Fiserv, Inc.

Welcome to the FISERV Second Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Cheriel, Senior Vice President of Investor Relations at FISERV.

Thank you, and good morning. With me on the call today are Mike Lyons, our Chief Executive Officer, and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the investor relations section of Fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with a 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.

Thank you, Julie, and thank you all for joining us today. As you've seen, we had a strong second quarter fueled by our continued focus on executing FISER's mission of delivering superior value for our stakeholders through leading technology, innovation, and excellence in everything we do. During the second quarter, we grew sales, clients, and our new business pipeline. We announced several exciting new partnerships and acquisitions, introduced innovative capabilities like FIUSD Stablecoin, and made solid progress on our key product initiatives, including Clover, Commerce Hub, Cash Flow Central, and Experience Digital, also known as XD. We did this all despite an uncertain macro environment during the quarter. For the second quarter, we delivered 8% adjusted and organic revenue growth and strong 16% adjusted EPS growth. We expanded our adjusted operating margin and generated good free cash flow. Importantly, we returned $2.2 billion to shareholders in the quarter, by repurchasing 12.2 million shares, or 26% more than we repurchased in Q1. And as Bob will cover later, we have increased our 2025 share repurchase guidance to approximately 130% of free cash flow. This means we expect to continue actively buying shares in the second half of the year, all while staying within our targeted leverage range. Before Bob walks you through our financial performance in more detail, I'd like to provide some color around the refinements we made to our guidance and share some important business highlights from the quarter. The 2025 guidance, which called for 10% to 12% organic revenue growth on top of the 16% growth we achieved in 2024, had always assumed a significant growth ramp on the back half of the year. This trajectory was based on the successful launch of a long and granular list of new products and strategic initiatives as well as a relatively strong macroeconomic outlook. Our updated guidance reflects the fact that some of those launches and initiatives are taking longer than we had planned. Some of that is on us and some is driven by other factors that we don't fully control. But we are confident that we will capture the full strategic and financial benefits, and only the timing of realizing them has been extended. And to a lesser degree, Our update reflects economic conditions that we have seen versus what had been assumed in the plan. As a result, we have refined our full-year organic revenue growth guidance to approximately 10%, which is at the low end of our guidance range. And to be clear, we are maintaining our guidance for $3.5 billion of clover revenue this year. With this revised ramp in revenue growth in the back half, continued margin improvements and the increased share repurchase guidance, we are also refining our adjusted EPS guidance by raising the bottom end of our range by $0.05. Looking ahead, I am incredibly energized by the opportunities we have to generate significant shareholder value over time by providing mission-critical software and value-added solutions for merchants, financial institutions, governments, and other yet untapped markets. The construct of the company Our many leadership positions and our size and scale are unmatched, yet we are just scratching the surface of our global opportunities. When we put all these strengths together, the result is deep, longstanding client relationships that can be broadened and improved over time as we add more value-added products and services. This strategy produces highly recurring revenue, strong profits, and substantial free cash flow. that allow us to continue prudently and effectively allocating capital and generating double-digit adjusted EPS growth, a virtuous five-serve cycle. Now let me turn to some of the highlights from our two business segments. In Merchant Solutions, we continue to execute on three key growth initiatives and are pleased with the progress we made on each in Q2. The first is driving Clover growth through new products, new markets, new partners, and new geographies. The second is continuing to scale our industry-leading distribution through all channels. And third is adding new and existing enterprise merchant clients to our Commerce Hub platform and driving VAS penetration. Let's start with Clover, where Q2 volume growth came in line with our expectations at 8% reported and 11% excluding the gateway conversion. As a reminder, for operational reasons, we converted merchants from a non-Clover payments gateway to Clover, ending in 2024. The 11% represents the growth rate of Clover without the converted portfolio. With respect to the second half of 2025, we expect Clover volume growth, both on a reported basis and excluding the gateway conversion, to accelerate from Q2 levels. These levels are consistent with our plan to reach $3.5 billion in Clover revenue for the year. Clover revenue grew 30% in Q2, highlighting the strength of our full business operating system approach. There are three key contributors to Clover's revenue. First, vast penetration of 24%, which was up from 20% a year ago. This was in line with Q1 levels and demonstrates good progress towards our year-end goal of 25%. Total VAS revenue grew 52%, driven by both software sales and capital, which includes Clover Capital and Anticipation in Latin America. Second, hardware sales remained healthy and within the expected long-term range of revenue contribution. Finally, pricing and other services, including data. We expect our newer initiatives to support Clover revenue and volume growth in the second half of the year, so I'll update you on their progress. On the international build-out, we are ramping Clover merchants in all the geographies we added this year, Brazil, Mexico, Australia, Singapore, and various countries in Europe as we work to integrate the CCV acquisition. We've added Belgium and support sales in Germany and the Netherlands. The largest of these opportunities is Brazil, where we launched Clover sales in April and are tracking well to plan. And I'm excited to add that this morning, we significantly increased our presence in Canada, our largest Clover international market, with the agreement to become the merchant processing provider for TD Bank Canada. Going forward, we will jointly serve new TD merchant clients via the Clover platform, driving further processing, hardware, and SaaS revenue. As part of the transaction, we also agreed to purchase a portion of TD Bank's existing merchant processing business, consisting of over 35,000 enterprise and mid-market locations. We've been live with Clover and Canada for over five years and have seen strong growth through direct sales and ISO partnerships. So the opportunity to further strengthen our distribution by aligning with the nation's second largest bank is tremendously exciting. We expect to close the transaction later this year. With respect to further international expansion of Clover, we are having constructive conversations with potential partners in several attractive markets. In Q2, our vertical software offerings got a boost with two market expansion efforts. In May, we launched Clover Hospitality for the upper restaurant market, which doubled our TAM in the sector. The product became available this month, and pre-sales activity has been encouraging. And earlier this week, we signed a new partnership with Rectangle Health to integrate a HIPAA-compliant S&B solution called Clover Practice Pay for healthcare providers. This solution launches in early 2026 and marks a significant milestone for Clover, extending its reach beyond core verticals of restaurant, retail, and personal services, and into one of the country's largest, most in-demand, and most rapidly evolving markets. SMB Healthcare also represents one of the areas of greatest demand from our financial institution merchant partners. This agreement reinforces our confidence in the ability to scale Clover into additional verticals where we can use our industry-leading technology or partner to design operating systems for SMBs across industries creating additional TAM over time. We made further advances with our horizontal software solutions as well, continuing to develop Clover as a full small business operating platform. Since its launch in November, the ADP relationship has been exemplary, as our sales, product, and executive teams continue to find ways to optimize our partnerships. We are making it easy for SMBs to access our combined suite of leading solutions on platforms they know and trust, Clover and ADP's RUN solution. In May, the ADP RUN software platform was integrated into Clover, and the sales rollout is ongoing through August. ADP's sales force is generating Clover leads and vice versa, and they will be able to sell Cashflow Central as well by the end of the year. Earlier this month, we expanded our partnership with Homebase to integrate their market-leading software into our Clover Essentials SaaS package, allowing SMBs to manage employee scheduling, time tracking, and team communication right from the Clover dashboard. For our second merchant initiative, we continue to invest in and expand our unmatched set of distribution channels, which is a key differentiator for Fiserv and Clover. This includes continuing to build out our direct sales force and expanding our financial institution merchant referral partner program. We have roughly 600 direct salespeople in the SMB space, and we continue to grow that team, most recently to support Clover Hospitality. Our merchant referral partner program also continues to grow. We added 49 new financial institutions as merchant partners in Q2 bringing our year-to-date total to 82. In June, we reached an agreement to acquire the remaining 49.9% of AIB Merchant Services, our long-standing and successful joint venture with AIB Bank in Ireland. We expect this change will open further opportunities for us to grow in both the enterprise space throughout Europe and with Clover. AIB will continue to work exclusively with us through a merchant referral program. In July, we expanded our relationship with Bank of Hawaii through a new revenue-sharing agreement that transitions their merchant portfolio to Pfizer, enhancing our economics while enabling the bank to elevate its merchant capabilities and broaden its client offerings. And as of last week, we're excited to announce that Clover is now part of U.S. Foods' Check Business Tools program, a program that recommends value-added solutions to their client base. Being a recommended technology vendor for U.S. foods further bolsters our clover distribution and helps accelerate our restaurant strategy, including clover hospitality. Our third initiative is in our enterprise business, where we were excited to sign UPS as a client in Q2. We will be providing a suite of payment products operating on our Commerce Hub platform to the UPS store to support their 5,400-plus locations in the United States. As a follow-on to our Fanatics Sportsbook win last quarter, we've expanded our relationship with Fanatics Commerce, extending our Commerce Hub and value-added services solutions to support their online retail operations. On the enterprise VAS side, we signed a multifaceted partnership with Adobe, where Fiserv will be utilizing Adobe's industry-leading marketing automation tools to drive lead generation within our commercial mid-market segments. Additionally, Fiserv has been named a gold partner in Adobe's partner ecosystem, supporting the rollout of our newly launched Commerce Hub plugin built on Adobe Commerce. Commerce Hub is now live across North and South America via a single integration point for multi-regional customers, and we expect our first major client to go live on this platform shortly. We continue to make progress towards the integration of other international markets, behind the Commerce Hub API on our way to a single global platform. And lastly, our biller business is performing well with a growing pipeline. In Q2, we signed a leading insurance provider, Erie Indemnity Company, on the strength of the value-added solutions we've been adding to the platform. Now let's move to the financial solutions segment, where we are focused on three key initiatives. Sustaining leadership in issuing payments and banking. driving adoption of cash flow central and XD, and advancing cross-buy serve solutions. On the first initiative, we are pleased with our continued momentum in the issuing business with new clients and data initiatives, offsetting a more moderate pace of growth in active accounts relative to the expectations we had built into our guidance. We believe this reflects some macro uncertainty as consumers and issuers effectively manage their risk. We continued our longstanding partnership with Synchrony, one of the largest consumer finance companies in the U.S., working to implement their strong pipeline of new products and capabilities, including a new program to become the exclusive issuer of one-pay credit cards at Walmart. America First Credit Union, a $22 billion Utah-based institution on a journey to modernize and bring the next generation of innovative credit and debit products to its members, selected FISERV for issuer credit processing, tokenization, and additional services. We also continue to expand our government business as the federal government increases its adoption of card and digital payouts. And finally, we were pleased to extend our contract with Jack Henry, a longstanding partner for issuer processing via Valera. Outside the United States, we extended our long-term relationship with DBS, the largest bank in Southeast Asia, signing a multi-year contract extension, including modernizing their credit card technology stack. We made meaningful progress in Q2 on our card issuing platform modernization with both Optus and Vision Next. Optus, which serves 25 of the top 50 issuers in the U.S. and many of the leading retail private label players, is in the midst of a multi-year upgrade with our first client set to go live later this year with new Phase 1 capability. Meanwhile, we expect to launch our next-generation cloud-native global issuing platform, Vision Next, in Q4. We will integrate Vision Next with Finzac and Payfair, provide a unified next-generation embedded finance solution. In banking, our cloud-native open API core platform, Finzac, continues to gain momentum with banks, fintechs, and embedded finance participants. In Q2, we signed three significant contracts, including a prominent sponsor bank that supports multiple well-known fintech companies, and a large healthcare finance company looking to provide banking services to healthcare payer and provider clients. Turning to our next initiative around cash flow central and XD growth. we remain highly encouraged by client interest, signings, and the size of our pipeline. Cashflow Central signed 23 new clients this quarter after 15 in Q1, for a total of 77 clients added since launch. And we have nearly 500 more in the pipeline. Earlier this month, our largest client signed to date, U.S. Bank, became the second bank to go live on Cashflow Central. Emilio, our key partner for Cashflow Central and a portfolio investment for Fiserv, announced an agreement in June to be acquired by Xero, a popular SMB accounting software provider. We expect Melio to operate as an autonomous business unit within Xero with strong alignment and incentives to deepen the Fiserv partnership. Xero has expressed full support and enthusiasm for a shared future with Fiserv, and we are very excited to work alongside them. While demand for XD remains strong, we have not completed as many client implementations as we had planned so far this year. We continue to feel great about the quality of XD. It is just a matter of timing and realizing the revenues as we complete key enhancements and integrations and pursue high quality implementations. For example, in Q2, we integrated merchant digital acquisition into XD helping bank partners identify merchant-acquiring leads through online banking and creating a new channel for Clover acquisition in our partner's digital environment. We are seeing great interest in this feature. Our third initiative is to advance cross-Fiserv solutions, and our announcement of FIUSD in June is a great example of our capabilities. FIUSD is a white-labeled stablecoin integrated into our banking and payments infrastructure to enable real-time 24-7 settlement and digital asset capabilities. To effect this, we combined assets across our businesses, including Finzec, Payfair, and Commerce Hub, and began working with industry-leading partners like PayPal, MasterCard, Circle, and Paxos. The move reflects our broader strategy to support all payment types, while helping financial institutions and merchants meet evolving customer needs and technology developments. Early client interest has been very encouraging, and we expect to launch a pilot with several clients by the end of 2025. Overall, I'm encouraged by our positioning and opportunity set as I look out over the next several years. We are hard at work fine-tuning our strategy, carefully listening to our clients, and investing for where we think the industry is headed. We are privileged to have a leadership position across many of our businesses, and we are confident we can deliver consistent, durable growth and value to our shareholders. I look forward to diving into my first annual strategic planning cycle with the Fiserv team in the coming weeks and to sharing more with you on how we'll extend our leadership into the next generation of commerce, payments, and financial technologies. Finally, I want to thank our talented employees for their continued hard work and commitment, which contributed to our achievements this quarter, and to Pfizer being named one of Time 100's most influential companies. With that, I'll hand the call over to Bob, who will share more on the financials.