Fidelity National Information Services, Inc. Q3 FY2025 Earnings Call

Good day, and thank you for joining us. Welcome to the Fidelity National Information Services Third Quarter 2025 Earnings Conference Call. Please note that today's conference is being recorded. I will now turn the call over to Georgios Mihalos, Head of Investor Relations. Please continue.

Good morning, everyone. Thank you for joining us today for the FIS Third Quarter 2025 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Joining me on the call this morning are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial results. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and adjusted free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn the call over to Stephanie.

Thank you, George, and good morning, everyone. I'm very pleased to report we delivered strong third quarter results that exceeded expectations across our key operating metrics. Our performance demonstrates real momentum across the business with adjusted revenue growth of 6.3%, adjusted EBITDA margins of 41.8% and adjusted EPS of $1.51, up 8% year-over-year. These are great proof points that our Future Forward strategy is working by leveraging our strong foundation, executing to deliver profitable growth and allocating capital with discipline. Let me walk you through what's driving our strong performance. This quarter's 6.4% recurring growth demonstrates the success of our commercial excellence initiatives. We achieved sequential margin improvement of approximately 200 basis points, driven by strong segment profitability across both Banking and Capital Markets. Adjusted free cash flow conversion was 142%, enabling us to increase our share repurchase target to $1.3 billion for the year. These results demonstrate the strength of our execution and validate the strategic investments we've been making to position FIS as a technology company at the forefront of financial services innovation. During the quarter, we returned $509 million to shareholders across share repurchases and dividends. Most importantly, we're entering the fourth quarter well positioned to achieve our full year 2025 financial goals and move into 2026 with real momentum. Based on our performance and visibility, we're raising our full year outlook for revenue, EBITDA and cash conversion. Turning to Slide 6. Now let me talk about what we're seeing in the marketplace. Bank technology spending remains strong, and our clients are prioritizing spend across our high-growth verticals, digital solutions, payments innovation and lending modernization. We anticipated that AI would transform financial services, but the pace and depth of adoption have exceeded our expectations. In fact, industry surveys indicate that more than 3 out of 4 banks have actively launched or are piloting Gen AI and Agentic solutions, a marked increase from just a year ago. Our clients are leaning in and asking us to help shape their AI journeys, viewing us as a strategic partner. Data powers the algorithms that underpin AI. And for this reason, FIS holds a foundational advantage with over 200 petabytes of data, powering on average 20-plus products per client across the money lifecycle. This advantage will grow significantly post-acquisition of the credit Issuer Solutions business, adding almost 1 billion additional accounts to our platform. As the operating environment for banks continues to improve, they are investing with confidence. Consumer spending patterns support this optimism. Debit and credit card spending remains resilient year-to-date, and we're seeing strong account growth across our bank clients. Year-to-date, FIS core accounts are up mid-single digits as our clients continue to grow. We are also seeing an acceleration in bank M&A across the market. The third quarter had the highest level of quarterly bank consolidation in 4 years, driven by a more favorable regulatory backdrop. We expect industry consolidation to continue to be a long-term tailwind for FIS. We're the vendor of choice for financial institutions, positioning us to benefit as the industry consolidates and acquirers seek scalable enterprise-grade technology partners. The acquisition of credit Issuer Solutions, which we now expect to close in the first quarter of 2026, will further strengthen our offerings, providing us with scaled credit processing capabilities. Finally, let me address pricing directly. The pricing environment remains stable. Net pricing has been a tailwind for us year-to-date across both Banking and Capital Markets, supported by continuous product, feature and functionality enhancements that strengthen our value proposition with clients. We operate in a rational market, and we're confident in our ability to continue to price for value. Let's turn to Slide 7. Our strong execution and laser focus on helping our bank clients is translating into high-quality sales performance across our business. Our sales pipeline annual contract value, or ACV, has expanded 13% annually since 2023. And we're deploying AI early in the marketing sales cycle for lead generation, making our go-to-market motion smarter and more efficient. Renewal retention has also shown steady improvement of approximately 3% in 2024 and 2025. This is a key driver of the accelerating banking growth we are delivering. Net pricing has contributed 60 basis points of growth on average over the last 2 years as we continue to price for value. And in 2025, both segments will have a positive pricing contribution for the year. Recurring ACV, the fuel for future revenue growth has compounded annually at 11% with particular strength in verticals such as payments, where our network solutions and Money Movement Hub are driving outsized sales growth. Our strategic investments are paying off. Taken together, all these improvements across our sales engine are fueling the durable recurring revenue growth acceleration we're seeing across our business. Now turning to Slide 8. We are translating this market momentum into sustained growth in our Banking segment, which remains the cornerstone of our business. At Investor Day, we outlined 3 strategic priorities to drive sustainable, accelerating growth: operational excellence, core and digital, and payments. On Operational Excellence, we're maintaining our relentless focus on client experience and sales execution. Happy clients renew, expand and advocate, and the numbers I just shared on retention prove we're getting this right. We're achieving this through our investments in AI, which are fundamentally transforming how we operate and improve everything from client support to risk management to product development, modernizing our solutions to help our clients run, grow, and protect their businesses more effectively. We're helping clients run their businesses through intelligent automation, predictive insights, and operational efficiencies of the back office that reduce costs and improve service delivery. We're helping them grow through AI-powered personalization and intelligent decisioning that drives revenue and deepens customer relationships. And we're helping clients protect their businesses through advanced fraud detection, real-time risk scoring, and behavioral analytics that stop threats before they impact customers. Let me next update you on the progress we're making in 2 of our key high-growth vectors: Digital and Payments. Beginning with Digital on Slide 9. Our digital business is performing very well with growing traction across both our retail and commercial offerings. The U.S. TAM for digital solutions is $10 billion, growing at approximately 12% annually through 2028. Banks are spending aggressively on digital capabilities and open banking adoption is accelerating. We're capitalizing on this by embedding AI-powered capabilities such as predictive insights and hyper-personalized recommendations into our Digital One platform to deliver a more seamless, intelligent digital banking experience. Clients are also prioritizing solutions with seamless integration and robust API connectivity, which are core strengths of our platforms. We've seen over 30% growth in users across our digital platforms, and we see this as a growth engine for our Banking segment for years to come. We also had significant competitive takeaways this quarter. SMBC MANUBANK, a U.S. subsidiary of Sumitomo Mitsui Bank Corporation, selected our commercial online banking offering, Dragonfly, to help the bank better service enterprise customers. This win displaces a monoline digital competitor and underscores the rationale behind our targeted M&A strategy. As year-to-date, our sales in commercial digital solutions have nearly tripled with our win rates improving by 13 points with Dragonfly. During the quarter, we completed the acquisition of Amount, an AI-powered platform providing seamless unified digital account opening capabilities. This acquisition is a perfect example of how we are using AI to help clients grow their businesses. Amount's platform fundamentally changes how banks acquire and onboard customers while helping to grow revenue and reduce friction and risk. And we've hit the ground running, signing 7 new deals since closing the acquisition and expanding our relationship with a top 10 U.S. bank. Now let's turn to Slide 10. Payments is the other major growth driver, and the momentum here is equally compelling. We're operating in a $53 billion U.S. TAM that is growing 5% annually. Card issuing debit transactions remain robust at 6%, providing a steady foundation. But the real market acceleration is in instant payments and digital currencies, which represent the future of money movement and areas where FIS is strategically invested. The complexity of this growing market is creating new opportunities for FIS as banks increasingly rely on us to help them navigate the changing landscape. And we're seeing this in our sales performance. Our payment sales have been outstanding, showing 50% recurring sales growth year-to-date and a 5% improvement in win rates. In addition to traditional debit and credit offerings, we are leading the way in alternative payments with modernized cloud-native solutions like our Money Movement Hub, which is our core-agnostic real-time payment gateway for our clients. Launched just a quarter ago, we're already seeing strong traction with over 40 new clients signed. Additionally, the NICE network has been a particularly bright spot, with sales more than doubling and a pipeline growth of 3x versus last year. Here again, AI is a critical differentiator. Fraud is one of the biggest threats facing financial institutions today. We're using machine learning and behavioral analytics to detect and prevent fraud in real time across billions of payment transactions daily. We also continue to expand our capabilities and geographic presence. We recently acquired Everlink to strengthen our payments offering in Canada. And the credit issuer acquisition will add scale in both U.S. and international credit processing, and significantly higher cash flow when we close that deal in the first quarter. In closing, let me bring this all together. FIS delivered a very strong quarter that exceeded expectations. We're seeing favorable market conditions, and we're executing on our strategy as a technology company at the forefront of financial services innovation. This isn't a one-quarter story. We're building sustainable, profitable growth on a foundation of operational excellence, product leadership and client partnership. We're confident in our trajectory and are raising our full year outlook. With that, I'll turn it over to James to walk through the financial details.

Thank you, Stephanie, and good morning. I'll begin on Slide 12 with a summary of our financial results. We had a great quarter, exceeding our outlook on revenue, EBITDA and EPS. Revenue grew 6.3% to $2.7 billion, driven by outperformance from our banking business and strong recurring revenue growth across both segments. Adjusted EBITDA grew 7.1% with margins expanding by more than 50 basis points. Margins were up nicely in both segments, led by strong execution across our cost-saving programs. Adjusted EPS increased 7.9% to $1.51, led by strong operating growth. Turning now to free cash flow. Moving forward, we will report on both adjusted and unadjusted cash flow measures, and I'm happy to report that both are performing well. As we have messaged on prior calls, we are running extensive cash optimization programs, and we drove significant improvements in the third quarter. Free cash flow was $800 million in the quarter and more than doubled year-over-year. Adjusted free cash flow was approximately $930 million with cash conversion coming in at more than 140%. While we anticipated a cash conversion of over 100%, the outperformance was driven by accelerated working capital actions with particularly strong results from our accounts receivable initiatives. Capital expenditures were 7.9% of revenue, in line with our expectations. On a year-to-date basis, cash conversion was 91%, and we now expect full year cash conversion of more than 85%, and we are well positioned to deliver on our 2026 Investor Day goal of 90%. Leverage remained steady at 3x or 2.9x, excluding the impact of currency fluctuations. We returned over $500 million to shareholders, including $300 million of share repurchases, and we recently increased our annual target for share repurchases from $1.2 billion to $1.3 billion. In summary, we outperformed across all key metrics. Strong execution is driving high-quality growth, and this gives us great confidence as we look forward to 2026. Turning now to our segment performance on Slide 13. Adjusted revenue and recurring revenue both grew 6% with strong recurring revenue growth from both segments. Banking exceeded our expectations in the quarter. Revenue growth of 6.2% was well above the high end of our range, reflecting strong core growth and an M&A contribution of 150 basis points. The performance was led by recurring revenue growth of 6% with strong transaction growth across our payments business in addition to strength in digital banking. Nonrecurring revenue increased 8%, mostly due to card personalization and deconversion fee timing. Professional services accelerated the 6% growth and net pricing was positive in the quarter and on a year-to-date basis. Banking EBITDA margin expanded by 68 basis points, primarily due to a rising contribution from cost-saving programs. We expect these positive trends to continue into the fourth quarter and drive even stronger margin expansion. Turning now to Capital Markets. Adjusted revenue growth of 6.4% came in close to the high end of our expectations. M&A contributed 130 basis points, consistent with prior quarters. Recurring revenue grew 7.6% as we saw a rebound of lending activity and stronger momentum in our treasury and risk businesses. Nonrecurring revenue increased 12.6%, reflecting strength in license sales. Lastly, professional services declined 5.6% due to the timing of some engagements. Capital Markets EBITDA margin expanded 60 basis points, reflecting higher cost savings, accelerating growth in high-margin recurring revenue and higher license sales. As with banking, we expect segment margins to expand in the fourth quarter. Moving now to Slide 14. Year-to-date results are strong with both adjusted revenue and recurring revenue growing over 5%. Banking growth of 4.8% is in line with our increased outlook, and we are confident in delivering a strong fourth quarter. It's a similar story in Capital Markets with year-to-date growth of 6.6% aligned to our full year outlook. Overall, we delivered good results across both segments, and we are executing well on the second half revenue acceleration and margin expansion that we guided to earlier in the year. Turning now to our increased full year outlook on Slide 15. We are raising our ranges for revenue and adjusted EBITDA to reflect the stronger operating results and the recently closed Amount acquisition. We are raising our revenue range by $65 million at the midpoint, resulting in an adjusted revenue growth of 5.4% to 5.7%, well ahead of our Investor Day outlook. For Banking, we are increasing our revenue growth range from 4% to 4.5% to 4.9% to 5.3%, an increase of almost 1%. The recently closed Amount acquisition is expected to contribute around 20 basis points of additional growth, with stronger operating performance driving the remaining 65 basis point increase. For Capital Markets, we are updating our outlook to approximately 6.5% to better align with the performance we have seen year-to-date and reflecting a tough comparison in the fourth quarter. We are raising our full year EBITDA outlook to reflect our third quarter performance, and we are updating our margin outlook to include the impact of M&A. Importantly, we are confident in delivering margin expansion across both segments in the fourth quarter. Lastly, we are tightening our EPS range by $0.02 and reiterating double-digit growth of 10% to 11%. Consistent with prior quarters, we have provided updated modeling assumptions in the appendix. Before closing, I wanted to reiterate some points related to the coming year. While tuck-in M&A tends to weigh on margins in the short term, the M&A deals signed in 2024 and 2025 will be accretive to FIS margins in 2026, with further margin benefits in the out years. Because of this and combined with the underlying margin profile of the business, we are confident in delivering margin expansion of greater than 60 basis points in 2026. As you can see, we are driving improved cash conversion, going from 77% in 2024 to over 85% in 2025, and we are on track to deliver 90% conversion in 2026 as our cash optimization initiatives continue to bear fruit. Overall, we are seeing positive revenue trends across the business, and we have good momentum as we exit the year. Lastly, we're excited the credit issuing acquisition is expected to close in the first quarter of 2026 and continue to expect the transaction to be accretive in the first year and add $500 million of free cash flow in 2026 rising to $700 million post integration. I'll conclude on Slide 16. In summary, our third quarter results were ahead of expectations, driven by strong recurring revenue and margin expansion from both segments, and we are increasing our revenue and EBITDA outlook for the year for the second time. Free cash flow was exceptional in the quarter, and we are increasing our 2025 cash conversion target to over 85%. We returned over $500 million to our shareholders, and we've increased our full year target to $2.1 billion. With that, operator, could you please open the line for questions?

And our first question will come from Jason Kupferberg with Wells Fargo.

Nice to see these numbers. Your commentary clearly on the health of the end markets for banking sounds quite positive across the subsegments, both from a demand and pricing perspective, definitely reassuring. So I'm wondering if that translates to a more bullish view on how fast you can grow the Banking segment structurally over the next couple of years. I think at the Analyst Day, we talked about approximately, call it, 3% organic growth for banking as a medium-term target. But clearly, you're performing above that level currently.

Yes. Thanks, Jason. Yes, we are feeling very good about technology spend in banking, as I talked about. Banks are spending money on technology in the places that are important to them. And we've been very focused on ensuring that our product sets and solutions are in those right places like digital, for example, like payments, like bank modernization. You're exactly right. We are exactly on or actually ahead in our banking business from an organic basis and with M&A in 2025. It gives us a lot of confidence as we go into 2026 around the banking business. Not sure I'm ready yet to call a higher midterm guidance on banking, but it certainly gives us a lot of confidence as we go into 2026 in terms of the step change we've seen in revenue in banking. And that's multiple things happening at the same time. The end markets are very strong. We're the beneficiaries of large-scale M&A, but most importantly, around commercial excellence and we gave some of the stats here of how important and how successful that's been as we really have changed our sales force, not only in terms of the leader, but also how we're focusing and where we're focusing there in terms of recurring, highly profitable revenue, which is driving both our banking revenue growth as well as helping us change the mix on our margins. So overall, feeling really good about 2026, but I'm not yet ready to call higher midterm guidance there.

Okay. Well, fair enough. But let me ask a follow-up on 2026 specifically. You touched on margins going up over 60 basis points. But from a revenue perspective, should we feel comfortable modeling the numbers consistent with the medium-term guide from the Investor Day? And just, James, any one-off headwinds or tailwinds on revenue we need to be mindful of either at the segment level or for total company for 2026?

No, I think as Stephanie mentioned, our banking operations are significantly outperforming capital markets. One thing to keep in mind is that our long-term guidance includes the effects of acquisitions. Once the credit issuer transaction closes, we will not engage in any additional acquisitions, which may slightly decrease capital markets performance. However, you are correct that the banking business is clearly excelling, and we have recorded three consecutive quarters of growth. On an organic basis, recurring revenue is around 4.5 percent, which is very encouraging. Overall, we feel very confident about our revenue growth. While capital markets may underperform slightly, banking continues to show strength. The recurring revenue is much more robust, and as Stephanie has previously mentioned, there is a significant improvement in quality as we increase annual contract value this year. We are focusing on a business model that is now over 80% recurring, with a strategic shift towards more recurring revenue and away from nonrecurring and professional services. Within recurring revenue, we are also prioritizing higher margin products like payments, digital solutions, and our core business. So, I believe this sets a strong foundation for quality discussions moving into next year.

One moment for our next question. And that will come from the line of Darrin Peller with Wolfe Research.

It's good to see the organic banking trends in that mid-4s, mid- to high 4s range we're seeing now this quarter, and I think embedded in your guide for next quarter, if I'm not mistaken. Maybe just Stephanie and James, if you could just give us a little more on the building blocks. You started touching on it in your slides around issuing and digital payments and then core. A little more color on what you're seeing in each of them, specifically in terms of growth that's driving that trajectory, just to ensure we know that's somewhat sustainable going forward would be helpful.

Sure. You're exactly right. We're feeling really good about the organic banking revenue in the mid- to high 4s in Q3 and then the guide expresses that in the fourth quarter. And like we talked about, feel good about that going into 2026. I think the way to think about it is really around making sure that we are selling. So our net new sales is delivering about 100 basis points every year of growth for us. As we think about where that growth comes from, we're really taking advantage of our investments that we've made, both in terms of organic and inorganic and driving new sales into the higher quality. So I think bank modernization and continuing to drive growth out of our core business, really leaning into our digital business as banks continue to invest in their digital capabilities to drive both new business into the bank as well as service and then in payments. So if we focus there and we think about that on an annual basis on a net new sales perspective, driving about 100 bps in those categories, then it fully supports what we would typically see around organic, the organic overall base of the banking business, which, as you know, is a combination of transactions going across the platform from a payments perspective and then accounts on file, so think about more accounts coming across on core and digital. And that gives us a lot of confidence around what we've historically seen with organic in terms of 2 to 3 points of growth every year. So you start with your new sales and make sure you're selling in the categories that are higher quality, higher recurring with higher organic growth in them. And you get a net new sales number of about 100 basis points, you get organic growth for you on 2 to 3 points per year. And then you come down to a net pricing capability, which we've been talking about anywhere from 0 to 50 basis points per year, and we're really starting to see a tailwind in that. So overall, if you think about the basic building blocks of banking to support kind of a 3.5% to 4.5% range, that's how we think about it. And for us, it's really been about making sure we focus on the mix of what we're selling so we can get that really strong organic growth and we can deliver the profitable margins that go down at the segment level.

Okay. Stephanie, that's helpful. I guess one quick follow-up, James, on free cash. You're talking constructively about what we're seeing now and into next year, 90% plus. Obviously, that's adjusted when you consider the deal you're going to be closing soon in the first quarter. And so just help us understand how you're going to think about segmenting out what, I guess, will be some restructuring charges and how close we can get to that, let's call it, 80% plus even with some of those restructuring? Just want to know the quality of free cash that we're hoping for next year.

Yes, it's a bit early to provide exact figures on the acquisition since we haven't done so previously. However, regarding our core business, we expect to close out this year well. If we achieve our 85% guidance, we're anticipating free cash flow to grow by about 15% to 16% year-over-year, which would exceed our earnings per share growth. On a GAAP basis, the figures align with the adjusted numbers as well. We will finish the year with a strong 85% conversion rate. Moving on to the fundamentals of FIS, we will see slightly reduced capital intensity next year, which will enhance cash conversion. This year, we've faced challenges due to higher cash taxes, which has negatively impacted conversion. However, we expect that to stabilize next year. By addressing capital intensity and the tax rate, we are confident in achieving a 90% cash conversion, possibly even slightly higher due to our successful working capital programs, which significantly exceeded expectations in the third quarter. During our due diligence, we noted that the business we’re acquiring also has about a 90% conversion rate, so combining our two businesses should yield positive results. While it’s too early to specify one-time expenses associated with integration, we can anticipate that our adjusted cash flow, growing at a potentially faster rate than EPS, along with an additional $500 million in adjusted cash flow from the issuer business, will result in a notable increase in overall cash flow. We will need to account for a few incremental one-time expenses from the integration, but we project a strong performance in both adjusted and GAAP free cash flow next year.

One moment for our next question. And that one from the line of Tim Chiodo with UBS.

I believe two key numbers for next year are the 60 basis points of margin expansion and the free cash flow conversion for both adjusted and non-adjusted figures. We have already discussed free cash flow in detail, but we can examine margin expansion further concerning its components. This year, we anticipate a lower exit run rate for costs and a headwind from the TSA affecting margins by approximately 70 basis points, which will be less of a challenge next year. It would be helpful to receive an update on that along with the related cost savings. Additionally, you mentioned it earlier, but could you provide more insight into the contributions from smaller M&A deals over the past few years, particularly how they will positively impact EPS and EBITDA next year?

Thank you, Tim. I'll begin, and then James will go into more detail about the numbers. You're correct that in 2025, we've experienced some dilution in our EBITDA margin. However, we've managed to maintain absolute dollar value from M&A, which we've been transparent about, and we are optimistic that this will become accretive in 2026. Therefore, we won’t face that headwind moving forward. Additionally, you're right about the TSA this year; the effects of the Worldpay separation and the decline in TSA revenue are affecting our margin. As those revenues decrease, it takes a little time to remove the corresponding costs from our system. We expect to gain an advantage in 2026 as these costs cease to impact us, and we transition the M&A into an accretive state. In the third and fourth quarters, we've seen significant progress in margin expansion within both our banking and capital markets businesses in Q3, and we are guiding for similar improvements in Q4, which aligns with our expectations as we implement our Future Forward savings strategy. We are focusing on selling high-margin recurring revenue to enhance the quality of our revenue while also cutting costs as we further separate from Worldpay. These are strong favorable factors as we head into 2026. James, do you have any additional insights?

Yes, I believe Stephanie covered the key points. The first principle to note is that the M&A additions this year have had a negative impact, reducing us by approximately 45 to 50 basis points. Next year, it is expected to be slightly positive, around 10 basis points. This removes a headwind and boosts our confidence for the coming year, especially since we will not engage in M&A additions next year. The TSA impact was roughly 50 basis points negative this year and is unlikely to change much next year. The main change is in the quality of the Annual Contract Value (ACV) we've sold this year, which has shifted significantly toward core digital and payments segments, where margins exceed 50 percent, unlike some slower-growing categories. This shift will naturally favor our revenue mix. It is also worth noting that banking margins have shown strong recovery in Q3 and are projected to improve further in Q4. The most significant factor we've leveraged in the second half of this year has been our cost programs, which we anticipated would be a second half story. This is reflected in the margin increases across both segments in Q3, and we expect this trend to continue in Q4. Thus, we have three main drivers: reduced dilution from M&A, a favorable product mix, and the quality of this year's ACV sales. Additionally, our cost programs are likely to provide even more benefits next year compared to this year.

Stephanie and James, if you don't mind just a brief comment on any of the debit network pricing environment, just given it's been a little bit of an investor topic over the past week or so, if there's anything you could comment around pricing environment related to NICE.

I would like to emphasize that we are in a rational pricing environment. There has been much discussion about this, and we have provided solid statistics to support our position. Overall, the market is rational regarding pricing, regardless of the product or new business. We have strong competitors, and we compete with each other, but I do not observe irrational pricing in any products, particularly with NICE. We are pleased with NICE's performance, which has been driven more by increasing account volume on the platform and attracting more merchants to the NICE network. This isn't just a pricing issue; it's about how we deliver value to merchants and optimize routing. While I cannot comment on our competitors' pricing strategies, we are confident in our positioning with NICE and the value it offers to both merchants and issuers. Pricing cannot be adjusted significantly for a short-term benefit, and I will stop there.

One moment for our next question. That will come from the line of Trevor Williams with Jefferies.

I wanted to inquire about the competitive dynamics in core processing. One of your major competitors is reducing the number of cores they operate by about two-thirds. Could this situation potentially lead banks to issue a request for proposal, and how much of an opportunity might this present for you to acquire new business?

Overall, there is a noticeable trend in the industry towards bank modernization, primarily driven by end markets that demand enhanced digital capabilities, account opening features, and real-time transaction functionalities. To effectively roll out new products and services, banks need to approach this modernization in a modular way. This trend remains significant in the market, with each player at different stages of product and solution delivery. While discussions about platform consolidation have emerged, our company underwent this process a few years ago and currently operates on three strategic platforms, which we are pleased with. We made considerable investments in modernization, reflected in our increased capital, and have managed to decrease expenses over time. Even though movements in the market present opportunities for competition, annual core transitions remain minimal, as there is substantial stickiness in this business. We are satisfied with our renewal rates and have been successful in retaining existing clients. While we recognize the potential for growth, the market is competitive, characterized by many renewals and strong client retention. We are committed to competing and focusing on our clients' bank modernization journeys. We are nearing the end of transitioning from many systems to a few, and we're now dedicated to ensuring our efforts help banks deliver products to their clients more efficiently.

Okay. All right. And then just for my quick follow-up, I wanted to ask on the EBT exposure that you have within banking, if it's possible to give us a rough sense for how big that revenue pool is and if the shutdowns having any impact on that in Q4? And then with the changes in eligibility requirements that are being made at the federal level, just how you guys are potentially thinking about the downstream impact in '26 and beyond to that revenue pool?

Yes. I don't think we've ever given the size of the EBT revenue. It's not overall material to FIS. It is a nice piece of business for us. We don't expect the shutdown to have an impact on the EBT business. And if it does, we would expect to care for it within the guide we provided. We generally get paid on a number of cards, and so it's not necessarily how much is funded on a card. And generally, thus far, we're seeing cards continue to be active. I think as we think about 2026 and the criterion, it's a wait and see in terms of how much that really impacts the overall business. Again, it's based on number of cards. So if there are fewer cards, we'd obviously earn less revenue. But at this point, we're sizing that out and don't expect it to be a material impact for 2026.

One moment for our next question. And that will come from the line of Dan Dolev with Mizuho.

Stephanie, great results here as always. Stephanie, you initiated your Future Forward strategy 3 years ago. And I want to know how much confidence do you have in your investing strategy and rationalizing the business appropriately? And maybe just as a follow-up to that is how is AI shaping into the investment roadmap that you put together? And then I have a very quick follow-up.

Thank you, Dan. We are very satisfied with our Future Forward strategy. You can see its advantages in our commercial excellence and our strong shift towards generating high-value recurring revenue. We are focused on continuously improving our commercial excellence through AI. Nasser and his team are employing AI to enhance our sales pipeline and boost the productivity of our sales teams, which makes me feel optimistic about this aspect. In terms of serving our clients better and making business interactions smoother, we are also leveraging AI. Our Chief Client Officer is dedicated to using AI in the latter half of this year to improve the experience for both our internal teams and our clients, enabling them to self-serve. This approach is not only generating cost savings, which we anticipate will benefit us in 2025 and onwards, but is also resulting in improved outcomes and client satisfaction, leading to higher retention rates. Additionally, we are significantly adjusting our investment strategy to capitalize on AI opportunities within our products. A crucial element of utilizing AI is having access to our underlying data. Our core systems are mainly ledgers, and we have extensive data from our payment systems. We are enthusiastic about expanding our credit issuing business and are collaborating with our bank clients to ensure they have faster, cleaner, and more secure access to their data. We are investing in our data infrastructure and testing new capabilities for delivering that infrastructure efficiently. With regional community banks, we are focusing on Agentic workflows to help automate their back-office tasks. We have a significant product launch planned at Emerald, building on our banking assist solution introduced last year, aimed at assisting banks in automation and reducing back-office costs. In the capital markets sector, particularly in our treasury business, we observe an increasing adoption of our neural treasury product, now with almost 700 clients live, which integrates AI into cash forecasting, risk management, and payment optimization. Our Future Forward strategy encompasses all areas: commercial excellence, client excellence, and innovation to ensure we provide top-tier products. AI is central to this strategy, and while we are just starting, we feel confident about wrapping up the year and our investment directions, whether that's enhancing back-office operations, expanding technological capacity for investments, or making our products AI-enabled. We feel good about our current position.

That's great. Amazing. And really quick follow-up, maybe just housekeeping and sorry if this is redundant for James. Like we're getting a lot of questions about M&A contribution, like organic, inorganic towards the end of the year and then into '26. Can you maybe help just make some order there in terms of what to expect from stuff that's been acquired thus far, that would be great.

We have added some disclosures to the current charts showing the impact for the quarter and the full year for both businesses. To reiterate, the banking contribution from M&A was 150 basis points this quarter and 110 basis points for the full year. We also provided guidance for Q4, which is projected to be 120 basis points for M&A contribution in banking. For capital markets, the full year is expected to be 130 basis points, with similar expectations for Q3 and Q4. We've increased our disclosure moving forward. Regarding the guidance, we raised the midpoint by 85 basis points, with the impact of the Amount acquisition, which was not included in the previous guidance, accounting for about 20 basis points. Therefore, the majority of the increase in the full year guide in banking, which is 65 basis points, stems from operational execution and particularly strong performance in the third quarter.

One moment for our next question. And that will come from the line of Tien-Tsin Huang with JPMorgan.

Good quarter here. I wanted to ask about the bank consolidation. Stephanie, you mentioned there's quite a bit there. Do you have good visibility or insight into being on the right side of the larger deals? When do you expect to gain more clarity on that? Could it be significant enough to impact growth next year?

Yes, that's a great question. Clearly, bank consolidation has really increased in 2025. As you know, we focus on serving larger financial institutions. When we're involved with a bank being consolidated, we have a high success rate in being chosen for that transition. We also perform well when competing against the existing provider. I believe we have a solid understanding of the M&A landscape for 2026. However, Tien-Tsin, it feels like there is a new announcement every Monday. So while I can provide that insight, I can't predict what will happen for the rest of the year regarding M&A, but overall, we are feeling positive as we speak.

Yes. Well, history says you guys are usually on the right side. I know you got it. A couple of questions on AI. So going to different conferences, Stephanie, I just want to ask you on digital assets and deposit tokens, things like that. Any interest in investing more there or doing more there buying infrastructure? Is that on the roadmap for FIS in the near term? I know there's a lot on your plate with the deal coming soon.

Yes, I'm glad you asked. We are actively engaged in digital assets and stablecoins. Recently, we announced a strategic partnership with Circle, which facilitates money movement across their platform, integrated with our Money Movement Hub. This hub is experiencing significant demand, and we maintain an agnostic stance regarding whether transactions occur through Circle or various payment networks such as ACH and real-time payments. Our goal is to enable financial solutions and technology without being tied to a specific digital asset. In terms of tokenizing assets in the commercial loan and securitization space, we are piloting a project with a client aimed at moving approximately $0.5 billion on-chain to enhance their balance sheet capacity using new technology. We are making investments and are focused on how we can best serve our clients in this area. Regarding tokenized deposits, there is considerable activity, and we are actively developing our solution alongside our clients in response to strong demand. Our strategy in the digital space centers on enablement; we do not intend to issue a stablecoin or compete with our banking partners. Our objective is to create and provide technology—whether through partnerships, acquisitions, or in-house development—to equip our financial services clients with the necessary capabilities. We are closely monitoring developments in this area and have a lot of initiatives underway.

And we do have time for 1 final question, and that will come from the line of Bryan Bergin with TD Cowen.

So cap markets looks like it's back on track here. Can you comment on what you've seen in the loan syndication area and then the latest in some of the nontraditional vertical demand? I'm curious if you're seeing the underlying backdrop in those areas as healthy as banking or somewhat more mixed?

Yes. We are. We're pleased to see the capital markets loan syndication is back on track as we had expected in the second quarter. So that's good. So don't see significant trends negative there as we move into the end of the year. In terms of nontraditional demand, we're seeing the same thing that you're seeing. Private credit continues to be in high demand. The underlying markets, the nontraditional markets continue to be strong. Overall, we see strength in all of the non-traditionals. And as you know, it's been really important for us to make sure that we have our capabilities enabled there, whether you're traditional or nontraditional. So nothing new, Bryan, really to report there. Demand remains healthy.

Okay. Understood. And then in advance of the Issuer Solutions acquisition, can you just comment on how prospective banking client conversations are trending? I'm just curious if there's any updated views on the potential pipeline opportunities just as you bring broader credit into the fold. And particularly if you're seeing any incremental opportunities amid other challenges to move quickly on those opportunities post-close?

Yes. We continue to remain very excited about the opportunities. I would say, we're, in particular, excited about enabling a couple of products at the time that we closed the transaction that can really excite the existing base in terms of cross-sell. But as you know, we know each other's clients really well. We think there's a lot of opportunity to cross-sell. And we're getting a lot of positive feedback about Issuer Solutions. They like the team there. They think it's a great product. It served these financial services very well. And as you know, this has been a product for us that we have not had. So people are pretty excited about what we can do with it. And just to share a little bit, if you think about the number of accounts that come on file, thinking about bringing it back to AI enablement and doing something with Agentic commerce, et cetera, it's pretty exciting the amount of accounts and transactions we'll be able to see going across credit debit in all of our cores. So we're really bullish about that opportunity as well. And then on their modernization program, excited about getting our hands on that and what that can deliver for clients. So all positive. Looking forward to getting them on board with us and getting them in the team and getting going, but feeling really good about it.

That concludes today's program. Thank you all for participating. You may now disconnect.