Fiserv, Inc.

Welcome to the FISERV Third 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 Paul Todd, Senior Advisor 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 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 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, in 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 for 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 Pfizer. 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 a management team and several external advisors 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 percent was originally set in 2023 emits 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 Pfizer's performance. Specifically, Argentina contributed over five 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 nine. 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 two 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 percent appropriately anticipated that Argentina's growth would slow some, it also assumed that to compensate for this slowdown, our non-Argentinian businesses would grow significantly faster than their historical mid-single-digit range. In July, as part of my transition as 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, improve 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 TAMs, 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, Finzac, Star and Excel, Optus, 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 the 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 NewBank, 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, be more active with the investor community, and 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 percent and 12 percent after excluding the gateway conversion. For 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 percent, 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 ultimately integrating Clover into Commerce Hub. 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-Five Serve 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-Five Serve 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 RPIC, 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 RPIC, 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 RPIC 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 and AI, led by Finzac. We're building out our key merchant or orchestration layers and payment gateways, including Clover for SMBs, Cardpoint for ISVs, and Commerce Hub for enterprise clients and platforms. We're accelerating our investment in issuing with the Optus 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. And 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 multi-year 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-Five Serve 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 1st, with Takis Georgakopoulos serving as the head of merchant solutions and technology, and Divya Suryadevaraya 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 Pfizer late last year after a successful career at J.P. Morgan, 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 Divya to Fiserv. She has deep experience in payments and financials and is one of the most talented leaders I've met. Divya 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. Divya will join us December 1st. 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 advisor, will be stepping into the CFO role, effective October 31st. Many of you may know Paul from his time as the CFO of Global Payments and TSIS. 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 Howe, our current CFO, will move into a senior advisor role to support a smooth transition, and we'd like to thank Bob for his nearly 10 years with Pfizer. 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 teams. 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, Celine Dufatel will join the FISERV board and be a member of the audit committee. Celine 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 1st. 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.