Earnings Call Transcript
FISERV INC (FISV)
Earnings Call Transcript - FISV Q3 2025
Operator, Operator
Welcome to the Fiserv Third Quarter 2025 Earnings Conference Call. 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, Senior Vice President of Investor Relations
Thank you, and good morning. With me on the call today are Mike Lyons, our Chief Executive Officer; and Paul Todd, Senior Adviser and incoming 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 stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now I'll turn the call over to Mike.
Michael Lyons, CEO
Thank you for joining us today. By now, you've seen our results and revised guidance for the year. While disappointing, the actions we are taking are driven by a rigorous analysis of the company conducted during the third quarter and represent a critical and necessary reset and a revitalizing moment for the company. We are capitalizing on this opportunity to refocus on the pillars that have long distinguished Fiserv, including exceptional client service, world-class execution, value-added technology solutions and cutting-edge innovation. Today, I will share with you our plans to build a sustainable, high-quality company that will make our shareholders, clients and employees proud. There are five key messages we want to deliver today. First, the results of our analysis highlighted Fiserv's outstanding SaaS and payment platforms and our robust portfolio of value-added services, uniquely positioned at the intersection of finance and commerce, two large, economically critical and rapidly evolving industries. At the same time, we also identified certain competitive and client service gaps, which we are actively working to fill and are confident that with focused investment, we can fully address. Second, we have established a new revenue and earnings baseline consisting of high-quality, structural, largely recurring revenues driven by meeting our clients' needs and aspirations. Going forward, we are shifting our strategic focus and our culture to prioritize sustainable client-focused opportunities over short-term initiatives. While this pivot will negatively impact near-term results, our team has embraced this change, and it will best position us for predictable and sustainable growth and margins. Third, we have a tremendous opportunity to use emerging technology, including generative and agentic AI, to enhance our mission-critical software solutions, ignite our gateways and orchestration layers, facilitate embedded finance and improve our operations. We are pursuing these opportunities and other performance-enhancing initiatives under a new action plan called One Fiserv. Fourth, we're building a world-class leadership team that is united in driving these efforts and establishing a culture that prioritizes integrity, fairness, execution, accountability and client service. Today, I'm excited to announce new Co-Presidents and a new CFO. We will also be welcoming three new Directors to our Board, including new Board and Audit Committee Chairs, all of whom bring tremendous experience and highly relevant skills to Fiserv. Fifth, as we move beyond 2026, with a supportable and transparent financial baseline and key investments in place, we are well positioned to return to Fiserv's roots of consistent mid-single-digit revenue growth with clear potential for further acceleration over time. When combined with operating leverage, significant free cash flow generation and highly disciplined capital allocation, this will ultimately support double-digit adjusted EPS growth and present an attractive constant compounder investment case. I am personally energized and excited to demonstrate what we can accomplish as the world's largest fintech. In terms of the agenda, I'll start with a summary of the analysis we have completed, which forms the basis for our One Fiserv action plan, and then Paul Todd, our incoming CFO, will cover the financial results in detail. During the third quarter, my first full quarter as CEO, I worked with the management team and several external advisers to conduct a rigorous analysis of the company's operations, technology, financials and forecasting, including thousands of client and employee meetings and external benchmarking. As the new CEO, it was natural for me to push our team to think critically about our businesses and objectively assess long-term value drivers, competitive strengths and weaknesses and ultimately, how we communicate with the investment community. The analysis was integrated into our annual strategic planning process, which starts every August and continues into the fall, with ongoing communication and interaction with our Board of Directors. One of the key takeaways from our analysis is that Fiserv's growth and margin targets need to be reset. This change is driven by a combination of four factors, including slowing cyclical growth in Argentina, the recalibration of optimistic growth assumptions in the original guidance, the impacts of certain deferred investments and the deprioritization of short-term revenue and expense initiatives. I will touch on each of these factors, starting with Argentina, where we have built a highly successful payments business. Fiserv's medium-term organic revenue growth target of 9% to 12% was originally set in 2023 amidst high interest rates and inflation in Argentina, which greatly benefits our anticipation business there and ultimately drove organic revenue growth in Argentina of 257% in 2023 and 329% in 2024. While we have previously sized the impact of excess Argentinian interest rates and inflation on our organic growth, today, we're providing a holistic view of how Argentina has impacted Fiserv's performance. Specifically, Argentina contributed over 5 percentage points to our 12% organic growth rate in 2023 and roughly 10 percentage points to our 16% organic growth in 2024. This is highlighted on Slide 9. Therefore, excluding Argentina, the company's overall organic revenue growth rate was in the mid-single digits in both 2023 and 2024. Year-to-date, Argentina's organic growth rate is 56%, adding roughly 2 percentage points to our overall organic growth rate of just over 5%. Notably, in addition to strong organic revenue growth, our Argentinian business comes with adjusted operating income margins that are roughly double overall Fiserv levels. The second conclusion is that while the company's original 2025 organic revenue growth guidance of 10% to 12% appropriately anticipated that Argentina's growth would slow some, it also assumed that to compensate for the slowdown, our non-Argentinian businesses would grow significantly faster than their historical mid-single-digit range. In July, as part of my transition to CEO, we revised down some of these elevated expectations with a specific focus on critical new product launches to better reflect what was achievable based on the work we had completed at the time. However, as we pursued a much broader and deeper full company analysis in Q3, it became clear that there were incremental assumptions embedded in our guidance, including outsized business volume growth, record sales activity and broad-based productivity improvements, all of which would have been objectively difficult to achieve even with the right investment and strong execution. The third major factor impacting our results is that over the last few years, decisions to defer certain investments and cut certain costs improved margins in the short term, but are now limiting our ability to serve clients in a world-class way, execute product launches to our standards and grow revenue to our full potential. The good news on this front is that these circumstances are entirely fixable. And with the actions we have taken over the last few months, along with today's announcements, we are making these investments and are on our way back to the highest standards. And the fourth and final factor is that Fiserv's recent results have increasingly relied on short-term initiatives. These initiatives place too much emphasis on pursuing in-quarter results as opposed to building long-term relationships by prioritizing business that both meets our clients' needs and comes with high recurring revenue. As a result, we have made the decision to deprioritize these short-term revenue and expense initiatives, which, of course, has some near-term impact on our growth and profitability. Our Q3 results, updated 2025 guidance and preliminary outlook for 2026 now all reflect current conditions in Argentina, the recalibration of assumptions embedded in our original guidance, all necessary investments and the deprioritization of short-term initiatives. Given the depth and rigor of our analysis, we believe we have addressed the most critical issues and have established an appropriate go-forward baseline. Another important takeaway from our analysis is that nothing at Fiserv is fundamentally broken. Our businesses are well positioned. The markets we serve are growing. We are expanding into new Total Addressable Markets (TAM) and our clients have a near insatiable appetite for innovative technology and payment solutions. This reset is about aligning structural versus cyclical growth and sustainable revenues and expenses versus short-term results, particularly as it relates to the company's original guidance. While there are certainly some areas where we are dissatisfied with our recent performance, we found that our challenges are largely driven by our own doing, not the result of a material change in our positioning. We know the issues, and we are already addressing them through investment, more intense focus on operational performance and client service and a significant cultural shift. Our confidence in addressing these issues was highlighted at the Fiserv Forum, our annual client conference, where we made specific delivery commitments to our customers. Our analysis also highlighted that we have some of the most innovative platforms in modern finance and payments, including Clover, Commerce Hub, Finxact, STAR, Accel, Optis, Vision Next and our ISV platform, which are all extremely well-positioned, growing faster than market rates and continue to generate new client wins. For example, we recently agreed to bring the Clover solution to Japan through a partnership with a leading local financial institution. Together, we will go to market next year with our platform to drive digital payments transformation for the Japanese SMB market. A formal announcement will come in the following months. Earlier this month, we signed an exclusive long-term partnership with Nubank, which is one of the world's largest digital banks. We signed our largest healthcare deal ever in Q3, a key growth vertical for us with an agreement to provide value-added services to one of our issuing clients. Our Money Network prepaid card business won a significant program with the U.S. Treasury Department as a subcontractor to Fifth Third Bank on the Direct Express program. And finally, we recently showcased many of our leading products, services and exciting new innovations at Fiserv Forum, where we received fantastic feedback from a record crowd. The final conclusion from our analysis is that we need to change the way we forecast and communicate about our business and engage with the analysts and investors. Going forward, we will more clearly explain our growth drivers, enhance the rigor in our forecasting, which will allow us to provide high conviction guidance, and be more active with the investor community. Along these lines, we look forward to sharing more details on our action plan and new medium-term outlook at an Investor Day that we will host in the first half of next year. With this comprehensive analysis under our belt, we are now laser-focused on execution. Before digging into our specific action plan, a couple of comments on our Q3 results. In the quarter, we reported total organic revenue growth of 1% and adjusted EPS of $2.04, both measures impacted by the various factors mentioned earlier, which Paul will further elaborate on. Total Clover Q3 GPV grew 8% on a reported basis and 11%, excluding the 2023-2024 gateway conversion. In the U.S., Clover GPV grew approximately 7.5%, excluding the gateway conversion, which marked a slight acceleration from the first half of the year. Relative to the Clover GPV growth expectations provided in July, our results were roughly in line, absent the impact of FX and higher-than-expected runoff from the gateway conversion. While we had assumed no material changes in FX when we made the projections, there was a significant deterioration of the Argentina peso in Q3, which was only partially offset by appreciation of the euro. Adjusted for these FX movements, reported Clover GPV grew 9% and 12% after excluding the gateway conversion. For the full year 2025, we expect Clover revenue to be $3.3 billion versus the original guidance of $3.5 billion. Q4 Clover revenue growth is expected to be below recent levels at approximately 10%, reflecting the deprioritization of certain short-term revenue initiatives, including the elimination of certain fees in Q4 that were initiated a year ago and are no longer consistent with our business strategy. Adjusting for these, Q4 revenue growth would be in the high teens. The Clover story remains exciting as we pursue structural growth through six major areas, including vertical expansion, where we have seen significant interest in our new Rectangle Health partnership, and we continue to invest in new areas; horizontal expansion, where we are building a full small business operating system with partners like ADP where we continue to progress well; international expansion like Brazil, where we are tracking well against our forecast; operational excellence driven by a full redesign of our merchant and partner experience augmented by leveraging AI; expanding TAM by implementing Clover Invoicing and Clover Capital into embedded finance use cases; and finally, thoughtful back book conversion starting in 2026. Turning back to the full year 2025 for Fiserv. We now expect to achieve 3.5% to 4% organic revenue growth based on the revenue-related impacts detailed earlier. We expect full year 2025 adjusted EPS to be $8.50 to $8.60, representing a modest decline year-on-year. We will provide formal 2026 guidance with our Q4 results, but we felt it important to note that we expect 2026 will be a critical investment and transition year for us and will mark our new baseline for growth going forward as we take a series of actions, which I'll cover next, as part of our One Fiserv action plan. On a preliminary basis, we expect organic revenue growth to be in the low single digits and adjusted EPS to be down modestly versus 2025. And of course, we'll be going through the normal financial planning process over the next few months to refine this outlook further. Let me now turn to our One Fiserv action plan, which centers on investments in five strategic areas, including operating with a client-first mindset, to win new enterprise clients and grow average revenue per client, or ARPC; building the preeminent small business operating platform through Clover; creating differentiated, innovative platforms in finance and commerce, including embedded finance and stablecoin; delivering operational excellence enabled by AI; and finally, employing disciplined capital allocation for the long term. First, on ARPC, we are fortunate to serve a diverse and highly attractive client base, including FIs, merchants, SMBs and increasingly digital commerce platforms. Our ability to penetrate these clients and grow ARPC begins with exceptional client coverage, outstanding service and the consistent delivery of innovative value-added technology solutions. To support these objectives, we are expanding staff across sales, relationship management, technical expertise, and service functions, in some areas growing, while in others building muscle that have been cut. Our recent acquisition of Smith Consulting Group exemplifies this commitment, bringing deep subject matter expertise to our clients as they look to deploy more technology. To further drive operational excellence, we are accelerating our tech platform optimization through targeted initiatives, and we are seeing strong results here so far. Second, as discussed earlier, we continue to invest heavily in Clover to make it the go-to operating system for SMBs, a massive critical market where we have the clear right to win. Next, we're investing in modern innovative platforms, including streamlining our banking cores from 16 to 5 and embedding real-time capabilities in AI, led by Finxact. We're building out our key merchant orchestration layers and payment gateways, including Clover for SMBs, CardPointe for ISVs, and Commerce Hub for enterprise clients and platforms. We're accelerating our investment in issuing with the Optis modernization and the launch of our modern card core Vision Next. We're growing our stablecoin capabilities with the launch of FIUSD and the recent agreement to acquire a digital currency custody license through StoneCastle. We're combining many of these capabilities to drive our fast-growing embedded finance business. Moving to operational excellence. We are excited to announce Project Elevate, a new multiyear transformation agenda powered by AI. We're executing this alongside our long-term partner, IBM, leveraging the same playbook and the same team that helped them successfully transform their own business and deliver significant value for their shareholders through AI. We launched the program in early September with a focus on five major processes, including sales, client onboarding, Clover client service, HR, and finance. We'll expand the list of processes as we go and expect the program to last approximately two years. The goal is simple: become a higher quality, more productive business by embedding AI in everything we do, including providing a better experience to our clients. While our work is just beginning, early proof points demonstrate the program's strong potential, and we expect compelling returns on our investment. We will provide greater detail on Project Elevate, including associated costs and benefits with our Q4 results and our Investor Day. Rounding out our One Fiserv action plan is a commitment to highly disciplined capital allocation. While we look to fully leverage the unique construct of our company, sitting at the intersection of commerce and finance, we are working with McKinsey to optimize our business mix and allocation of capital to maximize execution and performance. As part of this effort, we plan to monetize certain smaller businesses that are not critical for us to own as we execute our go-forward strategy. To support our action plan, today, we are making changes to our leadership team. First, I am incredibly excited to announce two absolutely outstanding leaders as our new Co-Presidents effective December 1 with Takis Georgakopoulos, serving as the Head of Merchant Solutions and Technology, and Dhivya Suryadevara, joining the company as Head of Financial Solutions, Sales and Operations. Many of you have gotten to know Takis over the last few quarters. He joined Fiserv late last year after a successful career at JPMorgan, where he was most recently Global Head of Payments. Takis recently took over the Merchant business and is already driving impactful change. We were thrilled to attract Dhivya to Fiserv. She has deep experience in payments and financials and is one of the most talented leaders I've met. Dhivya was most recently CEO of Optum Financial Services and Optum Insight at UnitedHealth, where she was a Fiserv client. Prior to that, she was the CFO of Stripe, and she started her career at General Motors, eventually becoming their CFO. Dhivya will join us December 1. My expectation is with two high-caliber executives in collaboration across our central functions, we will see strong execution and additional synergies between our merchant and financial institution businesses, further supporting our long-term growth outlook. Second, we are excited to announce that Paul Todd, who recently joined as a senior adviser, will be stepping into the CFO role effective October 31. Many of you may know Paul from his time as the CFO of Global Payments and TSYS. Most recently, Paul was a partner at TTV Capital, where he pursued early-stage investments across fintech. Paul brings tremendous industry knowledge and a track record of strong execution, integrity and accountability. Among other things, Paul will lead Project Elevate alongside Guy Chiarello, our Vice Chairman and Former COO. Bob Hau, our current CFO, will move into a senior adviser role to support a smooth transition, and we'd like to thank Bob for his nearly 10 years with Fiserv. We have also made several exceptional hires at the SVP level, each bringing deep subject matter expertise, strong leadership capabilities and fresh perspectives, and we are very encouraged by the strong interest from the outside to join our team. As we enter our next chapter, our Board is making several important changes, ensuring we have the right skill sets and vision to position the company for long-term success. We are thrilled that Gordon Nixon will be joining the Board and assume the Independent Chairman role. Gordon was President and CEO of RBC from 2001 to 2014, with 13 years at the helm of a leading global financial institution and significant experience as a public company director. Gordon brings deep expertise, perspective and leadership to the Fiserv Board, and I look forward to working with him closely. I want to thank Doyle Simons, our current Chairman, who has been a valuable board member contributing significantly to the company's growth and long-term value creation. Also joining the Board as incoming Chair of the Audit Committee is Gary Shedlin, who served as BlackRock's CFO from 2013 to 2023 and is currently Vice Chair of BlackRock. Gary's experiences and distinguished career will bring valuable knowledge and oversight capabilities to our Board and Audit Committee. Gary will succeed Kevin Warren as Audit Chair. Kevin has been an outstanding Director, and we thank him for his contributions and guidance. And finally, Céline Dufétel will join the Fiserv Board and be a member of the Audit Committee. Céline currently serves as CFO of Bridgewater Associates, one of the world's leading alternative asset managers. She brings a unique investor perspective from her current role, as well as financial and operational experience from her prior roles as the CFO of T. Rowe Price and the CFO and COO of Checkout.com. We're excited for all three directors to join the Board on January 1. Steps we've taken today are representative of the culture with which we will operate the company, emphasizing integrity, fairness, execution, accountability and client service. I'll close by reiterating my conviction in our assets, talent, strategy and ability to execute and innovate. We are exceptionally well positioned and know exactly what we need to do to reach our potential. By leveraging our outstanding SaaS platforms, gateways, orchestration layers and value-added services across our unique combination of merchant and financial solutions businesses, we can deliver compelling, innovative solutions to our clients, addressing their most critical needs. We are only scratching the surface of our opportunity with low share of existing TAM today and new TAMs emerging. Against these opportunities, we are building a world-class team and creating a customer-centric execution-oriented culture with a high level of accountability. We have reset our revenue and earnings baseline to a level with high-quality, largely recurring revenues and a path to sustainable operating leverage. As we move beyond 2026, we are well positioned to return to Fiserv's historical consistent mid-single-digit revenue growth with a clear potential for acceleration over time. And as we execute on this model, generate positive operating leverage and employ highly disciplined capital allocation, we aim to deliver double-digit adjusted EPS growth starting in 2027 and establish a durable compounder value proposition: a company that year in and year out hits its numbers and generates compelling and predictable returns. Before turning it over to Paul, I want to recognize and thank our employees, who have been so dedicated to serving our clients. With that, over to you, Paul.
Paul Todd, CFO
Thank you, Mike, and good morning, everyone. I want to first take a minute to say how excited I am to be part of the Fiserv team. I have known Fiserv for a long time. But after spending the last two-plus years in fintech venture capital, I have a better appreciation for the unique construct of the company, the quality and depth of the assets on this platform and the differentiated value of its unique distribution capabilities. I look forward to working alongside the fantastic leadership team that Mike has assembled and playing a role in leveraging the company's unique strengths and market leadership positions to drive compelling, long-term shareholder value. While we have room for improvement, this is truly an exciting time to join an industry-leading company serving large and important industries, who are rapidly adopting new technologies. With that, I will now cover the financial results of the company, starting with financial metrics and trends on Slide 5. Total company third quarter adjusted revenue grew 1% to $4.9 billion and adjusted operating income decreased 7% to $1.8 billion, resulting in an adjusted operating margin of 37%, a decrease of 320 basis points. Year-to-date, adjusted revenue grew 5% to $14.9 billion and adjusted operating income grew 5% to $5.7 billion, resulting in an adjusted operating margin of 38.2%, flat versus the prior year. Organic revenue grew 1% in the quarter, with 5% Merchant Solutions organic growth and a 3% decline in Financial Solutions. On a year-to-date basis, organic revenue for the company is up 5%. Third quarter adjusted earnings per share was $2.04, compared to $2.30 in the prior year, down 11%. There are three unusual dynamics impacting the company's adjusted EPS of $2.04 for the quarter. First, the company experienced a $53 million foreign currency expense or a $0.10 headwind to adjusted EPS. Revaluation of certain assets and highly inflationary countries such as Argentina is recorded through the income statement. During the third quarter, the foreign currency exchange rate in Argentina devalued significantly, resulting in this large expense. Second, Argentina interest rates jumped meaningfully during the quarter, which drove interest expense up about $31 million above last year or a $0.04 headwind to adjusted EPS. Finally, during the third quarter, Fiserv completed the mutual termination of a merchant alliance joint venture. This resulted in a tax-free gain of $89 million recorded in Merchant Solutions' operating income resulting in a $0.16 tailwind to adjusted earnings per share. We continue to provide services to this partner through a processing relationship. The net of these three factors is a slight benefit to adjusted earnings per share in the quarter. Year-to-date, adjusted earnings per share increased 6% to $6.65 compared to $6.29 in the prior year. Free cash flow for the quarter was $1.3 billion and $2.9 billion for the first nine months of the year. For the full year, CapEx is now expected to be approximately $1.8 billion or roughly 9% of revenue. Given the revised outlook for earnings and a higher level of capital expenditures, free cash flow for the year is now expected to be approximately $4.25 billion. This higher level of CapEx is directly tied to the start of the One Fiserv initiative Mike mentioned earlier. Now turning to performance by segment, starting on Slide 6. Organic revenue growth in the Merchant Solutions segment was 5% for the quarter and 7% year-to-date. Adjusted revenue growth for Merchant Solutions was also 5% in the quarter and 7% year-to-date. The inorganic contribution from the CCV acquisition was offset by steep FX headwinds in Argentina. Moving to the business lines. Small business organic revenue growth in the quarter was 6%, while adjusted revenue grew 7% on 8% volume growth. This performance was largely driven by strong growth in Clover, in the North America ISV business and in anticipation revenue in Latin America. Clover revenue grew 26% in the third quarter and was impacted by approximately 100 basis points due to Argentinian FX headwinds versus expectations on reported gross payment volume or GPV growth of 8%. Revenue growth was driven by value-added solutions and solid GPV growth. SaaS penetration reached 26% due to strength in vertical software sales, Clover Capital and anticipation. As you can see on Slide 7, excluding the gateway conversion, volume growth in Q3 was 11%, similar to Q2 growth. Excluding the significant deterioration of the Argentine peso, Clover GPV growth would have been 1 percentage point higher on both the reported and ex-gateway basis leaving us in line with our expectations, excluding the gateway conversion. In Enterprise, organic and adjusted revenue growth in the quarter was 9% and 4%, respectively, driven by transaction growth of 12%. Organic and adjusted growth would have each been 6 percentage points higher excluding the transitory revenue from network fees associated with a large PFAC client that went live in Q3 2024. While this client continues to drive transaction growth for us, the timing of these network fees will continue to pose a grow-over challenge to fourth quarter and first half 2026 enterprise revenue. And finally, in processing, organic and adjusted revenue in the quarter declined 8% and 6%, respectively. Processing results this quarter were impacted by more difficult comparisons to last year, which included professional services revenues from a processing client and lower hardware sales. Year-to-date, processing organic and adjusted revenue are down 4% and 3%, respectively. Third quarter adjusted operating income for the Merchant Solutions segment was up 3% to $962 million, and adjusted operating margin was 37.2%, down 50 basis points from the prior year. The largest detractor to margins in Q3 were higher sales and marketing and distribution expenses, along with higher data processing costs and depreciation and amortization expenses partially offset by a gain on the merchant alliance joint venture change I mentioned earlier. Year-to-date, adjusted operating income for the segment was up 4% to $2.7 billion with adjusted operating margin down 90 basis points to 35.3%. Turning to Slide 8 for the Financial Solutions segment. Organic revenue declined 3% in the quarter and grew 3% year-to-date. Our third quarter revenue was negatively impacted by lower periodic license revenue, which impacted the segment's organic growth by 2 points. Looking at the business line level, in digital payments, organic and adjusted revenue each declined 5% due to industry dynamics in the quarter, while the company experienced healthy debit processing, debit network and Zelle transaction growth. In issuing, organic and adjusted revenue grew 1% and 2%, respectively, in the quarter. Fiserv generated solid accounts on file growth. However, revenue growth was muted largely due to grow-over challenges in the output business. And in banking, organic and adjusted revenue declined 7% in the quarter, primarily due to lower periodic license activity. Third quarter adjusted operating income for the Financial Solutions segment was down 13% to $991 million and adjusted operating margin was 42.5%, down 490 basis points from the prior year. The adjusted operating margin decline results from lower, higher-margin periodic license revenue coupled with the ongoing investment in implementation and professional services and technology spend. Year-to-date, adjusted operating income for the segment was up 4% to $3.4 billion, with adjusted operating margin up 50 basis points to 46.3%. Now let me wrap up with some remaining details. The corporate adjusted operating loss was $131 million in the quarter and $380 million year-to-date. The adjusted effective tax rate in both the quarter and first nine months was 18.4% and Fiserv continues to expect the full year rate to be approximately 19%. Total debt outstanding was $30.2 billion on September 30 and Fiserv's debt-to-adjusted EBITDA ratio increased slightly to 3x. Fiserv continues to target long-term leverage at 2.5 to 3x. During the quarter, Fiserv repurchased 7 million shares for approximately $1 billion and had 49 million shares remaining authorized for repurchase at the end of the quarter. In addition, aligned with the priorities of the One Fiserv action plan that Mike laid out, Fiserv announced three acquisitions during the quarter, focused on client service, value-added services and our stablecoin growth opportunity. The acquisition of Smith Consulting Group, which closed in Q3, brings deep subject matter expertise in-house to better serve our clients. The agreement to acquire StoneCastle Cash Management, which is expected to close by Q1 2026, provides us with a digital currency custody license and unique investment and liquidity services for our merchants and financial institutions. And finally, we acquired CardFree, an all-in-one platform empowering merchants with customized order, pay and loyalty solutions. And with that, I'll turn the call back to the operator to start the Q&A session.
Operator, Operator
Our first question comes from Tien-Tsin Huang from JPMorgan.
Tien-Tsin Huang, Analyst
Lots to ask here. Just maybe, Mike, I'll ask it this way. How long was Fiserv over-earning with deferred investments and this focus on short-term revenue and expense initiatives that you called out? And of course, it's early. But how long will it take? And at what cost for Fiserv to reverse this and get back to what I call a hallmark of double-digit EPS growth, you did call that out double-digit EPS growth. And of course, I'm getting the question to you, given your analysis and over the last few months, is double-digit EPS growth the right target? And why are you confident that that's the case?
Michael Lyons, CEO
Thank you. I'll start by saying that in the six months I've been here, we've made some adjustments based on the analysis from Q2, which involved a thorough review with a diverse group of internal and external advisors. We examined every aspect of the company and, as I mentioned earlier, we have a strong company with valuable assets and growth opportunities, and we are eager to capitalize on that potential. We identified four key areas for improvement, including our business in Argentina, which has been performing exceptionally well. It's important to communicate our growth figures accurately to fully understand Fiserv's overall performance. We also addressed our short-term initiatives, which sometimes prioritized immediate results over what our clients truly need, along with some postponed investments that we believe can be easily managed. We want to ensure that our business's capabilities are accurately represented in our guidance. Removing Argentina from the analysis, if we look at the growth rates for 2023, 2024, and year-to-date in 2025, we see 6% growth, 6% growth, and 3% growth, respectively. While there are some fluctuations in these figures due to the short-term initiatives, they reflect our current position as a company that is capable of mid-single-digit growth, likely on the lower end of that range. We've also recognized specific areas for improvement within our businesses, and we are already addressing these with targeted investments. We recently presented to 4,500 clients and made commitments to enhance our focus on these issues. We realized many of the challenges were self-imposed, but we know how to resolve them. We've made leadership changes to better manage these businesses, bringing in two highly effective leaders with proven track records. Our perspective is that we currently have low mid-single-digit growth, with a clear path through our investments to achieve more solid mid-single-digit growth and the potential for further acceleration. We'll provide updated medium-term guidance during our Investor Day, but our free cash flow generation remains strong. Our capital management strategy hasn't changed; we plan to invest organically and make selective acquisitions, and we'll continue to buy back shares as needed. We're maintaining our leverage guidelines, which together support our objective of achieving double-digit EPS growth. We're focused on operating the business effectively, maintaining high execution standards, serving our clients well, and ensuring long-term value for our shareholders. That's the overview I wanted to share.
Tien-Tsin Huang, Analyst
That covers it well.
Operator, Operator
Next, we'll go to the line of Darrin Peller from Wolfe Research.
Darrin Peller, Analyst
And Paul, congratulations and welcome. I want to understand in more detail what specifically changed in the Financial Solutions segment over the last couple of quarters, particularly since we always believed this segment was stable. While you mentioned consolidating your banking operations, the growth rate dropping to negative 1% from a mid-single-digit growth raises questions about what is happening beneath the surface and what potential you see for that segment. Additionally, regarding Tien-Tsin's question about the long-term growth algorithm, Mike, you mentioned a mid-single-digit growth rate for the merchant side. Are you confident that your team has thoroughly reviewed any necessary price adjustments or actions, or is there more to address? Have you completed the review?
Michael Lyons, CEO
Yes, I’ll address the last part first and then Paul will provide specific numbers. We have completed our review and while we continue to learn, the pace of learning has stabilized. We are very confident that the figures and baseline we are providing today accurately represent the current state of the company. We are assembling a leadership team to complement our existing team, enabling us to execute effectively. I have strong confidence in the numbers we are sharing today. We have thoroughly evaluated the company and sought external insights. While we recognize that not everything is perfect, there are areas needing improvement. However, at the moment, we are focused on sustainable growth beyond cyclical factors. For instance, despite cyclical influences like those seen in Argentina, we believe that we can grow faster than mid-single digits. In terms of our two business segments, it's important to analyze them separately. We have a top-tier issuing business within banking that is gaining market share and is foundational to our strategy in the fast-evolving embedded finance sector. With platforms like Finxact, Commerce Hub, and the Payfare acquisition, we see substantial potential in the digital commerce and payment landscape. Regarding our core banking segment, there are certain areas performing exceptionally well, while others, as we discussed at the forum, have not met our execution standards. We need to consolidate our core systems from sixteen to five; this is crucial for modernizing our technology for our clients, and while we haven’t executed this perfectly, we’ve corrected our course. Currently, this should yield low single-digit growth in that segment. There are promising developments with our surrounding offerings, like XD and CashFlow Central, but we need to improve our execution to bring these products to market more effectively. In summary, our core banking business is expected to grow in low single digits, and our progress with Finxact is strong as we gain new customers. The issuing business is also performing well in that low to mid-single-digit range. When we combine these components, we project a mid-single-digit growth trajectory over time. On the merchant side, we have a robust card-present business where we are global leaders, and we are making significant investments in the Commerce Hub to enhance our omnichannel capabilities. Clover remains an impressive asset, and in response to your earlier question, we have reversed some pricing changes we implemented, which we no longer feel align with our business model. All recent adjustments in our fourth-quarter, full-year guidance, and preliminary outlook for 2026 reflect our strategy to maintain a high-quality, sustainable business that meets the needs of our customers.
Paul Todd, CFO
Yes. I've spent a significant amount of time focusing on the financial aspects, which I am quite familiar with. During the quarter, we encountered various developments across our three business segments. On the digital front, we experienced strong growth in debit volumes and took steps to enhance our competitive positioning for the long term, which is evident in the quarterly results. In terms of issuing, we achieved good growth in accounts on file and maintained a robust performance. However, we had some year-over-year comparisons in output services that did not repeat, as these can be somewhat project-oriented. Regarding banking, we noted a substantial license comparison for this quarter, but overall, the fundamentals remain strong. Looking ahead to the fourth quarter, we anticipate similar performance; while it won't be as pronounced due to sequential changes, the nominal figures will likely hold steady. Overall, our long-term outlook is positive. Volumes are consistent, and we have taken measures to ensure competitiveness across each business segment. Although the sequential quarter changes may appear more significant than expected, the underlying business remains strong.
Michael Lyons, CEO
And I'd just finish that, we mentioned earlier that there are some businesses in there that aren't as well positioned. They're relatively small in terms of revenues that we're not going to be in any longer, and there's others in the market who want to be in those businesses. So again, part of the analysis and the actions we've taken from it.
Operator, Operator
Next, we'll go to the line of Jason Kupferberg from Wells Fargo.
Jason Kupferberg, Analyst
Thanks for all the candor here. I did want to ask a little bit about Clover. I know you mentioned 10% revenue growth there for the fourth quarter, wondering if that's a decent proxy for next year until you anniversary some of these actions to deprioritize some of the short-term revenue initiatives. And then just as part of that, I mean, you can give us your latest assessment just your competitive positioning across merchant, both from a Clover and non-Clover perspective?
Michael Lyons, CEO
I'll start with the second part. Paul can discuss the numbers in more detail. I previously mentioned that Clover is an incredible asset, and we remain confident in our competitive position. While there are strong competitors in the market, we see significant opportunities to offer an all-in-one business operating platform for small businesses. There is a clear demand for this solution, and we are focused on expanding Clover in various verticals. We have traditionally excelled in core sectors like restaurants and retail, and we're looking to extend that reach into healthcare, professional services, and high-end restaurants. We're thrilled about our collaborations with Homebase and ADP, and we plan to add more partnerships. Internationally, our expansion is progressing well, particularly in Brazil. Our main focus with Clover, led by Takis and his team, is to completely enhance the client experience when they interact with us. We believe there's room for operational excellence and tremendous potential across Clover as well as our platforms, gateways, and orchestration layers to effectively leverage AI, and that’s the core of our project with IBM. This area is where we’re putting in substantial effort. We are also observing opportunities to expand our total addressable market, and as we have indicated for some time, we will implement a thoughtful approach to back book conversion next year. On the enterprise side and within our merchant business, our ISV business is growing rapidly, and we’re very well positioned in that area. Our customers often require both online and physical presence, and introducing Clover into that space or using other assets excites us. Additionally, on the enterprise side, we are developing a robust global omnichannel integration platform with Commerce Hub, and there's significant ongoing work in that regard. Overall, we feel optimistic about the growth prospects for the merchant business, particularly with Clover and the ISV segment. I'll let Paul take it from here to discuss the numbers for Q4 and next year, as well as provide some insights into our long-term outlook.
Paul Todd, CFO
Yes. So Jason, yes, obviously, we highlighted what we expected in the fourth quarter. And we would see a tick up into kind of a low teens roughly range is our expectation is we're in the early stages of planning for 2026. So there is a little bit of kind of comparative dynamic that exists there. And then we would expect that to get better on the 2027 and beyond to kind of move up into the more higher teens kind of level as we get into the '27 timeframe. So there's sales noise as a 2026 comp, but it is a pickup, an acceleration from the fourth quarter growth rate. And we do see, once we get past that compare in 2026 for an additional pickup going in '27 and beyond.
Michael Lyons, CEO
And as I said in the prepared remarks, 10% in Q4 reflects the pricing reversal, that's high teens. Without it, a fair amount of noise, as Paul said, still going into 2026 as we rightsize the baseline and going from there, we continue to see similar to what we've seen, excluding the Gateway conversion, 10% plus GPV growth and mid- to high teens, closing 20% long-term revenue growth. And again, that can go back to the opening, that reflects a normalization of Argentina, a normalization of short-term initiatives and the appropriate levels of investment into the business, especially around the operational excellence thing. But Clover continues to be just an awesome asset and couldn't be more excited about what we can do with it for small businesses across the world.
Jason Kupferberg, Analyst
It sounds like Q4 is the trough. Got it.
Michael Lyons, CEO
Yes.
Operator, Operator
Next, we'll go to the line of Dave Koning from Baird.
David Koning, Analyst
I guess my question is on margins and how that works into the first half. When we look at Q4, it looks like margins will be down about 800 bps or $400 million of lower EBIT. Is that the peak investment quarter, that $400 million down? And maybe how does that progress through the first half of next year? And what's invested in? Like what are you doing in Q4? And then maybe how does that dissipate into the first half of next year?
Paul Todd, CFO
Yes. I will start, and Mike may want to add. You can gauge our guidance to understand what the fourth quarter looks like. We anticipate reaching a low point in margin during the first half, especially in the first quarter, where we face significant comparison challenges. If you're looking at mid-30s, that's roughly where we expect to be next year, around the 33% to 35% range. The lowest point will be the first quarter, after which we will gradually return to a steady run rate by the end of next year, similar to where we expect to finish this year. We have a clear plan to bring margins back to our targeted levels by 2025, and to build on that in a consistent manner moving forward. The lowest point will be in the first quarter, and margins will improve as comparisons normalize throughout 2026. From that point onward, we anticipate more normalized margin expansion.
Michael Lyons, CEO
Yes. In the fourth quarter, we are experiencing challenges because the same period last year was a peak for short-term initiatives. We have reversed many of those initiatives due to pricing changes. Our goal is to establish a clearer baseline rather than remove all the noise from the historical data. We are confident in the guidance we have provided, which reflects this baseline. Regarding our investment strategy, our main focus is on core investments, which include streamlining our operations, modernizing our offerings, and advancing our surroundings that are generating strong client interest. We have numerous projects in the pipeline for XD and CashFlow Central. We aim to continue investing in Commerce Hub, enhance the Clover platform, and improve our operational excellence. We are particularly enthusiastic about our progress in issuing, both with the modernization of our current Optis platform and the launch of Vision Next, which will support embedded finance and our international market strategy with a modern, cloud-based, API-driven issuing core. We are also excited about our developments in the stablecoin space, including the pending acquisition of StoneCastle. This year, we have focused heavily on modernizing and enhancing our core technology, which is where most of our incremental capital expenditures have gone. The project we are taking on with IBM will influence our spending next year based on the expected returns. Although we are still early in this initiative, we are optimistic about the insights we have gained and the collaboration with IBM, who has successfully undertaken similar projects. We are evaluating all our business applications for greater utilization of AI and are considering how we can apply AI to improve our internal functions, thereby reducing costs and enhancing both employee and client experiences. These are our primary focus areas. This year, we have not only been analyzing but also actively addressing our clients' needs, as we discussed at the Fiserv Forum.
Operator, Operator
And for our final question, we'll go to the line of Harshita Rawat from Bernstein.
Harshita Rawat, Analyst
Mike, I would like to follow up on the Financial Solutions business. I acknowledge the recent expectations reset and the deprioritization you mentioned. However, I want to inquire about the third quarter. You reduced the full-year guidance three months ago when the quarter had just begun. Back then, I believe we learned that the team had re-evaluated everything. I’m trying to understand how things could change so dramatically in just two months in a segment that is essentially recurring. Additionally, I’m curious about the lack of visibility regarding this significant level of revenue weakness during the quarter.
Michael Lyons, CEO
I appreciate the question and understand it. This was not a reset I anticipated. In July, about 10 weeks into my role, I focused on underwriting some key projects that were contributing to the company's original 10% to 12% growth guidance. We successfully re-evaluated those larger projects, and their performance has generally stayed on track since then. However, as we faced unexpected financial surprises at the start of Q3, it led to a more thorough review of our financials, prompted by feedback from our clients. This analysis revealed some additional assumptions that needed reassessment, including factors that were largely beyond our control, such as macroeconomic conditions and industry trends that we initially expected to behave differently. We also identified various assumptions outside of the major projects that, even with effective execution, would have made it challenging to accomplish everything concurrently. Along with significant productivity initiatives and sales activities, there were numerous shorter-term initiatives driven by our clients' businesses that were crucial for meeting our guidance. Gaining a deeper understanding of these factors led to some dissatisfaction with our processes, resulting in leadership changes. Today, I believe we have established a solid baseline for growth. The original 10% to 12% guidance has been thoroughly examined over the past five to six months. I am confident that the numbers we have now accurately reflect our company's structure, and we've provided an outlook from which we can grow, backed by a team ready to effectively execute the business, which is an excellent operation to manage.
Paul Todd, CFO
And I'll just add to that. As it relates to just financial, specifically, if you look at that business and you look at kind of the first half, at the 7% and kind of 8% growth rates, those are a higher level of growth rate for the collection of businesses here than you kind of typically see, given kind of the underlying fundamentals around some of the TAM growth rates for those business areas. And so I think when you kind of look at it on a full year basis, when you look at our expectations on a full year basis next year for this business, it's kind of in that more lower single-digit range at that kind of higher level, maybe of that lower single-digit range. But that's more of the normal kind of growth if you look at what accounts all file growth, what debit transactions kind of growing at the mid-single digit if you look at kind of what banking does. And so that's kind of a more normalized way to look at the business. We just have some variability because of all the things Mike just described that's presenting this kind of sequential move or first half versus back half move. We'll have a similar dynamic in the first half of next year as we kind of normalize everything. And then you'll start seeing that more normalized, stable growth that you would expect out of this line of business starting in the back half of next year and continuing throughout 2027.
Michael Lyons, CEO
And then from there, we have these incredible assets, Vision Next and Finxact, which is a core ledger system and deep systems of records for banks. We can expand to new sectors that grow much faster, whether it's embedded finance or something else. But executing on that requires investment and a deliberate approach to operations. We are eager to move forward with this. Today establishes the baseline and starting point for that. We are excited about the long-term structural growth rate we can achieve.
Operator, Operator
And that was our final question for this call.
Michael Lyons, CEO
Thanks, everyone, for joining. I appreciate talking with you more of this quarter.
Operator, Operator
Thank you all for participating in the Fiserv Third Quarter 2025 Earnings Conference Call. That concludes today's call. Please disconnect at this time, and have a great rest of your day.