Conference Transcript - FISV 2026-09-10

Operator

We're going to get started on the next session. I am pleased to have a twofer here. We have Takis Georgiakopoulos, Fiserv CEO, and Paul Todd, Fiserv CFO. Thank you both for joining us. Thank you. All right, Takis, to open this up, you've been in the CEO seat for almost three months now. We've heard a lot from the team at Ambassador Day in May about the company's strategy. You've since talked about bringing more urgency and focus to the execution. So could you talk about your top priorities, and are there any areas where you've made tweaks to what was previously communicated at that investor day?

Takis Georgakopoulos, CEO

So first of all, thank you for having us. I would say overall in terms of the priorities of the company, as we communicated with the one Pfizer priority, these are pretty self-explanatory things. They're about improving customer service, focusing on clients, improving platform stability, capital allocation, Clover, et cetera. These are all obvious things that we need to continue working on. And that's why I focus so much on the continuity post the transition so that people continue to work on those things and we continue to make progress for our customers. If anything, there are kind of two areas in which I'm focused more on. And I spent a lot of time on the FIG side in the past three months talking to a lot of our banking clients to just validate that what we are doing and what we are talking about is consistent with their priorities and what they want from us. And the answer was that it was, you know, spot on. The clients acknowledge and appreciate the change that we made around our core strategy. They appreciate the investments that we made in the stability of the platforms. They appreciate the investments that we made both in terms of the coverage team and customer service. They just want to make sure that that continues. And then in terms of changes, I would say two. The first one is around operating really as one company. The way we were structured as MS and FS kind of underutilized portions of the business that touch both sides or sit in one side of the business but primarily benefit the other. To give you an example, we have a great modern issuing platform. The clients of that platform are actually merchants and marketplace customers. We have a debit network. The value of that debit network is providing better auth rates and better fraud rates to merchants. We have Stone Castle that takes deposits from merchants and provides higher yield through banks that need those incremental deposits. So the way we were structured, we were kind of under-utilizing or under-leveraging those synergies. So I just wanted to make sure that the product organization operates as one, and then we configure our products by customer segment so that we can deliver what they're looking for. So that's kind of change number one. Change number two is a sense of urgency around the execution of our technology roadmap. We have a lot of priorities and a lot of things that we need to do. All of them, reasonable things that make sense, we just can't do all of them at the same time. And therefore, it's important to prioritize the things that are on the critical path, both for us and for our clients.

Operator

Yeah, okay, great. You answered a lot there. I think part of that, you mentioned operating as one company. I want to ask a question just from the top here, a question I'm sure you've gotten a bunch, which is just the synergies between the two segments, whether there's been any change or reevaluation of, you know, the reasons for the two businesses to exist under one roof, how you think about the cross-pollination across the foundational capabilities like ledgers, pay-ins, pay-outs, the debit networks, et cetera.

Takis Georgakopoulos, CEO

So we said at earnings that we're going to do a review of all aspects of the business, make sure that in everything that we do we have a right to win, we have the strategy, we have the team, and we can compete against best-in-class competitors, and that work is already ongoing. And if we can, that's great, and if we cannot, we'll find the right strategic answer for each component of the business. Right now, the things that we are doing are important and kind of, again, obvious things that we have to do irrespective of what that eventual answer is going to look like, things like platform stability, etc. From my perspective, I see a lot of growth opportunities for the company beyond just Clover that we've all talked about from the intersection of the FS capabilities and the MS capabilities. Like you mentioned, the ledger, every large platform client, every large marketplace that brings together millions of buyers and sellers needs a modern ledger. And in our view, there is no better modern ledger than Finzact. So, yes, you can sell it as a banking core, but there are low hanging fruit and there is a very large timeout there for a core ledger for enterprise clients, especially when you link that with Commerce Hub, which is a modern gateway, and with Vision Next, which is a modern issuing platform. And that, together with our issuing business and our network business, I think, are at the core of the synergies between the two sides of iServe. And it's just very important to get those things, to monetize those things, which historically, again, we have not done, and the way we had set up the business, we were not set up for success around I'm going to come back to the strategic review in a minute, but let's talk through another hot topic, which has been the turnaround of financial solutions.

Operator

You mentioned the change in strategy on the core side. A big part of that turnaround involves improving service levels and the health of the relationship with the FI clients, and it sounds like you've spent a lot of work speaking to a lot of those clients. You talked about a 70% reduction in client-facing incidents. How are you addressing some of those service issues, and what's the level of confidence that you've kind of seen the worst of some of the attrition in that business?

Takis Georgakopoulos, CEO

So these are long-sale cycles, right? So a client that's leaving us today is a client that probably RFP'd a year ago, which means they were annoyed by us probably two or three years ago. And And conversely, even though clients see and acknowledge the progress that we've made, they will want to see continuity of strategy and continuity of execution before we can declare victory. That said, what we see so far is that the actions that we've taken, which is platform stability, better coverage, and better service, are paying dividends. Year-to-date, 2026 compared to 2025, both the number of clients that have left and the dollars associated with those clients are down quite significantly, and we see no reason why that trajectory will not continue. At the same time, because we stopped talking to clients about cores, incidentally, no bank CEO wants to talk about core conversions. Core conversions are like heart surgery. They take a very long time, and they disrupt everything that the bank is doing, not just their DDA, but the way their ATMs work, and the way their branches work, and the way digital banking work and everything else. So, the only reason why someone would want to convert is if they see the core as a kind of a constraint in the growth of the bank. Maybe it's an old core. Maybe they want to move more to real-time payments or digital assets or agentic. Or if the core does not work because it has incidents all the time. And so, we've addressed the second. And therefore, now the conversations with banks around cores are few and far between and much more strategic. and that means we can spend much more time talking about how we can add value to the banks, whether it is through our issuing business or whether it is through Clover and Cashflow Central or whether it is through Argentic and AI. And at the same time, because we freed up that capacity, we are able for the first time in a couple of years to be also much more proactive in prospecting clients and winning banks like Flagstar is a sign that we are moving in the right direction. More work to do, but we feel good about the trajectory, even though we are not where we want to be.

Operator

I want to come back to the strategic review. You talked about expanding the portfolio review beyond lower growth, non-core assets, some of which you've already talked about, divesting. How is the aperture of that process expanding, and could you help maybe frame the opportunity for investors between business simplification and value unlock?

Takis Georgakopoulos, CEO

So we've divested two businesses. we will continue to look for stand-alone businesses that don't have either the growth profile or margin profile that we like, that are stand-alone, and we will try to find strategic solutions for those. There are a number of such products that we have that we are looking at, so we will be doing more of those as we see fit, and obviously we find the right answer for those. I would say a big part of the work that we still need to do is product simplification. This company has a lot of products, typically the result of acquisitions done over a large number of years, which were not integrated. So when I look at our product portfolio, I see two things. I see number one, duplication. And then number two, I see things that we call products with standalone technology stacks that really should be configuration of one thing. So, for example, when a client wants to do payments with us, a bank wants to do payment with us, we shouldn't have a Zelle product and a wire product and an ACH product and an RTP product and a FedNow product. We should be able to have a payment product and then you should be able to add each and every one of those payment methods as simple configurations. So a big part of the work and a big part of Project Elevate is around simplifying the infrastructure that we have and reducing the number of platforms and the number of back-ends that we have. We've gone a long way on that in Merchant and we will do the same thing in EFES. On the Merchant side, we had, for example, 14 different gateways for no real reason except history. We've decided on the end-state architecture around the gateway called Commerce Hub and the end-to-end solution around that. We've shifted 80% or more of our tech resources on delivering a commerce hub while putting the rest on maintenance with a view to eventually decommission those. So that's kind of the second part, which is big and quite significant in terms of our cost base, but also in terms of our ability to deliver a good solution for our clients. And then the third one is there are several things that we do today where we have monoline competitors that are really strong. These are products that are important to our clients. We just need to have an objective assessment of do we have the right team, do we have a competitive product, do we have a plan to get us there if we don't today and for which of our customer segments can we effectively compete and we need to focus on those and for the rest say, you know what we probably can use our investment dollars in a different place and then find different solutions for those areas. We know what these areas are and we've been working on them. As I've said in many of my conversations this morning, it's very hard to talk about them because the moment you even hint at any one of those, you kind of create a death spiral because no client is going to buy a product that they know you are thinking about divesting. So we need to be very careful how we talk about them, but we will do the work.

Operator

Got it. So let's talk a little bit about Project Elevate. This is the program that you've referenced to transform FICER's operations, their tech stack. Coming with that is $500 million of identified savings and a 200 basis point contribution to margins over the next several years. You're in the identification phase. You said the identification phase is complete, and now you're moving to prioritizing. So talk about the visibility that you have now into those cost savings and how to think about the scope of some of those benefits.

Takis Georgakopoulos, CEO

Yes, very high, I would say, because a lot of those are obvious things that we need to do. And they come in two flavors. Flavor number one is overlapping projects, products, features, and capabilities, both in the U.S. but also internationally. And then the second one is the benefits that you get from the deployment of AI, in particular in technology and operations. So I would say we have very good line of sight on the 500 million. These are all things that we are already working on, irrespective of what we are going to end up doing with the remaining platforms. This is all work in progress, and we feel very good about that number.

Operator

All right. That kind of brings us to operating leverage. The company is targeting low- to mid-single-digit revenue growth. That makes margin leverage a delicate balancing act. You're committed to about 50 basis points of margin expansion annually, starting in 2027, on top of Elevate. So how are you thinking about the continued investment and balancing investment in the business with driving operating leverage?

Paul Todd, CFO

And, Will, I'll take that. I mean, and Takas may want to add, but as we said at Investor Day, you know, if you look at our cost base being roughly 60% fixed, from a structural standpoint, it lends itself to natural operating leverage of roughly 50 basis points. And that allows us to also continue to invest in the business as we move forward. we've made the significant investments, largely speaking, that we needed to make to put ourselves kind of on the right trajectory for the future. And so we'll continue to balance that on a go-forward basis to be able to both get the annual margin expansion that we talked about, the 50 basis points, as Takis just talked about. We're very comfortable of the 200 basis points of cumulative margin expansion that we see from Project Elevate. And I just remind on Project Elevate, We do expect that to be more back-loaded, as we expect 2029 benefit on the operating leverage on the margin side to be almost 2x the benefit that we see in 2027. And we believe that we have the right structure to be able to deliver both the investments that we need and the margin deliverance.

Operator

All right, that takes us to the topic of investment. I think in the most recent quarter you talked about an incremental $100 million of investments into technology infrastructure, primarily in financial solutions. Can you talk about what led to that decision, you know, where are the dollars going, and then, you know, how to think about, you know, potential upside risk from the investment environment that we're in? You think about cyber and risk and things of that nature.

Takis Georgakopoulos, CEO

So this investment was predominantly on the fixed side of the business, and it was predominantly the result of the work that we've been doing around Glasswing and Frontier AI models, right? So, when you test our infrastructure against frontier AI models, we did not find anything fundamentally different. Obviously, as you know, you run these models, you find some lower risk vulnerabilities that can be chained together to create a high risk one and so on. But at the end of the day, we did not learn anything fundamentally new or any new things that we had to do that we did not know about. So, our roadmap is exactly the same. The main thing that changed, though, is when you think about the power of those models being available to everyone in the world over the next, I don't know, pick your favorite number, six or 12 months, the speed with which we need to remediate those things is just much faster. And that's why we decided that this is critical to do, critical to do as quickly as possible because of our position in the financial solutions ecosystem. That was something that we had to do. Again, it's work that we knew we had to do. We just need to do it faster than if this model hadn't existed.

Operator

Yeah, and Paul, we were talking about this before we got up, but we've gotten a lot of questions around the upside risk potential in investment spending. It sounds like a lot of this is timing. How do you think about the way this $100 million carries into next year?

Paul Todd, CFO

Yeah, I mean, it kind of goes back to what I was saying before about the margin is, you know, we're going to manage the expense base to be able to absorb, obviously, this investment. And as it relates to 2027, we will still be able to deliver the margin targets that we've outlined on an annual basis, the 50 basis points. And then there is a piece of Elevate that will come in in 2027. So we're managing that as we look at the total expense base.

Operator

This year has been a transition year. I think the cadence first half versus the second half, the quarters, you know, have been a little tricky to get right, particularly on the non-reoccurring revenue side. As you look into the fourth quarter, the guidance calls for an acceleration to roughly mid-single-digit adjusted revenue growth. And a big part of that comes from lapping a lot of these non-reoccurring revenues in the prior year, the Clover pricing changes, as well as several other items. Can you talk about where in the segment should investors expect to see that acceleration? And when we think about the dependency on implementation pipelines, after several deals that were pushed out of the second half after the update you guys had last quarter? What's the level of visibility into those go-lives and things occurring on schedule?

Paul Todd, CFO

Yeah, so a couple of things there. And as you said on our last call, we did give guidance both for the third quarter and the fourth quarter. The third quarter, we still have some of the non-recurring comparative dynamics playing through. So for the third quarter, we said we'd be down low single digits, down 1% to 3% or down 2% at the midpoint of that. And then for the fourth quarter, growth of mid-single digits, which that's important for several things. First of all, that's kind of the fundamental growth rate that we talked about at our investor day, the 4% to 6% target that we had at investor day. So to be able to deliver the fourth quarter in line with that future growth rate is important. As it relates to the segments and where we would see that in the fourth quarter, it's broadly across all the segments that we would see a sequential improvement from the third quarter to the fourth quarter, and so that's our expectation right now as it relates to how that would sprinkle across the segments. And then the final piece to the question around the implementations is we feel very comfortable about where the implementations are. We have a good line of sight into where those stand, and so there's no change as it relates to our expectations on the implementation side.

Takis Georgakopoulos, CEO

I agree. I would add that the fourth quarter will be the first quarter in a while in which there will be minimal noise in the numbers, and, therefore, what you guys see in terms of volume and what you see in terms of revenue growth will kind of tie with each other. And, you know, we have high level of confidence around the number that we talked about for the fourth quarter, which then we just need to take forward to 2027. But you will see that without all of that noise from the, you know, elevated, non-recurring, et cetera, et cetera, and the year-over-year comparisons, the fourth quarter will be the first clean quarter in a long time. And that will carry on to 2027 because there are not many large non-recurring that we did in 2026. So it's going to be hopefully a much simpler story.

Operator

Great. All right. Let's talk about Agent OS. The Investor Day emphasized how difficult it is for financial institutions to deploy AI-enabled products in a regulatorily compliant way. So banks can't let agents into the core systems. There's a lot of regulatory focus around PII. Can you talk about how AgentOS addresses some of those challenges and what some of the early client interest looks like?

Takis Georgakopoulos, CEO

So obviously there is a lot of client interest because every bank wants to try out agents, wants to see how they work. And by the way, they all have a bunch of manual processes that they know are ripe for automation. Our approach there is very conservative, which means always human in the loop and always take a manual process that we know how to automate and then kind of do that gradual automation first, almost like a model with a human approving everything, and then as we get comfortable over time, allow more autonomous agents. The most interesting thing about AgentOS is the infrastructure that you need to deliver that. And that infrastructure is essentially an orchestration layer that looks at all of the functions that a bank has and links those to the core, which ties very nicely with where we want to take the FS business overall, which is what's important to us is to own the orchestration, the front end, and the ledger, which is the back end. Because between the two, you control the whole ecosystem, you control the data, and you are kind of the critical infrastructure provider to the bank. Then the bank can choose our agents or their agents, our surrounds or someone else's surrounds, But between those two, you maintain the majority of the economics and you create something that's pretty unique in the market. Also, to deliver on AgentOS, you need to deliver on the interoperability of our products, which again is another big priority that we have. So, I see AgentOS not just as a great standalone solution for clients to play with, get comfortable, regulators, by the way, to get comfortable, and over time create real value with autonomous agents, but also as a way to show to the banks what the future of working with us is going to look like.

Operator

And then how do you think about monetization for some of these products? Modernization? Is it monetization?

Takis Georgakopoulos, CEO

Yeah. So, the monetization will come in a variety of different ways, right? So, the orchestration layer is a little bit like an app store, right? So, you can use whatever agent you want, but the one who orchestrates that whole ecosystem keeps a portion of the economics, the same way as on the merchant side, the company that controls the gateway captures a portion of the economics. The agents themselves, given that we have three and a half thousand banks, we understand the problem statements pretty well. And therefore, as we generate value and we generate automation and we eliminate manual processes and costs from the banks, we will keep a portion of that and we will price for value. But over time, at the end of the day, the biggest value will come from helping banks modernize and becoming a critical component of their infrastructure, not just in the current world, but also in whatever the future world is going to look like. Got it.

Operator

All right. One product that has come up a lot as a growth driver on the financial solution side is Cashflow Central. You talked about reducing the implementation timelines a lot. Now you're looking for banks to drive adoption on their end, and also maybe supercharge that by tacking it onto the go-to-market with Clover, where are you in that process and what's your kind of visibility to seeing results on the Capital Central side?

Takis Georgakopoulos, CEO

Yeah, so Capital Central is a great product and its main difference from competitors because many other people have AAP and AR. The main difference is it's embedded within the bank workflow, which again, the same story as with Clover distribution through banks, most fintechs just do not know how to work with banks and we are in this unique position that we grew up working with banks, and we actually know how to do that. They trust us. We know how to work with them. Banks are not, no offense to banks, not naturally good at selling, acquiring, or selling invoicing, or bill payments. And so, embedding that into their workflow, into their digital front end, training their front office, et cetera, is a critical component for the success of this product. Cashflow Central today has, I think, a couple of hundred banks and about 100,000 SMBs, if I remember correctly. But the real value is this is a component of the end-to-end SMB suite that we have, which is Clover, right? Hardware, processing, software, and now invoicing and accounts payable. That end-to-end suite is pretty unique, and what we still need to do is take all of the learnings and best practices from Clover and make sure we embed those on the Cashflow Central suite so that it really becomes a continuum. Clients can still pick and choose. Some may want Clover or may not want Clover, may want CFC or not, but we just need to make it very easy for them to buy the whole suite. But I think the progress with Cashflow Central has been pretty good.

Operator

Okay. So let's go to Clover then. Clover has always been the cornerstone of that segment for many years now. Underlying growth, you've cited at around 13%, adjusting for several items. Reported growth was 2%, and so quite a bit away from the 15% to 20% revenue target. I know some of that will narrow in the back half of the year, as you've already talked about. So talk about the achievability of those targets, what kind of puts you at the high end versus the low end, and the path towards closing between the reported results and the underlying numbers that you've been citing.

Paul Todd, CFO

Yeah, so as you kind of commented, we're already there from a volume standpoint. If you look at where Clover volume growth is, we're already at the low side of that 10% to 15% from a volume standpoint. And obviously, as we get further down, you know, we'll be able to continue. And you'll see that even more so in the next two quarters as it relates to the progress on the volume side. On the revenue side, as you highlighted, we're already at the low side, really, of that 15% to 20% if you separate out the noise. And once again, going back to my earlier comment around seeing things in the fourth quarter, you're going to see a much tighter correlation between volume growth and revenue growth on a reported basis in the fourth quarter. And as Tuck has talked about at Investor Day, the things that get us higher in that range are the Clover Capital deployment, Clover Cash, which is just going to be coming online here in the next quarter, and then the further penetration of the other value-added, whether it's agent or a few other things that we're rolling out from a value-added standpoint, those are the things. Obviously, as it relates to the migration of any of the back book, that also adds us up in that higher end of the range. But the key takeaway is, fundamentally, we're already kind of performing at the low into those ranges now, the things that we're rolling out and doing on a go-forward basis moves us up to the middle or the higher ends of those ranges, depending on how successful we are there.

Takis Georgakopoulos, CEO

So I would say, just to add to what Paul said, by fourth quarter, we will no longer need to have the conversation because the reported number and kind of the normalized number that we are looking at will be the same, and it will be at the low end of those ranges. Now, as Clover grows, and it's already north of $3 billion, achieving those revenue growth targets would require more and more absolute dollars. That is why it is very important to continue working on Clover across all dimensions. The competitive differentiation of Clover remains the broad distribution that we have. I talked about banks, but it is also ISVs and ISOs and our direct sales force, as well as all of the work that we are doing to pivot Clover from a hardware first sale, first to a software first sale, and then eventually to a data first sale, because our sustainable competitive advantage as a company is that we do business with 4 million small businesses. Clover is already bigger than our biggest competitors. Pfizer overall is more than twice as big as Clover. That information that we have and that knowledge that we have on SMBs means that we should be able to underwrite better, price better, help merchants grow because we know who their clients are and we know what else they do and where else they shop. And this is a very kind of under-monetized asset that we have. In addition to that, we are able now to move Clover more upmarket compared to the past. Clover had two gaps when we were trying to move upmarket. One was we were missing some of the specialized software that some of our competitors have. and instead of building that and spending the next two years trying to do that, we decided to partner with best-in-class ISVs and surround those with the rest of Clover capabilities in a Clover-branded solution. We've done that with high-end restaurants, with Tabit, and we've done that with healthcare with Rectangle, and you should expect us to see more of that. And the second constraint that we had is we could not support multi-location SMBs, which meant we were in this weird situation that when an SMB grew, we had to move them out of Clover and move them on to Commerce Hub because Clover could not support clients with big locations, which limited the GPV growth of Clover. That will be a thing of the past early next year, and that will also drive Clover growth. So we have a bunch of initiatives very consistent with what we talked about Investor Day. We think those give us multiple paths to get to the 10, 15, and 15 to 20, and back book conversion, which we are trying in a variety of ways and we are going to do more deliberately in 2027, will hopefully get us to the upper end of that range.

Operator

I'm going to try to squeeze a few more in here. First on distribution, Fiserv has always had a very large, vast, wide, diversified distribution channel, whatever adjective you want to use to describe it. If competitors have looked to replicate that success, You know, there's more competition in areas like the ISO channel, ISV channel, the bank channel. Have you seen any changes in the competitive dynamics for Clover, either on economics, partner exclusivity, or share of volume at your partners?

Takis Georgakopoulos, CEO

I mean, it's obviously a highly competitive space with highly credible competitors, right? And it's always been like that. On the ISO space, to take that part of your question first, we have not seen any fundamental change in the market share that we have with the ISOs that we work with. And keep in mind that we are embedded with those ISOs for decades. Like the old first data was embedded with ISOs for the past 50 years. A lot of the ISOs started from old Fiserv people. People used to come in and out. They would go from an ISO to Fiserv, out to an ISO. So that's a very, very embedded relationship. And it is very strong, and we have seen no change. Obviously, large ISOs will look for options. and some of our competitors are better in some of those sub-segments and it's natural that you're going to see them there, but we have not seen any change in our market share. But fundamentally, I think, even though we love ISOs and we will continue to invest in that segment, we see more of our growth in the other segments, which, by the way, also have more attractive economics to us. ISVs, as I said, in the new embedded way, we should be able to do more and capture a higher value of the economics. With banks, we work with 1,000 banks, actually more than 1,000, but only a minority of them have adopted the best practices that will lead to high adoption of Clover within their book, and we are working to expand that adoption to the rest of them. And then on the direct side, we have a lot of work to do to optimize how we prospect and how we price. So we see a lot of upside in all of those things, and we don't see any of our competitors as blocking any of that growth.

Operator

We'll just close it out here on capital allocation. You have a targeted leverage level of approximately three times by year-end. So how are you prioritizing deleveraging? And then, you know, once at those levels, how do you think about the ongoing level of capital return and the use of free cash flow?

Paul Todd, CFO

Yeah, so, well, you know, nothing's changed from Investor Day. When we talked about, you know, our first priority is to get our leverage level below three times, and we're targeting to be on that approach for the remaining part of this year and into next year. Our investment grade rating is super important not only to us, but also to our financial solutions clients. So we're committed to that two-and-a-half to three range and targeting down over the cycle period from 27 to 29. I would say, as we said at Investor Day, our highest priority of extra free cash flow beyond deleveraging is for share repurchase. And so what we need is to get some time of our EBITDA to be able to be back in a growth mode to provide for some natural deleveraging in addition to the debt pay down so we can get back to a much more meaningful share repurchase scenario, certainly in the back half of 2027 and beyond.

Takis Georgakopoulos, CEO

If you look at our free cash flow compared to the, you know, market cap of the company, it's just a very, very attractive alternative. It's very hard to think of something that's more attractive than that. That said, once we get below three, we look at where interest rates are and where our stock is and what are the other options that we have. But stock buyback is just where we are right now would be a very high priority.

Operator

Well, I think that basically takes us the time. Takis, Paul, thank you for joining us. Really appreciate the conversation. Thank you very much.