FISERV INC Q2 2026 earnings call

Thank you, and good morning. With me on the call today are Takis Georgakopoulos, our Chief Executive Officer, and Paul Todd, 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 the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise noted, performance references are on a year-over-year basis.

Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors.

Now I will turn the call over to Takis.

Thank you, Walter, and good morning, everyone. In stepping into the CEO role, I'm honored by the trust the board has put in me, deeply committed to our customers, and motivated by what this company can deliver to its clients and shareholders. For those who don't know me, I joined Fiserv in late 2024, and shortly after took on the Chief Operating Officer role before assuming leadership of the merchant business last fall. Prior to Fiserv, I held a variety of roles at JPMorgan, including running its global payments and merchant businesses, which grew to become one of the largest in the industry during my tenure. As an engineer by trade and training, I'm energized by solving complex problems, and technology has always been central to my career. I have firsthand experience with the complexities of building, modernizing, and running bank cores and payment systems.

I also understand the responsibility that comes with operating as a critical infrastructure provider from stability and reliability to cybersecurity and customer experience. With that context, I want to make a few comments. Our second quarter results are in line with our guidance. Our free cash flow generation was above $1 billion, and importantly, our Clover GPV grew at 9%, while Clover revenues grew at 13%, adjusted for anticipation and non-recurring revenue. Second, while maintaining the growth rates in our medium-term outlook, we are updating our guidance for the second half of the year, which results in full-year guidance for organic revenue to a range of -1% to flat and adjusted operating margins to a range of 31%-31.5%. This is driven by three factors. First, weaker macro conditions in Argentina and a slower ramp of client-driven implementation timelines, which were both factors outside of our control.

Paul will be providing additional information on Argentina given the volatility of that business. Second, a slower pace of execution of some of our growth initiatives, highlighting the need to further focus our efforts and improve operational excellence. Third, our decision to make incremental investments in technology, infrastructure, and cybersecurity that primarily supports our FS business. We expect these investments will accelerate our pace of progress in platform stability, resiliency, and cybersecurity, which we know is critical for our customers and for our franchise. With that, let me tell you why I'm excited about our prospects to drive sustainable shareholder value. Two months into my tenure as CEO, I'm more confident than ever that Fiserv is one of the most consequential businesses in our space. We process a third of U.S. merchant GPV. We have the number one share in U.S. issuer processing.

We serve 80% of U.S. banks and credit unions with at least one of our products. As a result, across our company, we interact with virtually all U.S. big consumers and small businesses. We also have a fundamentally simple business. We are a critical infrastructure provider to our clients. We have incredible staying power. Because our products are deeply embedded in complex, highly regulated, and secure workflows, this is really hard to replicate. This business has a consistent history of strong, profitable, recurring revenue, and that remains intact. Recurring revenue makes up approximately 85% of our total adjusted revenue. The processing side of our business grows at around GPV, but the differentiated components with Clover first among them grow at multiples of that.

On top of that, we continue to see a number of significant opportunities that can accelerate our performance beyond the baseline level of recurring revenue we see today. These include our state-of-the-art modern stack, including Commerce Hub, Vision Next, and Finxact, the power of our data, and creating solutions that bring our merchant issuing and network platforms together. These are the types of opportunities that brought me to Fiserv to begin with, AI is the great unlock to getting those to market in compressed time frames. We are energized about pursuing those opportunities to solve problems for our customers, but realized we must deliver the basics first. This leads me to outlining where I'm focused and driving our teams to operate with increased urgency and accountability, namely capital allocation, focus, and product simplification.

To the first point, capital allocation, we are significantly expanding the process to review our mix of businesses and associated capital commitments. To date, the process has resulted in a near-term focus on lower growth non-core businesses, led to our decision to divest our student loan servicing and managed ATM businesses, as well as exiting the unprofitable SMB and fuel segments within our merchant business in India. These were the right decisions, These alone do not move the needle. Fiserv provides a large number of products to our clients, We know that they want best-in-class solutions. As part of our expanded review process, together with the board, we will dispassionately assess how our products compare to best in class, Whether we have the rights to win in each. If we do, we will double down and make sure we execute.

If we don't, we'll evaluate the full range of actions to maximize shareholder value while making it imperative to ensure that we don't do anything that causes disruption for our clients. While the board and I fully endorse the One Fiserv strategy and the differentiated value we can deliver to clients through our independent integrated model, that does not mean we should be building everything that our clients are buying from us. This is a meaningful shift with defined timelines and goals that I expect will create additional opportunities to drive shareholder value. This is a top priority for me. We are acting with urgency, and we will report back on our progress as we advance this work. Moving on to operational and technology excellence. We need to increase our pace of change and simplify in a number of respects.

I started driving this as the leader of merchant, now I'm driving it across the company as CEO. In merchant, we completed the move to organize like most leading tech companies, with a single integrated product and technology organization at the center. That helped us eliminate duplication and distractions while making swift progress modernizing our infrastructure around a single modern solution anchored on Commerce Hub, which is our gateway. We are following the same approach in our FS business, recognizing, of course, the differences and complexities of our banks, credit unions, and issuing clients. Just as important, we need to improve coordination across merchant and Financial Solutions. Going forward, we will look to more consistently leverage foundational capabilities like ledgers, pay-ins, and payouts across both businesses. By adopting a common structure, we can consistently improve the client experience, speed up delivery, and lower costs.

As we drive simplification, we can move faster on the capabilities that are unique to Fiserv, including embedded finance, stable coins, networks, and settlement. These operational improvements will put us in a position to drive significant cost savings over the medium term in line with Project Elevate targets, and we will be very focused in speedy execution. Finally, on technology, I'm confident that we are moving in the right direction. We have made significant progress with a stable and highly scalable platform in merchant services and a 70% reduction in FS client-facing incidents.

To continue to advance these priorities, we have chosen to invest over $100 million incrementally into our technology infrastructure in the second half of the year, especially in the Financial Solutions business. We believe this is the right move to position our clients and the company for 2027 and beyond, especially as frontier AI models reduce margins for error.

Now moving to some business highlights. First, in Merchant Solutions, we continue to see progress on a number of fronts, especially with Commerce Hub and Clover. The progress that we have made in modernizing our merchant tech stack in record time under the Commerce Hub gateway is further reflected in a dramatic increase in our enterprise pipeline with both traditional and e-commerce businesses. We believe this positions us well in the global enterprise wallet against the best competitors in the space, and we look forward to announcing exciting new large deals in the coming quarters. Just this week, Fiserv and Mastercard entered into a strategic partnership that integrates Mastercard's Merchant Cloud into Fiserv Commerce Hub. This partnership adds value-added services together with global reach to our capabilities.

Moving to Clover, I want to highlight Western Alliance Bank going live on Clover, bringing nearly 40 of the top 100 banks in the country, working with Clover and highlighting one of the key synergies between our FS and MS businesses. Internationally, our partnership with TD in Canada is continuing to scale, bringing Clover to TD clients across their more than 1,000 branches nationwide. Our efforts will now shift to converting the existing TD client portfolio to Fiserv in 2027, extending our capabilities to over 80,000 existing TD merchant clients. We also rolled out digital activation to Restaurant Depot, our significant industry partner, reaching thousands of views and touchpoints with restaurants every month, and continue to grow our business with this partner.

Thank you, Takis, and good morning, everyone. I will cover details on total company and segment performance in the second quarter and our guidance for 2026. Beginning on slide five, total company Q2 adjusted and organic revenue was $4.96 billion, a decrease of 4% and 5% respectively, compared to the prior year period. As we have said previously, Q2 marks the trough in growth rate for the year and resulted in first half adjusted revenue decline of 3%, within the range of our expectations for first half adjusted revenue guidance we discussed at our investor day. As Takis mentioned, we saw stable underlying transaction, volume, and account trends across the business, driving recurring revenue growth of 2% in the quarter, with recurring revenue representing 84% of our total adjusted revenue.

While our Q2 results were in line with our expectations, we had two incremental headwinds to revenue growth that negatively impact our back half revenue expectations. First, macro conditions in Argentina have continued to impact inflation and interest rates in the country that has weakened our anticipation revenue during the quarter. This impact was a 90-basis point year-over-year headwind to adjusted revenue in Q2 and a 60-basis point negative impact to adjusted operating margin. At the total company level, our first half adjusted revenue was down 2.8%, excluding the impact from Argentina anticipation. The impact to pre-tax income and adjusted EPS is minimized as we carry the cost of the anticipation business in the interest expense line. Second, we are experiencing incremental headwinds in our hardware revenue in Merchant. This is partly due to the market impacts of higher level of hardware sales over the last two years.

Q2 total company adjusted operating income was nearly $1.6 billion, resulting in adjusted operating margin of 31.8% and first half adjusted operating margin of 30.8%. As I mentioned earlier, these results absorb a 60-basis point headwind to adjusted operating margin from anticipation. Second quarter adjusted earnings per share was $1.84. It is worth pointing out that FX rates in LATAM were unfavorable on a year-over-year basis, with an impact to adjusted EPS of $0.07 in Q2. Our Q2 results reflect an adjusted effective tax rate of nearly 20%. For the year, we expect our adjusted effective tax rate to be approximately 19%, with the tax rate higher in the second half of the year than what we saw in Q2.

Free cash flow for the quarter was strong at $1.1 billion, with a free cash flow conversion of 112%, driven by efficient management of our working capital and some favorable timing effects. Now I will turn to the performance by segment for Q2, starting on slide six for Merchant Solutions. Merchant Solutions, both organic and adjusted revenue declined 1% for the quarter. Small business revenue was flat on an organic basis in Q2 and declined 1% on an adjusted basis. Small business volume grew 2% in the quarter, which is lower than Q1, largely due to the anniversary of the CCV acquisition. Clover revenue grew 2% in the quarter. Excluding higher non-recurring revenue from the second quarter of 2025, Clover revenue growth would have been 11%, and if we exclude attrition, Clover revenue would have grown by 13%.

Clover GPV grew 9% on a reported basis and 11% excluding the previously discussed gateway conversion. We continue to expect Clover GPV growth of 10%-15% ex the gateway conversion. Given the headwinds related to attrition in hardware, we now expect reported Clover revenue growth in the mid-single digits for 2026. We continue to expect medium-term Clover revenue growth in the range of 15%-20% growth as trends underlying this view are stable. Value-added services revenue contributed 25% of Clover revenue in Q2, up from 24%, and grew 10% from a year ago, driven by software attach and including Clover Capital and offset by attrition. Our non-Clover SMB revenue was down 5% in Q2. Moving on to Enterprise, adjusted revenue declined 1%, while organic revenue was flat in the quarter. Enterprise transactions grew 8%.

Finally, in processing, organic revenue declined 8%, while adjusted revenue declined 6% in the quarter. Second quarter adjusted operating income for Merchant Solutions was $781 million, down 14%, with adjusted operating margin of 30%. Now I will cover Financial Solutions starting on slide seven. For the quarter, both organic and adjusted revenue declined by 8% in Financial Solutions, driven by higher non-recurring revenue a year ago. In digital payments, both organic and adjusted revenue declined by 6% in the quarter. Our underlying account and volume growth in Financial Solutions was in line with what we expected and our recent history. Within digital payments, payment platform transactions grew 5%, driven by stable debit processing and acceleration in debit network volumes. Our consumer payment platforms transactions were down 1%, with accelerating growth in Zelle being offset by deceleration in Bill Pay.

In issuing, both adjusted and organic revenue declined by 10% in the quarter. The decline in year-over-year revenue growth was in line with our expectations and reflects lower non-recurring revenue this year versus a year ago. On an underlying basis, global accounts on file continue to grow in the range we have seen recently, which is up 4%. Finally, in banking, revenue decreased 10% on an organic basis and decreased 8% on an adjusted basis in the quarter as we continued to be impacted by attrition from actions taken over the last several years as well as higher non-recurring revenue in the year-ago period. We saw core accounts decline 3% year-over-year, while overall accounts and positions, including FinTech, grew 6%. Second quarter adjusted operating income for the Financial Solutions segment declined 27% to $912 million, and adjusted operating margin was 38.7%.

From a leverage standpoint, we finished the quarter with a gross debt-to-adjusted EBITDA ratio below 3.2x. We completed a $1.4 billion tender offer, an open market repurchase for $1.2 billion total consideration, and issued $1 billion in euro bonds to take advantage of an opportunity to lower our cost of capital and strengthen our balance sheet. For the year, we continue to expect to finish the year at approximately 3x. Turning to slide eight, we repurchased 1.7 million shares during the quarter for approximately $100 million. As we noted during our Investor Day, we are focused on managing our leverage ratio and remain committed to returning any excess capital to shareholders. Following up on the savings opportunity of at least $500 million we identified from our Project Elevate assessment, we have completed the identification phase and have a full inventory of these opportunities.

We are currently prioritizing these and moving forward with the most significant initiatives at pace. On August 5th, we closed one of the two divestitures we announced around Investor Day and expect to close the other in the third quarter. We have accounted for these in our guidance for adjusted revenue growth, which I will review in a moment. There is no impact from these transactions on our organic revenue growth. We intend to use the proceeds for a combination of capital return and de-levering. As Takis mentioned, we continue to be focused on divesting and pursuing alternative ownership structures for businesses that are not foundational to our strategy or where we believe we are not well-positioned to execute.

Now with slide nine, I'll move on to our 2026 guidance. First, from a revenue perspective, we expect adjusted revenue to grow approximately 2% year-over-year in the second half of the year, with Q3 down low single digits and Q4 up approximately mid-single digits. Compared to our prior 6%-8% second half adjusted revenue growth outlook, we currently expect 2 points of negative impact from delays in newly contracted revenue and enterprise client ramps, 1 point from lower key product and other revenue, 1 point from Argentina anticipation, and 1 point from divestitures. To be clear, we still expect to recognize the vast majority of this revenue, but it is shifted out in terms of timing. Considering these factors, on an organic basis, we expect 2026 revenue growth in a range of -1% to flat.

On adjusted revenue, we expect about a point of impact from the reduction in revenue from the student loan servicing and ATM services business, offset by lower currency impact. This translates into a range for 2026 adjusted revenue of down 1.5% to down 0.5%. As it relates to expenses, as Takis previously mentioned, we have chosen to incrementally invest in technology infrastructure, particularly in Financial Solutions. This higher expense level is consistent with the investments we have made since last fall and with the principles of One Fiserv. As you have heard throughout the year, we are laser-focused on positioning Fiserv to be able to deliver compelling revenue and adjusted EPS growth rates in 2027 and beyond, and we believe that these investments will best position us to deliver that as we move past this transition year. We expect adjusted operating margin of approximately 31%-31.5% for the year.

There are three drivers of our lower adjusted operating margin. Approximately 50 basis points is related to our increased technology infrastructure investment, approximately 50 basis points relates to the impact of Argentina anticipation, and the remaining 150-200 basis points is a result of the lower revenue I discussed earlier. We expect the divestitures to have negligible impact on our adjusted operating margin. We expect that our updated view of annual adjusted revenue and operating margin to drive adjusted EPS to a range of $7.20-$7.40. We continue to expect capital expenditures to remain in the high single digits as a percentage of adjusted revenue. We continue to expect free cash flow conversion of approximately 90% for the year, in line with historical levels. I want to close with a few key points.