As Fiserv seeks to regain its financial footing under a new chief executive officer, it’s struggling to revive income from its formerly fast-growing Clover merchant services unit.
The company is reviewing operations to understand how to proceed in buttressing certain areas of the business and divesting under-performing assets, CEO Takis Georgakopoulos explained Thursday during an earnings webcast with analysts.
Given his promotion to the top post in June, after the exit of Mike Lyons, Georgakopoulos said he’s still trying to understand what actions are needed.
So far, the company has exited student loan servicing, ATM and India businesses. If Fiserv identifies other units that aren’t in a position to win business, they may be considered for sale as well, the CEO said.
“These were the right decisions, but these alone do not move the needle,” Georgakopoulos said. “As part of our expanded review process, together with the board, we will dispassionately assess how our products compare to best-in-class.”
To help bolster the business, the company plans to invest $100 million in its technology infrastructure in the second half of this year, particularly in its financial solutions business, the CEO said.
The Milwaukee-based company has been under pressure from the activist investor Jana Partners to consider selling some businesses, including its debit networks. During the webcast, Georgakopoulos said he wasn’t yet prepared to comment on a potential sale of the network.
Fiserv “delivered weak results,” RBC analyst Dan Perlin said in commenting on the earnings in a note to his financial firm’s clients.
Fiserv has been rolling out new Clover features and capabilities this year, and boosting profit will depend on those upgrades being successful with customers. “As we deliver those things, we improve customer service and customers are happy, we will have more ability to generate higher yields,” Georgakopoulos said on the webcast.
Clover’s second-quarter results were weighed down by a slowing in point-of-sale hardware sales, and deterioration of income from Argentina, which is grappling with difficult macroeconomic conditions, according to Fiserv’s earnings slide presentation.
The report showed lower sales of hardware and data reduced Clover revenue for the quarter by about 9% while lower revenue from Argentina cut it by about 2%.
“We are experiencing incremental headwinds in our hardware revenue in merchant,” Fiserv Chief Financial Officer Paul Todd told analysts on the webcast. “This is partly due to the market impacts of a higher level of hardware sales over the last two years.”
Fiserv’s second-quarter net income dropped by 39% to $627 million as revenue declined 4% to $5.3 billion, according to the company’s earnings press release Thursday.
Clover revenue grew just 2% for the quarter, though Todd tried to soften that outcome by noting that it would have grown more if not for “higher non-recurring revenue” in the year-ago period.
As a result of the challenges in the sale of Clover hardware and services to restaurant, retail and other merchant customers, the company expects Clover revenue growth will slip to the mid-single digits this year.
Nonetheless, the company is counting on that Clover revenue eventually climbing back to the range of 15% to 20%, and Clover’s gross payment volume rising by 10% to 15%, Todd said.
“We are seeing a tougher environment of just hitting our hardware sales targets than we had previously, and a lot of that, I think, has to do with the elevated amount of hardware sales that have been made in the past, and just kind of the market dynamics related to that,” the CFO told analysts.
In an effort to point out Clover gains, Georgakopoulos drew attention to Western Alliance Bank beginning to use Clover, extending it to additional financial institutions and TD Bank scaling the use of Clover.
