guess, it's still morning. But I wanted to ask you about on F-35 and congrats on the resumption of deliveries. But when we think about TR-3 and on the production side of the equation, how is the supply chain in terms of being able to supply enough material and integrated core processors on time for you to maintain the 156 per year. So as the mix goes more toward all TR-3, how well prepared is the supply chain for that? Jim Taiclet: So we got together, Rob, as I mentioned a few minutes ago in the prepared remarks in Fort Worth about a month with the CEOs of half of those companies that contribute to this in a significant way. We communicated the importance of exactly what you're speaking to which is not just a core processor, but there's a range and a number of other components across all of these companies that need to maintain or increase their production rates and modernize their equipment along the way. And so that communication of those suppliers has been made. They know our plans were well integrated -- more integrated than we ever have, I think, when it comes to test and planning and design iterative software across multiple companies, et cetera. So we're in a position, and as suppliers are telling us they will meet the demand. We will monitor them and continue to even put people in their sights when we need to, to make sure that happens. But we've got the major suppliers together, and they understand the demand rate, quality level we need and a better integration plan for test and development that we have built going forward. Rob Spingarn: And Jim, just following on to that, how do we think about the cadence for retrofit from TR-2 to 3? Jim Taiclet: So you're right, Rob, that this is designed for backward integration, if you will. There'll be a schedule that the US government. It comes up with for TR-3. There may be -- it will be up to them as to the cadence, the investment rate, et cetera. But over a period of time, there will be a great number of originally built TR-2 aircraft that will get converted. There's some hardware software upgrades to that. Rob Spingarn: Is this the kind of thing you expect to be talking about soon? Or this is a few years out, we should be focusing on new production aircraft for now TR-3. Jim Taiclet: Yes. So again, this is a US government policy decision, so it's better to request that kind of commentary from them, Rob. But we're, again, ready to do it at the rate that we expect -- that they come at us with. Noah Poponak: Jay, could you give us the updated -- I guess, if you snap the line today or just ballpark as you see it, cash flow, pension contribution in CAS recovery for at least '25, and I guess if you had it, and we're willing to give it beyond that would be helpful. And then I guess, can you talk through the pieces of how you grow absolute dollar free cash flow in '25, given the pension headwind you have and how it compares to how quickly you can grow the segment EBIT. Jay Malave: Yes. So on CAS recovery, this year, we're a little bit under, say, $1.7 billion. We expect that to step down by -- in the range of about $100 million and probably stay at that level for the next few years after that. As far as absolute free cash flow in terms of the buildup and components to being able to continue grow, yes, we've talked about pension being a headwind. We've talked about being in the range of about $1 billion. The areas that we expect to drive cash flow growth would be continued earnings growth as you discussed their net income growth, in addition to some of these benefits and the timing on the F-35. We've talked also about just working capital in general. And even when you put F-35 aside, what we're looking at and going after is our contract asset. If you look here in the second quarter, that was a nearly $14 billion balance that we had net represented in a range and I'll put that in terms of efficiency around 70, 72 days of sales running through the balance at the moment. Since 2020 or so, that's grown from about 55 days. So there's an element of there kind of the F-35 and what we've gone through over the past couple of years here, but there's also been growth outside of the F-35 that represents a lot of opportunity for us to convert into faster billings at a level that we've been we've been able to demonstrate in the past. And that's what focused with on all of the business areas in terms of driving that on a multiyear basis back down to what we've been able to demonstrate. The next thing I'll say, so besides working capital and contract assets that are biggest opportunity is the reduction of payments related to the tax R&D capitalization. So we'll get in the range, I'd say, about $150 million of benefit just through lower payments there. So when you bring all these things together, we think that they generate a path to overcome what we're seeing in the pension and drive us to this target of low single digit. It's not easy. It's not a slam dunk, but we've got a path to be able to do that, and that's what we're driving today to be able deliver next year and beyond. Operator: Thank you. The next question is from the line of Peter Arment from Baird. Please go ahead. Peter Arment: Thanks. Good morning, everyone, Jim, Jay. Maybe just for you on the -- just talking about -- you've talked a lot about MSC's production ramp that you're going to have over the next couple of years. Just how does this all tie in with the collaborative agreements you got with Ryan Mittal [ph] now, PAC-3 production opening up in Poland and I think Jim also mentioned Spain, an agreement there. Just can you give us an update on PAC-3, what the growth kind of expansion looks like now and same, I guess, on some high HIMARS and JASSM, what some of those growth rates look like? Thanks. Jay Malave: Sure. A lot of these agreements enable -- they're part of in-country requirements for industrial cooperation. You mentioned Poland, you mentioned Germany, also Australia. And those are enablers for us to build up this backlog and drive this demand. On the PAC-3 specifically, we expect to get to $550 million in 2025, and then to $650 million by 2027. And so all of these orders and these partnerships that we're signing up, while all enablers to us to be able produce and deliver at those rates. And it's not just PAC-3. We've talked about GMLRS going from 10,000 to 14,000. We've talked about Javelin going from 2000 to about 4,000. We've talked JASSM and LRASM going from about 700 a year to 1,100 a year, so all of these orders that we're seeing, all these customer engagements that we have both domestic and international are all enablers to drive to these rates that we're building to. And so what they do is fill in the bucket to bring us to that backlog that's necessary for us to generate those sales. And we're on track to that. Operator: The next question comes from the line of Jason Gursky from Citi Research. Please go ahead. Jason Gursky: Good morning everybody. Jim, I wanted to just throw a big picture one at you, and maybe have you kind of wrap all of this together and kind of what you're seeing both in the near and in the long-term? And maybe just get your sense of maybe with a few more quarters here of hindsight, some of the lessons learned from the conflict in Ukraine. What you at Lockheed have learned from that whether you're investing in any new areas as a result of that? And kind of the feedback loop that you're getting from your customer both here in the United States, as well some of our allied nations as well. Are we seeing a development of a new set of requirements and investment areas kind of where are you spending and how are you going about doing it? Just a big picture, here we are middle of 2024, what have we learned from Ukraine? And what are we doing? Jim Taiclet: So Jason, I would say that there's a wide range of lessons from the Ukraine conflict unfortunately, as it is, but there's learning from it. One is that traditional system, if you will, like Javelin, at the initial invasion, made a significant contribution to the initial defense of Ukraine because it was a classic armor attack and armor-supported infantry attack, meaning there were armored vehicles that were spearheading the drive to Kiev. And when those vehicles got out in front of their support system that the Javelin, for example, made a tremendous difference in stopping that attack short, right? So, you have a traditional system that was designed for land warfare -- traditional land warfare, if you will, that was highly effective. So, we did learn from that. Now, there's jamming both ways, electronic warfare, there's cyber and it's like I tell my teams like your high school wrestling coach that for every move, there's a counter move. So, if you jam GPS, we tweak the system, either the satellite or the receiver or have an alternative form of navigation or targeting, and we react to that. So, on one hand, traditional systems are still effective. On the other hand, you have to be able to adapt quickly. I'd say that was the main lesson there. Another one, similar situation, PAC-3, again, decades in service. And now there's a hypersonic missile threat from Russia, which was launched on a number of occasions. I think all those occasions, none of those missiles were successfully reaching their target because the PAC-3 was modified to be able to address the hypersonic missile threat. And then we'll go to the kind of the other side of the issue, which is, okay, drones became a more important element of land warfare than it had been before, -- and in sea warfare actually, Ukrainians to sea -- autonomous sea vehicles to significant extent and success and also drones and unmanned aerial vehicles, too. So, this is not the first time. Those kinds of systems have been used in prior conflicts, including in the Middle East and the counterterrorism wars, if you will. But the Ukrainians took it to a new level, literally sinking capital shifts with unmanned aerial systems. So, there are lessons there, too. That's something our company is quite involved with a lot of is classified, whether it's kinetic or surveillance, unmanned aerial systems, but we're learning from those too. So, we work with drones as smallest ones that a marine can unpack from a backpack and launch by hand to aircraft size drones, if you will. So, we're involved in that game, and we did take the lessons from the Ukraine war. And that's traditional systems are still essential at bulk and scale. And secondly, they have to be much more adaptable than they ever had to be before. And that kind of supports our digital technology effort and campaign to say, let's use those best digital technologies to make those legacy systems better and better and all the time not wait for a conflict to force us to do that. Maria Ricciardone: Great. Hey Lois, I think we've come to the top of the hour. So, I'll turn it back over to Jim for some final thoughts. Jim Taiclet: Thanks Maria. So, before we close, I'd like to thank our Lockheed Martin team whose dedicated efforts to advance our customers' missions and propelled our solid results this quarter, as you heard from Jay. Our capabilities are recognized around the world as the best in defense tech. And that is thanks to our to our employees' hard work, dedication, and commitment to continued innovation. With 21st Century security technologies, I just described our robust backlog and focus on transforming our operations internal digital transformation program. Our company has a strong foundation for growth for years to come. So I look forward to speaking with you again on our next call in October, and Lois that concludes our call for today. Operator: Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Earnings call: Fiserv reports an adjusted EPS growth of 18% year-over-year By Investing.com

Fiserv (NYSE:FI), Inc. (FISV) reported robust financial results for the second quarter, with a notable increase in adjusted earnings per share (EPS) and revenue growth. The company's adjusted EPS rose to $2.13, marking an 18% year-over-year growth, while adjusted revenue grew by 7%. Fiserv also raised its full-year adjusted EPS outlook to a range of $8.65 to $8.80 and reiterated its organic revenue growth forecast for 2024. Fiserv's second-quarter earnings call showcased the company's strong financial performance and strategic growth initiatives. Adjusted operating income and margin have shown improvement, and the company is making significant strides in international markets through partnerships with notable global entities. Fiserv's confidence in its financial solutions, including the upcoming launch of CashFlow Central, and its robust merchant segment growth, particularly in Latin America, underscore its positive outlook. The company's commitment to value-added services and its strategy for mergers and acquisitions reflect a forward-thinking approach aimed at sustaining its long-term growth trajectory. Fiserv, Inc. (FISV) has delivered impressive financials, and the InvestingPro Insights reveal additional data points that highlight the company's market position and growth prospects. With a market capitalization of approximately $93.98 billion, Fiserv stands as a substantial player in its industry. The company's Price/Earnings (P/E) Ratio is currently at 29.84, indicating investor expectations of future earnings growth, especially when paired with a PEG Ratio of just 0.69, suggesting that Fiserv's earnings growth could outpace its P/E ratio. InvestingPro Tips reveal Fiserv is trading at a low P/E ratio relative to near-term earnings growth, which may appeal to value investors looking for growth at a reasonable price. Additionally, the company is trading near its 52-week high, reflecting strong investor confidence and market performance. Analysts are optimistic about Fiserv's profitability, predicting the company will be profitable this year, a continuation of its profitable streak over the last twelve months. For investors intrigued by these insights, there are additional InvestingPro Tips available that could provide a deeper understanding of Fiserv's financial health and market potential. These include perspectives on the company's historical return over the last decade and its policy of not paying a dividend, which could influence investment strategies focused on growth over immediate income. To access these valuable insights and more, investors can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro. This exclusive offer provides a comprehensive suite of tools and data, including the full list of 5 additional InvestingPro Tips for Fiserv, designed to empower informed investment decisions. Operator: Welcome to the Fiserv second quarter 2024 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 Julie Chariell, Senior Vice President of Investor Relations at Fiserv. Julie Chariell: 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 on this call, along with a reconciliation of those measure 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 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. Now I'll turn the call over to Frank. Frank Bisignano: Thank you Julie, and thank you all for joining us today to discuss second quarter results that bring us closer to another year of double-digit organic revenue and adjusted earnings per share growth. Fiserv delivered strong results across our businesses with second quarter adjusted earnings per share of $2.13, up 18% driven by continued healthy revenue growth and further operating margin expansion. Adjusted revenue growth was 7% and adjusted operating margin rose 160 basis points to 38.4%. Organic revenue growth was 18%. We can point to many highlights in our business during the quarter, including Clover revenue of 28%, accelerated organic revenue growth in financial solutions to 8%, multiple wins with marquee clients including Verizon and Apple, plus new clients in important verticals such as petro, gaming, government and healthcare. Our free cash flow was $1 billion in the quarter and $4 billion over the last 12 months, and we returned $1.5 billion to shareholders via share repurchases. This month, we are celebrating the 40th anniversary of Fiserv, along with the fifth anniversary of the merger between Fiserv and First Data. Our vision back in 2019 was that if we brought together scaled platforms supporting a full breadth of solutions, merchant acquiring, debit and credit issuer services, digital payments of all kinds and core bank account systems modernized with cloud technologies, then clients would find value in the combination and the integration and Fiserv would become a partner of choice with unparalleled global reach. Today, we can see that's exactly what has happened. As we realized revenue and cost synergies over this time, we increased our investment in technology innovation. Our purpose has been to deliver solutions to clients of all kinds, established and new, large and small, local and global, spanning all verticals. With the proper amount of disrupting ourselves then and now, Fiserv is better able to run, optimize and grow our business, and now we find ourselves at this moment, singular in our ability to deliver a breadth of leading products across a diverse base of clients and demonstrating accelerated growth for the past three years. After five years of innovation, in some ways what's old is new again. Let me share three examples of how our clients are engaging in some of our traditional businesses as new ways to add and retain their own customers. First in merchant acquiring, banks are adding this service as a way to grow with small and medium sized business customers and choosing Fiserv for its leading solutions, including Clover. We already have nearly 900 financial institutions who offer merchant processing services to their small business clients, and thousands more who can still benefit from doing so. As an example, in Q2 we signed a merchant agreement with Connecticut Online Computer Center, known as COCC, which is a client-owned provider of banking technology. The 150 community banks and credit unions on the COCC platform now have access to our acquiring services in support of their own hundreds of thousands of merchants. Second in digital payments, CashFlow Central takes the best of consumer bill pay and turns it from a cost center within banks to a revenue generator that appeals to small business with bill payment and presentment capability. In the second quarter, we signed two more CashFlow Central deals with multi-billion dollar banks for a total of six in the few months since we introduced this solution. CashFlow Central will go live this quarter and the pipeline remains full. We are finding that as they go down this path, financial institutions are revitalizing the consumer bill pay offerings as well, answering the competition from the direct biller model. First Citizens, a top 20 U.S. bank with more than $200 billion in assets was one such consumer bill pay win in Q2. As a reminder, Fiserv is the largest provider of bank consumer bill pay services with over 20 million users on our check-free platform. Both merchant acquiring solutions and CashFlow Central are compelling because they provide revenue generating opportunities for our financial institution clients. They also demonstrate a distinct value proposition for small businesses which includes other products across our issuing and banking businesses. Next, we are integrating these solutions with Experience Digital, or XD, our new online and mobile banking solution; and third, traditional enterprise merchants are turning to software that surround their payments functionality to enhance revenue and improve data integration. As we've seen from small businesses, the large and midmarket merchants who have been migrating to our omnichannel platform are increasingly integrating our value-added solutions. These include SnapPay, our ERP-integrated B2B bill presentment platform; gift solutions, where we support multiple leading retail and QSR enterprise clients; and data analytics, which I'll discuss a bit later. We continue to invest in new solutions such as our new dedicated platform for paybacks, which is gaining momentum. In the second quarter, for instance, we were selected by Cantaloupe, a major provider of unattended payment devices such as vending machines, for our Exchange payback platform, and we continue to integrate solutions across our two segments. One example is our new partnership with Apple that will enable new Apple Pay functionality with two of our next-generation solutions. One is pay with points, where the loyalty points residing on the card accounts of our issuer clients can be redeemed for a transaction in the Apple Pay wallet at checkout, serving as currency. We are a natural partner given the breadth of our card accounts on file and our technical capability to maintain account point balances, convert and accept those points as payments, and then reconcile the balances. A second solution is installment loans on credit cards. This is a new feature that presents the consumer with the choice to pay for a purchase in a set of installments when using Apple Pay at checkout. This is differentiating in that consumers have only been provided with the option to pay for a purchase in installments after making a purchase on a credit card. With Apple, we will move this installment loan feature into the checkout flow, giving the consumer choice at the point of purchase. Having this functionality at the point of sale from a digital wallet can drive greater card conversion, card usage, and spending power. It also enables our issuing partners to more directly compete with Buy Now, Pay Later using their existing credit card products. Fiserv is unique in its reach across all parties involved here: the consumer, the digital wallet provider, the issuer and the merchant, so we see multiple opportunities ahead as we enable this network effect to be a win-win across the ecosystem. Let's turn to our outlook for the business. Based on strong performance in the quarter and conviction in our unique opportunity set, we are raising our adjusted earnings per share outlook to $8.65 to $8.80, an increase of $0.05 across the range. Our revenue outlook is unchanged at 15% to 17% organic growth. This performance for 2024 would represent the 39th consecutive year of double-digit adjusted EPS growth. Turning to our segment highlights, in merchant solutions starting with small business, we posted 4% volume growth, slightly ahead of the sales volume growth for the Fiserv Small Business Index, which rose 3.2% in Q2 as the pace of growth slowed from April to June. There are multiple reasons why our growth can differ from this U.S.-only index, including our global presence and different weightings across verticals. For Clover, we have a very active second half of the year for new product rollouts. We plan to launch additional restaurant software features that target our sweet spot in casual dining to enhance table management, kitchen operations, inventory and cost management. In the fourth quarter, we'll be rolling out new software offerings in our two other target verticals, services and retail. We are very pleased with initial sales of our restaurant order kiosks and now we look forward to two new hardware opportunities. First is the Clover Compact, which we rolled out this month, giving us a broader market opportunity with smaller merchants, and next an important solution for our restaurant clients, order and pay at the table via a new handheld Clover Flex (NASDAQ:FLEX) Pocket, coming in August. We are on pace with our international expansion. Pilots are set to go live in Brazil and Mexico in August, and then in September in Australia ahead of the 2025 launch. In the enterprise merchant business, a key driver is the ongoing adoption of Commerce Hub, the orchestration layer that allows for easy integration with our growing portfolio of value-added solutions. We now have 230 clients live on Commerce Hub and signed several more in Q2, including two large petro retailers to extend our leading position in this vertical. Our financial solutions segment posted strong organic revenue growth at 8% in the quarter, above the high end of our 2024 guidance range. We delivered faster organic growth in our banking business while our core banking and credit union clients continued to drive strong growth in our digital payments business. We are adding new clients as well. In the second quarter, we had another example of winning the core account processing business in an M&A transaction. In this latest case, Sunflower Bank chose Fiserv after announcing their intent to acquire HomeStreet (NASDAQ:HMST) Bank to create a $17 billion bank by assets in January. In issuing, we manage the credit and loan accounts for some of the world's leading issuers and provide technology to issuers and lenders in healthcare, government and education. In June, we were very pleased to have won a strategic outsourcing agreement with Verizon to support their device financing activity and manage device payment agreements on Fiserv's Optis platform. Verizon chose Fiserv for the flexibility, optionality and resiliency of our platform on the foundation of a trusted longstanding relationship that spans multiple solutions. This is another example of extending our issuer and loan processing capability into adjacent verticals. In fact, we won another point of sale financing deal with an industrial equipment manufacturer to offer short term loans through its dealer network across the globe using our First Vision platform. With that, I'll turn it over to Bob to discuss more on outperformance and financials. Bob Hau: Thank you Frank, and good morning everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on Slide 4. Our performance in the second quarter showcased our ability to sustain strong revenue growth and margin expansion. Second quarter total company adjusted revenue grew 7% to $4.8 billion, and adjusted operating income grew 12% to $1.8 billion, resulting in an adjusted operating margin of 38.4%, an increase of 160 basis points versus the prior year. For the first half of the year, adjusted revenue grew 7% to $9.3 billion, and adjusted operating income grew 13% to $3.5 billion, resulting in an adjusted operating margin of 37.2%, an increase of 180 basis points versus the prior year. Organic revenue grew 18% in the quarter with strength in both segments. The transitory contribution from Argentina was five points to our total organic growth in the quarter, down from seven points in Q1. In the first six months of the year, organic revenue grew 19%. Second quarter adjusted earnings per share was $2.13 compared to $1.81 in the prior year, up 18% and above previous full year guidance of 4% to 16%. Year to date, our adjusted earnings per share increased 18% to $4 compare to $3.38 in the prior year. Free cash flow for the quarter was $1 billion and $1.5 billion for the first half of the year. We expect free cash flow to be much higher in the second half of this year due to the timing of cash flows for the green tax credit program. Turning to performance by segment, starting on Slide 5, organic revenue growth in the merchant solutions segment was 28% in the quarter and 32% year to date. For the quarter, this includes a 10-point benefit from above average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 18%. On Slide 6, we've again included a summary of the impact of excess Argentine inflation and interest on total Fiserv and merchant segment revenue, along with the offsetting headwind from currency devaluation which impacts adjusted revenue. Adjusted revenue growth for merchant solutions was 9% in the quarter and 11% year to date. The quarterly results include a 19 percentage point currency headwind largely from the Argentine peso after a sharp devaluation in late December last year. Similar to Q1, the currency headwind to adjusted revenue growth was much higher than the inflation and interest tailwind in Q2. Moving to the business lines, small business organic and adjusted revenue growth in the quarter was 35% and 13% respectively. Clover revenue grew 28% in the second quarter on an annualized payment volume growth of 17%. The spread between revenue and volume growth continues to reflect a higher penetration of value-added solutions, continued channel mix shift, and value-based pricing. VAS penetration stayed constant sequentially at 20% in Q2, an improvement from prior years where we typically see a seasonal decline from Q1 to Q2. VAS penetration was driven by growth in Clover Capital and the Clover SaaS package and should expand with several new offerings coming in the second half. Overall, we remain on pace to meet our 2026 targets. Enterprise organic and adjusted revenue growth in the quarter was 27% and 9% respectively, driven by transactions growth of 8% and higher VAS penetration. As with small business, organic growth at enterprise includes some transitory benefit from excess inflation and interest in Argentina. We're pleased with the pace of client uptake and growth in Commerce Hub. Daily transactions in Commerce Hub are up 3.5 times from Q1 levels and clients are increasingly connecting to enhanced solutions. Three of the most popular are pay by bank, which allows consumers to pay via ACH payment from their bank account at the point of sale; online EVT, which lets merchants grow by offering payment via government benefit programs; and digital payouts, which merchants increasingly use to pay employees and vendors. Finally, processing organic and adjusted revenue in the quarter declined by 7% and 8% respectively. This business represents the bank end processing we do for our partners, where they own the merchant relationship. A few large processing clients experienced declines in their volumes and revenue in Q2. Year to date, processing organic and adjusted revenue are both up 1%, similar to our guidance for flat adjusted revenue over the medium term. Turning to some merchant highlights outside the U.S., first in EMEA, the general tone of business is improving as inflation is easing and consumer confidence begins to rise across the region. We had a good quarter for new wins and renewals with follow-on business, and we are finding that our professional services capability in the region is a competitive differentiator that reinforces our right to win. We expanded our strategic partnership with BNP Paribas (OTC:BNPQY), one of the leading banks in Europe, allowing it to extend its current merchant acquiring footprint into Germany. Also in Germany, H&M Group, the second-largest clothing retailer in the world, selected us as their strategic partner for point of sale, building on our existing relationship in Mexico and highlighting the value we bring to multi-national retail clients. We are also working with Lloyd's Banking Group, one of the leading banks in the U.K. and a key partner for Fiserv, on a major business transformation program for Cardnet, our merchant acquiring joint venture. Together, we will deliver tailored solutions including Clover, dynamic currency conversion and merchant cash advance to add new and grow existing merchant relationships. We've also been selected by Deutsche Bahn, the national railway company of Germany and one of the largest railway companies in the world, to provide terminals, network services and value-added solutions. We extended our relationship with Absa, one of Africa's largest diversified financial services groups. We will be implementing our full AQaaS solution, or acquiring as a service, which will allow Absa to process ecommerce transactions in nine African countries. AQaaS integrates multiple value-added solutions including payment gateway, merchant onboarding, merchant portal, omnipay back office, open FX, and real time fraud monitoring. Finally, we've extended our merchant acquiring relationship with Żabka Polska, the largest convenience store chain in central and eastern Europe, based in Poland, with over 11,000 stores. We've grown to provide more than 20 products to this innovative client, most recently adding merchant cash advance, a growing value-added solution for us in the region. Moving to Latin America, in Brazil the extension of our Caixa relationship to their bill pay locations has begun to ramp with sequential volume growth of over 20% in Q2. In addition, we went live with our pilot for our Pix platform to act as a payment service provider to over 30 merchants. This capability came through the acquisition of Sled in November of 2023 and will open up new growth opportunities from instant payment activity in Brazil. Overall, we continue to grow our instant payment transactions in Brazil and Argentina. In Brazil, we reached more than 400 million transactions in Q2, up 21% from Q1 levels, and we doubled our number of transactions in Argentina. In Asia Pacific, we went live with our pilot merchant acquiring services in New Zealand, a new market for Fiserv. We plan to target omnichannel merchants primarily in the hospitality and retail segments, as well as ecommerce-only merchants, aggregation partners and payfacs. Adjusted operating income in the merchant solutions segment increased 18% to $882 million in the quarter, with adjusted operating margin up 290 basis points to 36.6%. Year to date, adjusted operating income increased 23% to $1.7 billion with adjusted operating margin up 360 basis points to 35.4%. As noted last quarter, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in operating income, merchant adjusted operating margins would have expanded 220 basis points for the quarter and 300 year to date. Turning to Slide 7 on the financial solutions segment, organic revenue grew 8% in the quarter and 6% year to date, in line with our full year outlook of 5% to 7%. Looking at the business lines, digital payments organic and adjusted revenue each grew by 8% in the quarter. Growth in Zelle transactions continued to be strong at 43%, and we signed one of our largest bank clients yet on Zelle, First Horizon (NYSE:FHN) Bank with $82 billion in assets, and the pipeline includes other large prospects. We continued to see strong demand from clients for FedNow and RTP integration. In Q2, we signed 32 FIs to FedNow, bringing our total signed to nearly 300. In issuing, organic and adjusted revenue grew 9% and 4% respectively in the quarter, driven by account growth internationally and new loan accounts in North America. Another growth vertical that we've been highlighting is government, where we continue to win and convert large programs, including the California Employment Development Department, which has enrolled over 1 million of our money network prepaid cards, funding nearly $5 billion. In Q2, we won an electronic funds transfer mandate with a major U.S. agency which should help extend our double-digit growth in the federal market. We also won several state and local deals on the merchant side of the business, including Texas, Arizona, North Carolina, and the City of San Francisco. Meanwhile, we are continuing to make strides with prior large wins, implementing the first phase of a target program with output services, though we expect the vast majority of revenue will start in Q1 2025, when the Circle card accounts begin to go live. Issuing has a meaningful and growing presence outside the U.S., and we have been investing to roll out the next generation of First Vision, our international operating platform. In Q2, we won our first client on the new First Vision platform in Brazil. Banking organic and adjusted revenue grew 6% and 4% respectively in the quarter. Excluding periodic revenue, organic revenue grew 4% in the quarter. We had two Finxact wins this quarter, including Metropolitan Commercial Bank, a $7 billion bank and an existing Fiserv core client that has decided to build a migration path to Finxact. The pipeline remains robust, including embedded finance opportunities, and we completed the integration of Finxact with Commerce Hub. This allows our enterprise merchants to embed a robust suite of financial services for their customers across shopping and checkout experiences. Second quarter adjusted operating income for the financial solutions segment was up 6% to $1.1 billion, and adjusted operating margin was consistent with a very strong second quarter last year at 45.9%. Year to date, adjusted operating income for the segment was up 6% to $2.1 billion, with adjusted operating margin up 80 basis points to 45%. Now let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $134 million in the quarter and $282 million year to date, in line with our expectations. The adjusted effective tax rate in the quarter was 19.9% and 18.1% for the first half, and we continue to expect the full year rate to be approximately 20%. Total debt outstanding was $25.5 billion on June 30. Our debt to adjusted EBITDA ratio was steady at 2.8 times, within our target leverage range. During the quarter, we repurchased 10 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to just over $5 billion, and nearly $15 billion since the 2015 merger. We had 32 million shares remaining authorized for repurchase at the end of the quarter. Turning to Slide 9, as Frank said earlier, we are raising our full year adjusted earnings per share outlook to a range of $8.65 to $8.80, up from $8.60 to $8.75, and an acceleration in forecasted adjusted EPS growth to 15% to 17%, from 14% to 16%. We are maintaining our 2024 organic revenue growth outlook of 15% to 17%, and raising our estimate for adjusted operating margin expansion to more than 135 basis points compared to at least 125 basis points. Previously, our organic growth guidance assumed seven points of contribution from excess inflation and interest in Argentina, but during Q2 we saw a faster than expected decline in both measures. This more rapid return to historic average is good news for our Argentine business and overall stability in the region; however, the extra revenue contribution will now be less this year. Based on the latest economist consensus, we now assume four points of benefit from excess inflation and interest this year, down from seven points. Nevertheless, we are reiterating our previous organic growth guidance for the year despite exogenous shifts affecting our business. This capability has become a hallmark of Fiserv today. It is a testament to the adaptability of our business model that comes from a broad product portfolio, diverse client base, resourceful management team, and global reach. This quarter, we offset the lower inflation and interest benefit in Argentina with additional anticipation revenue, another quarter of dólar turista revenue, and other growth across the company. Our full year outlook of 15% to 17% total company organic growth less the four-point transitory benefit from inflation and interest in Argentina puts our normalized growth at 11% to 13% for 2024. This is in line with our medium term guidance of 9% to 12%, which assumes macro factors from Argentina continue to normalize. The forecasted impact from foreign currency exchange remains 8.5%, and we anticipate will continue to be a stronger though declining headwind to adjusted revenue growth relative to the tailwind from excess inflation and interest. Wrapping up with free cash flow, first I'd like to note a change to our cash flow reporting. We moved the Clover Capital and LATAM anticipation activity to the investing section of the cash flow statement, beginning in the second quarter. We re-evaluated the presentation in our cash flow statement given a significant increase in the merchant cash advance activity. This change is consistent with how our peers account for these activities and the additional disclosure will provide greater transparency to our investors. This move affected our free cash flow since those amounts are no longer included in cash flows from operating activities, so we are adjusting our full year free cash flow outlook accordingly by increasing our guidance to $4.7 billion from $4.5 billion, since we expected $200 million of outflows for merchants' cash advances when we originally set our 2024 outlook. With that, let me turn the call back to Frank for some closing remarks. Frank Bisignano: Thanks Bob. There is another value creation opportunity within post-merger Fiserv, and that's data. The proposition for us in extracting intelligence from the massive amounts of data that we generate daily is significant and can be an important growth driver beyond the medium term. Three years ago, long before AI was the hot topic it is today, we assembled a team of internal and external experts in the fields of data science and AI. We gave them a mandate to harness all of the data naturally captured through Fiserv transactions and account processing activity to drive actionable intelligence for us, the marketplace, and our merchant and financial institution clients. There are three advantages that Fiserv has in its data. Ours is available in real time, it's granular to the transaction level, and it's multi-faceted in that it spans merchant, issuing and banking activity. This makes our data quite powerful to apply in anti-fraud solutions which we are doing internally, with plans for a client-facing solution this fall. Our first great application to the market is the Fiserv Small Business Index, a real time assessment of consumer spending at millions of small businesses published monthly. It maximizes the features of Fiserv data with its timely release two days after month end, a detailed look at trends by industry and geography, and the inclusion of non-card spending data such as cash and checks. We're also working to support clients in their AI journeys as they invest to process and understand their own data. Clients are recognizing that we can efficiently add Fiserv data and intelligence to help take decision making to the next level. It's a major value-added solution that we're already testing with several of our largest clients and on the Clover platform. We are still in the early stages of delivering our data and intelligence solutions, but the opportunity is significant given the power of our integrated platforms and our unmatched scale, breadth and investment. Finally, I'd like to thank our more than 40,000 employees for their steadfast commitment to our vision and hard work on the day to day execution. It's clearly led to our leadership in product and innovation and the strong results you're seeing us report today. Together, we strive to achieve excellence every day on behalf of our clients, partners and shareholders. Thank you for your time today, and now Operator, please open the line for questions. Operator: Thank you. We would now like to open the phone lines for questions. [Operator instructions] For our first question, we'll go to the line of David Togut from Evercore ISI. Please go ahead. David Togut: Thank you, good morning Frank and Bob. Appreciate the update on new product launches for Clover, and also the vertical market expansion into services and retail. Could you update us on the international expansion in Brazil and Mexico? Frank, you called out some initiatives in Brazil, but in terms of the broader new market launch post friends and family, what are your expectations for the back half of this year and into 2025? Frank Bisignano: Yes, I think first of all, when you look at what we're doing on global penetration, we have--you know we talked about Mexico, Australia and Brazil. You should expect Brazil and Mexico in August as a pilot. I would see it as a full ramp in 2025, I'd treat August like a friends and family. But remember, our business in Brazil, the things we've done with Caixa, the things we've done growing the business, you know, probably eight, nine years ago from a start-up into a tremendous competitor, so we have growth projections for that market that we would expect it to perform as our business has in Brazil. Mexico - you know, we've built a business there, we continue to grow that business. We feel our Mexico and Brazil build is very similar, that's why you see them coming out together. Once again, a friends and family in August [indiscernible], and obviously we'll watch that build through the fourth quarter and then full effect in '25. We feel really great about our position on Australia and what we're going to do in Australia. You'll see us in September, and that as a friends and family. We have expectations of larger partner wins there also that are very, very highly motivated to have Clover in market in '25, so. I don't think you'll get a ton of growth out of it this year. We'll update you later in the year on our expectations in '25, but those builds are in full force. We have partners who want it bad, and we see the market demand for all that. Thanks for that question. You know, David, we got on the call and talked about a celebration that we're really having right now, which is the 40th anniversary of Fiserv and the fifth anniversary of the merger. But I think what I realized when I got up this morning is we're actually celebrating your retirement from Evercore, and if my information's right, because you know we love to count everything here, you've covered Fiserv for 29 years and that's spanned four CEOs, and I'm fortunate to stand on the shoulders of those who became before me, so I cherish our time together. Then I think I'm right in 32 years on First Data - I can't really account for all the CEOs that came before me specifically post KKR, but thank you for everything you've done for the industry. Thank you for the work, and I think it's a celebration of your career and your retirement from Evercore. Thanks for being here with us today. David Togut: Thank you so much, Frank. That really means a lot to me. I really enjoyed working with you, Bob and Julie, and in the tradition of your predecessors, you continue to create tremendous shareholder value, so I'll continue to watch your progress with great interest. Operator: Next, we'll go to the line of Tien-Tsin Huang with JP Morgan. Please go ahead. Tien-Tsin Huang: I was going to say, I can't remember any First Data or Fiserv call without David Togut on it, so I echo that. My question for you guys, just on the margin outlook that was raised, can you give us a little bit more specifics on the sources of the upside there? Then just a clarification on the merchant processing side, was that related to some bank losses? I heard a comment that there were some declines on the bank side, so I wanted to clarify if that was line specific or due to attrition. Thank you. Bob Hau: Yes, thanks Tien-Tsin, good morning. First on the margin outlook, as you heard in our prepared remarks, we raised our margin outlook actually for the second quarter in a row, and now greater than 135 basis points. The original guide back in February was greater than 100 basis points. That's really driven by two factors. One is just the scale and volume of the company - as we add more revenue, it drops through to the company average--excuse me, better than company average rates, and continue to see good growth. The second one, of course, is ongoing productivity - we continue on an ongoing basis, as Frank said earlier, measure everything, and we continue to see progress towards achieving increased productivity across the organization, and so the combination of very strong organic growth, 15% to 17% this year plus productivity allows us to continue to expand margin on a multiple year basis. Then in the merchant processing side, as you know, the processing business line for us is where our clients own the merchant contracts, and so we are providing the back end processing for those clients. In many cases, it's banks, could be wholesale ISOs, and what we saw is some volume decline out of those processing contracts in the second quarter. Of course, on a year-to-date basis, we are plus-1% for the first half of the year, and that's in line with our ongoing expectation that it's roughly flat in this business line going forward. Operator: Next, we'll go to the line of Jason Kupferberg from Bank of America Merrill Lynch (NYSE:BAC). Please go ahead. Jason Kupferberg: Good morning guys. Thanks for taking the question. Great to see the ongoing revenue performance here. I was curious just to ask about some of the underlying metrics - small business volume growth, enterprise transaction growth. We did some slowdown there in Q2, probably more than can likely be explained just by leap year, so was hoping you could unpack those a little bit in terms of where you saw some of the softness. Was it certain verticals or higher income versus lower income consumers, and then just anything you can give us on what you've seen in July so far? We heard from Visa (NYSE:V) last night about a little bit of softness related to hurricane and CrowdStrike (NASDAQ:CRWD). Thank you. Bob Hau: Yes Jason, good morning. There's obviously lots of variables in both of those, both for small business and the enterprise business lines. Generally, we saw a bit of a slowing, and in fact through the second quarter, April and May were in line with our expectations, July came in a little bit slower. But I would emphasize that that was in line with our expectations, so it's partly why we're maintaining our full year organic growth rate at 15% to 17%, and in fact for the merchant segment holding at the 25% to 28% despite acceleration in easing of that transitory benefit down in Argentina. Generally, the business is performing at or better than we had previously expected outside of that slowing in the transitory benefit, which by the way, we think is a good thing for the Argentine economy. A more normalized growth rate in inflation and interest is good long term, and so we're encouraged by how that's going and how the overall business is responding. Frank Bisignano: Yes, maybe I'd make a couple other general macro comments. One, when you looked at--you know, we're very, very proud of what we believe we've created with the FSBI and our ability to track it. Obviously we talked about how our numbers don't exactly mirror the FSBI because of our international presence and the fact that we have verticals that we think outperform. We see a slowness in July, but we see growth in July as we look at it right now. It's in line with really Q2 if you look at it, and slightly ahead of June. I think also as you look across our book and our total portfolio, you'll also see the slowing in credit originations across our book which covers retail private label and general purpose, but all of this within our expectation range. I'd also make a secondary point around volume and revenue. We are no longer a volume-only shop. We have lots of VAS, both at the enterprise level and at the SMB level, and it really was the design of how to proceed. We have great feeling about our ability to grow merchants globally, and that's inclusive of the U.S., so that all falls into our expectation set and I think in total when you look at the business performance and the portfolio size and scope, our hedge is very, very strong. Operator: Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead. Timothy Chiodo: Great, thank you for taking the question. I wanted to hit up on CashFlow Central, just given it's about to go live here. It's six large clients you mentioned. In terms of the monetization, I believe it's a combination of subscription fees and then also transaction fees, including some interchange revenue potentially. I was hoping you could break that down a little bit more, and then also talk a little bit about how the revenue will be recognized across the two segments. Thanks a lot. Frank Bisignano: Yes, maybe I'll elevate it a hair, just so we have pure clarity on our SMB strategy here, both with FIs and on our other direct channels. We referred to it in our prior comments, but I want to be very, very clear - first of all, those wins are large institutional wins before the product's in the market in that fashion, and our pipeline is tremendously strong. Remember, we're also going to bring this product to Clover, and we're bringing the product to our ISV channels also. Then what we talk about is, as I like to call it, an SMB bundle. That SMB bundle will include Clover, CashFlow Central, the ability to integrate that information, bring it to Active D, which is also winning heavily in the market right now as our new digital banking platform, and Spendlabs. So I think what you're going to find--and banks, FIs love the bundle, right? Yes, they're buying CashFlow Central, but this will be a long-term growth engine, and you also heard us talk about our ability to go yes, we have 900 financial institutions, we plan on continuing to grow that number. CashFlow Central by itself is a standout product, which Bob will walk you through the economics, but I want you to focus on the SMB strategy that is an integrated strategy. I think we're one of a kind in the ability to deliver digital banking, deliver card spend, deliver Clover, and deliver something like CashFlow Central AR/AP to this SMB set. Our banks are loving it. We've got two shots at helping our banks generate revenue through it. I didn't want to minimize the question without articulating the strategy, which is a long term growth strategy for our total portfolio. Bob Hau: And Tim, I'd say we feel very good about signing up six large banks before we've gone live. We're quite encouraged on the demand from those financial institutions and the excitement they have. As Frank points out, it's a revenue generator with them, it allows them to bring themselves closer to their small business client, which is an important client base for them, and for us, the opposite of our consumer bill pay solution which is a fee that the banks pay us but typically do not charge consumers, and so it's an expense item. For CashFlow Central, it's actually a revenue generator - they'll likely charge their small business clients a subscription, again generate revenue for themselves and obviously for us as transactions flow, so feel very good about the opportunity and very encouraged on the very, very early read. Operator: Next, we'll go the line of Dave Koning from Baird. Please go ahead. Dave Koning: Yes, hey guys. Thanks, and nice job. I guess my question, in the banking sub-unit, you grew 4% ex periodic revenue. That's the best we can see in the six quarters or so since you've given the new segment data. Is there something about the market that's getting better or something that you're doing more specifically, and is this higher level sustainable? Frank Bisignano: Yes, maybe I'd cover that. I realize in my comments about business generation and demand, I didn't include that we see large demand for our services out of the financial institutions, and that's beyond this merchant and CFC capability, which both have tremendous demand. It goes to [indiscernible], which is winning the marketplace. You heard us talk about our Finxact wins. Our clients are growing, and you can look at things that we've done on Finxact with one, which has been a tremendous opportunity. I do think, you know, and you could point to recent surveys published that we've differentiated ourselves in the service area from where we might have been a couple years ago with the delivery of a commitment tracker, which allows us and our clients to have 100% synchronization on our commitments and our delivery rate. I think those have really, really distinguished ourselves. Our relationship management model is making a difference and will continue. Demand is strong, so I think it's all those variables that gives us confidence about our ability to be the grower that we talked about to you back on i-day. Operator: Next, we'll go the line of Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller: Hey, thanks guys. If we could just hone in and just give a little bit more of a broad update on the financial solutions segment, just given the strength we're seeing, obviously CashFlow Central is strong and then you have Zelle and some other implementations. But help us understand the driving forces of that growth going from where it is today, and then I know you've talked about it accelerating again into--like, through '25 and into '26 at your investor day. Is that still what you see happening, and what are the major drivers affecting that? Bob Hau: Yes Darrin, so our expectation, our outlook for this year for the financial solutions segment is 4% to 6%--excuse me, 5% to 7%. Year to date, we're at 6%, so we're right at the midpoint of that full year outlook. We anticipate as we go into '25 and '26, our medium term outlook for the financial solutions segment increases a point to 6% to 8%, so 5% to 7% this year, we're right at midpoint halfway through the year, and we expect that to accelerate into '25 and 2026. That's really driven by the benefits of exactly what you called out - CashFlow Central coming online, growth in XD, our digital banking solution, Finxact, and a broad suite of capabilities that we have continuing to take hold and meet the demands of our financial solutions client base. We also have on the issuing side, as you heard us talk about back in November at the investor day, several large client wins that will go live in 2025 and beyond, things like Verizon and Target (NYSE:TGT) and Desjardins all giving us a lift, so we feel quite good about where we are first half of the year and what we see going into '25 and '26. Operator: Next, we'll go to the line of Dan Dolev from Mizuho Securities. Please go ahead. Dan Dolev: Hey Frank and Bob. Really nice results. I just wanted to go back to the more sort of guidance in merchant and macro - I mean, pretty impressive results despite, I'd say, the more muted tone at Visa yesterday. Can you maybe provide just a little bridge in terms of what needs to happen for the guide, or the fact that you maintained the guide for the year? Is there anything--is it all idiosyncratic wins, etc., which is what we suspect, or is there anything else in there? And again, congrats. Bob Hau: Yes, thanks Dan. Overall, maintaining our total company organic growth at 15% to 17%, in order to do that, we expect the merchant segment to grow 25% to 28% organically first half of the year. We're ahead of that slightly at the top end, good growth overall. We talked a little bit in our prepared remarks about the easing of the transitory benefit of inflation and interest. You've seen in our slides that that number has come down. Our previous expectation for the full year was that that would provide a 14-point benefit to merchant solutions, now a 9-point benefit, yet we're maintaining our full year outlook, and that's the strength of things like Clover selling very well, value-added solutions both in our small business and in our enterprise business. CommerceHub continues to see good uptake from our large enterprise clients. We definitely saw an increase in anticipation activity down in Latin America we talked about in our prepared remarks, as well as an additional quarter benefit of Dólar turista, so maybe a little bit of that idiosyncratic view from your point on the Dólar turista, expect that to go away at the tail end of this quarter, third quarter, but generally, growth across the business. I think this is one of the hallmarks of Fiserv over the 40 years that we've been in business, anticipating that 2024 will be our 39th consecutive year of double-digit EPS growth. We are incredibly resilient and we respond to changes in the marketplace. We respond to changes in the macroeconomic environment and it's the breadth and depth of our capability, of our product set, of our client base and our distribution channels. Operator: Next, we'll go the line of James Faucette from Morgan Stanley (NYSE:MS). Please go ahead. James Faucette: Great, thank you very much, and thanks for all of the color and detail here. I want to go back to Clover and Clover growth. One of the questions we get a lot is you talked at your analyst meeting back in November about using Clover and how the back book could contribute a little bit more going forward to that growth. But I'm wondering if you can talk to a little bit the sale cycle there and where your existing customer is seeing value on Clover, and how you're feeling about that and maintaining those customers from a competitive standpoint, if they are re-evaluating solutions, etc. Thanks a lot. Frank Bisignano: Thanks Jim, good to hear from you. You know, we've been really, really feeling good about the Clover strategy and continuing to refine it. Obviously we know there will be a day where we're going to come back to you and say, we hit it directly into the back book, but we see so much front book activity opportunity between our international, between our ISV, between how we're thinking about the verticals like services, like restaurants, that we're continuing to build that product set, that VAS. Obviously it's an outperformer in attrition across the total book, and we have the benefit of looking at attrition rates from everything. We look at them from what our ISO portfolios are attriting versus our ISV portfolios attriting, versus our agent versus our direct book, and we feel really, really good about how it's performed. We're continuing to ramp up our investment in value-added services and vertical expertise there. We've made a set of commitments - you know, 3.5 and then 4.5 and pen rates, and you know, we think about the merchant business being $10 billion, then $12 billion, and all of those feels really, really tight and on track. Obviously--you know, I always have to say we started Clover with seven engineers and three [indiscernible], and now we've got a global franchise, so it's straight in our sites. Obviously we have lots of other great things in our portfolio, but it also is a key to why we have 900 financial institutions, and I would expect over a period of time on this journey that if you ask me, we haven't ever made a commitment or guided to any financial institution, but you should expect us to continue to grow that at a double-digit number every year. I don't know if that's helpful, Jim? Operator: For our final question, we'll go to the line of Ramsey El-Assal from Barclays (LON:BARC). Please go ahead. Ramsey El-Assal: Hi, thanks for squeezing me in here. I wanted to ask about M&A, and I guess specifically given the valuation, multiples on the public company side seem to be much lower than on the private side. Does that tilt the opportunity set for you guys more towards acquiring public peers? Would you have an appetite to move in that direction, Frank? Frank Bisignano: Well, I don't--you know, it's not like I think about public-private. I think about--first of all, we have a tried and true capital deployment philosophy, which I think we've been performing well at. I frequently say, gee, I wish we had acquired more, and I frequently--and I always say, but there's nothing that traded that I wish we had acquired, so I think it's about value, it's about long term value creation. Remember, we have the best distribution with our financial institutions, our ISVs. Our ability now to take financial products and bring them to our merchants - you know, we didn't really talk about embedded finance at all today, but that is still an engine that's moving for us. It's where is value creation, how do we bring it to our clients and our shareholders, and I'm really not thinking public versus private as much as being involved in looking at everything humanly possible. That would be--I think that's kind of where we are. Frank Bisignano: I'd like to thank everybody for their attention today. Obviously we've got a great IR team, so reach out to them with any further questions. Have a great day, and I look forward to talking to you in the future. Operator: Thank you all for participating in the Fiserv second quarter 2024 earnings conference call. That concludes today's conference. Please disconnect at this time and have a great rest of your day.