Fiserv, Inc. (FISV) Earnings Call Transcript & Summary

All right. We're going to get started on the next session. I am pleased to have a twofer here. We have Takis, Georgakopoulos, 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 3 months now. We've heard a lot from the team at Investor Day in May about the company's strategy. You 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?

Yes. 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 Fiserv 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 2 areas in which I'm focused more on. And I spent a lot of time on the fixed side in the past 3 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 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 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 2. 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 adds both sides or sitting 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 StoneCastle that takes deposits from merchants and provides higher yield through banks that need those incremental deposits. So the way we were structured were kind of underutilizing 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 road map. 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 all the critical path, both for us and for our clients.

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 are a question I'm sure you've gotten a bunch which just the synergies between the 2 segments whether there's been any change or reevaluation of the reasons for the 2 businesses to exist under one roof, how you think about the cross-pollination across the foundational capabilities like ledgers, pay-ins, payouts, the debit networks, et cetera?

Yes. 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 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, et cetera. 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 VFS capabilities and DMS 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 Fiserv. So yes, you can sell it as a banking core, but there are low-hanging fruit, and there is a very large sum out there for a core ledger for enterprise clients, especially when you link that with CommerceHub, which is a modern gateway and with Vision X, which is a modernization platform. And that, together with our issuing business and our network business, I think are at the core of the synergies between the 2 sides of Fiserv 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 have set up the business, we were not set up for success around those.

Okay. I'm going to come back to a strategic review in a minute, but let's talk to another hot topic, which has been the turnaround of Financial Solutions, 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've 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?

So these are long sales 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 2 or 3 years ago. 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 have 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 core, 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 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 cash flow central or whether it is through agentic 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.

Got it. Okay. I want to come back to the strategic review. You talked about expanding the portfolio review beyond lower growth noncore 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?

Yes. So we've divested 2 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 2 things. I see number one duplication. And then number two, I see things that we call products with stand-alone 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 sell 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 FS. 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 CommerceHub and the end-to-end solution around that. We've shifted 80% or more of our tech resources on delivering CommerceHub 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 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 created that 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.

Got it. Okay. So let's talk a little bit about Project Elevate. This is the program that you've referenced to transform Fiserv's operations or tech stacks 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, 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.

Yes, very high, I would say, because a lot of those are obvious things that we need to do. And they come in 2 flavors. Flavor #1 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.

Got it, okay. 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?

And Will, I'll take that. I mean -- and Takis may want to add. But as we said on -- at Investor Day, 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'd 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.

Got it. 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, where are the dollars going? And then how to think about potential upside risk from the investment environment that we're in, you think about cyber and risk and things of that nature.

Yes, sure. 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 glass wing and frontier AI models, right? So when you test that infrastructure against Frontier AI models, we did not find anything fundamentally different. Obviously, as you run these models, you find some lower-risk vulnerabilities that can be changed together to create a high risk one and so on. But at the end of the day, we did not learn anything fundamentally you or any new things that we had to do that we did not know about. So our road map 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 6 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 haven't existed.

Yes. And Paul, we're 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?

Yes. I mean it kind of goes back to what I was saying before about the margin is 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. .

Got it. Okay. This year has been a transition year. I think the cadence first half versus second half, the quarters have been a little tricky to get right, particularly on the nonrecurring 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 nonrecurring 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 inpatient 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 then things occurring on schedule?

Yes. 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 do still have some of the nonrecurring 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 good line of sight into where those stand. And so there's no change as it relates to our expectations on the implementation side.