Fiserv, Inc. (FISV) Earnings

Management highlights

• New CEO Leadership Introduction - Takis Georgakopoulos, new CEO, joined Fiserv in 2024, previously led global payments and merchant businesses at J.P. Morgan, with deep experience building and modernizing payment and bank core infrastructure. - Key initial priorities: Capital allocation, strategic portfolio focus, and product simplification to drive sustainable shareholder value. • Strategic Portfolio Review and Divestitures - Fiserv is conducting a full company-wide portfolio review to assess each product against a best-in-class standard: double down on products where Fiserv can win, and evaluate all options (including divestiture) for non-core, lower-growth, or non-competitive products. - Already announced divestments: student loan servicing, managed ATM businesses, and exit from unprofitable SMB and fuel segments within Fiserv's India merchant business. One divestiture closed in early August 2026, the second expected to close in Q3 2026. - Proceeds from divestitures will be used for capital return to shareholders and balance sheet deleveraging. • Operational and Technology Simplification - Adopted a unified integrated product and technology organizational structure for the Merchant segment (already completed), aligned with leading tech companies, to eliminate duplication and accelerate modernization around the single Commerce Hub modern platform. The same structure is being rolled out to the Financial Solutions (FS) segment. - Improving cross-segment coordination to leverage shared foundational capabilities (ledgers, pay-ins/pay-outs) across both merchant and financial solutions, to improve client experience, speed delivery, and lower costs. - Significant progress on platform stability: 70% reduction in FS client-facing incidents year-over-year. An incremental $100 million investment in technology infrastructure, cybersecurity, and platform resiliency (focused on FS) is planned for H2 2026 to position the business for 2027 and beyond. - Project Elevate cost-savings initiative: the full identification phase of at least $500 million in total savings is complete, initiatives are being prioritized for execution; the target of 200+ basis points of total adjusted operating margin expansion by 2029 remains on track. • Key Business Milestones and Wins - Merchant/Clover: Announced a strategic partnership with MasterCard to integrate MasterCard Merchant Cloud into Fiserv Commerce Hub, adding value-added services and global reach. Western Alliance Bank went live on Clover, bringing Clover to nearly 40 of the top 100 U.S. banks. The TD Bank Canada Clover rollout is scaling, with conversion of 80,000+ existing TD merchant clients planned for 2027. Clover Practice Pay shows strong traction, with 20% higher average volume than the average SMB merchant, and will expand to new channels in H2 2026. - Financial Solutions: Notable core banking wins include UW Credit Union selecting DNA as its future core platform, and Flagstar Bank adding Finzac as the foundation for its core modernization (replacing both legacy Fiserv and competitor core platforms for this $88 billion asset institution. Finzac positions and accounts grew over 75% YoY, with strong momentum in embedded finance. Issuing segment won a large debit processing contract with a top U.S. investment and retirement services provider, and expanded existing strategic partnerships with Huntington National Bank and Bread Financial. AgentOS, a value-add tool for core banking clients, has over 100 interested financial institutions post-launch; Cash Flow Central implementation timelines have been cut by 50% YoY.

Guidance

- Full year 2026 organic revenue growth guidance is revised to -1% to flat, down from prior guidance. Adjusted full year 2026 revenue is expected to decline 1.5% to 0.5% YoY. - Adjusted operating margin guidance for full year 2026 is 31% to 31.5%, driven by 50 basis points of impact from incremental technology investment, 50 basis points from Argentina's macro weakness, and 150-200 basis points from lower year-over-year revenue. - 2026 adjusted EPS guidance is $7.20 to $7.40. Capital expenditures are expected to remain in the high single digits as a percentage of adjusted revenue, with full year free cash flow conversion of ~90%, in line with historical levels. - Second half 2026 adjusted revenue is expected to grow ~2% YoY, with Q3 2026 expected to see a low single-digit decline, and Q4 2026 expected to see mid-single-digit growth (down from prior guidance of 6%-8% H2 growth). Most delayed contracted revenue will be recognized in future periods, not lost permanently. - Clover 2026 reported revenue growth guidance is revised to mid-single digits (due to Argentina and hardware headwinds), but medium-term Clover revenue growth guidance of 15%-20% remains unchanged, with Clover GPV growth still targeted at 10%-15% excluding gateway conversion impacts. - Gross debt-to-adjusted EBITDA is expected to end 2026 at ~3x, consistent with prior targets. - Management reaffirms confidence that starting in 2027, Fiserv will deliver ~50 basis points of annual adjusted operating margin expansion, with 200+ basis points of total margin expansion from Project Elevate by 2029, and double-digit annual adjusted EPS growth from 2027 to 2029.

Segment performance

Total company Q2 2026 adjusted revenue was $4.96 billion, a 4% year-over-year decrease; organic revenue decreased 5% YoY. Recurring revenue represented 84% of total adjusted revenue and grew 2% YoY. Total adjusted operating income was nearly $1.6 billion, with an adjusted operating margin of 31.8%. Free cash flow was $1.1 billion, with 112% free cash flow conversion. 1. Merchant Solutions: - Organic and adjusted revenue both declined 1% YoY. Adjusted operating income was $781 million (down 14% YoY), for an adjusted operating margin of 30%. This segment contributed 52.4% of total adjusted operating income. - Small business: Organic revenue flat, adjusted revenue down 1% YoY; volume grew 2% YoY. Clover revenue grew 2% reported, 11% YoY excluding 2025 non-recurring revenue, and 13% excluding the Argentina anticipation impact. Clover GPV grew 9% reported (11% excluding gateway conversion impacts). Value-added services contributed 25% of Clover revenue (up from 24% YoY) and grew 10% YoY. Non-Clover SMB revenue declined 5% YoY. - Enterprise: Adjusted revenue down 1% YoY, organic revenue flat; transactions grew 8% YoY. - Processing: Organic revenue down 8% YoY, adjusted revenue down 6% YoY. 2. Financial Solutions: - Organic and adjusted revenue both declined 8% YoY, driven by higher non-recurring revenue in the year-ago quarter. Adjusted operating income was $912 million (down 27% YoY), for an adjusted operating margin of 38.7%. This segment contributed 47.6% of total adjusted operating income. - Digital payments: Organic and adjusted revenue both down 6% YoY. Payment platform transactions grew 5% YoY; consumer payment platform transactions down 1% YoY (Zelle growth offset by bill pay deceleration). - Issuing: Adjusted and organic revenue both down 10% YoY (driven by lapping 2025 non-recurring revenue). Underlying global accounts on file grew 4% YoY, in line with recent trends. - Banking: Organic revenue down 10% YoY, adjusted revenue down 8% YoY (impacted by prior year attrition and 2025 non-recurring revenue). Core accounts declined 3% YoY, while total accounts including Finzac grew 6% YoY.

Risks & headwinds

- Macroeconomic weakness and high inflation/interest rates in Argentina have negatively impacted anticipation revenue, creating a 90 basis point year-over-year headwind to Q2 2026 adjusted revenue and a 60 basis point headwind to adjusted operating margin, with ongoing headwinds expected for H2 2026. - Unfavorable foreign exchange rates across Latin America reduced Q2 2026 adjusted EPS by 7 cents. - Hardware sales in the merchant segment are facing ongoing headwinds after two years of elevated sales, leading to lower-than-expected H2 2026 revenue. - Delays in client implementation timelines for large contracted enterprise deals (many driven by client-specific factors like M&A activity outside of Fiserv's control) have shifted revenue recognition to future periods, pressuring 2026 growth. - Increased competitive pressure in the core banking market from new entrants, though management notes Fiserv's broader integrated product portfolio positions it well to compete.

Analyst Q&A

• Q: What drove the downward revision to H2 2026 guidance after the June reaffirmation, and why is it non-structural? /

  A: The downward revision comes from four incremental factors: 2 percentage points of headwind from delayed contracted revenue and enterprise client ramps, 1 percentage point from lower-than-expected hardware revenue, 1 percentage point from Argentina's macro weakness, and 1 percentage point from completed divestitures. Divestiture and Argentina impacts are mechanical or macro-driven, and delayed ramp revenue is almost all just shifted to future quarters rather than lost. For example, one large deal was delayed a quarter because the client is undergoing M&A, with no change to the deal size or value. The guidance update is a de-risked, accurate assessment of 2026 that does not change underlying momentum into Q4 2026 and 2027.

• Q: What is the framework for the ongoing portfolio review, and what types of additional divestitures could we see? /

  A: The review uses two core lenses: first, it assesses lower-growth, low-profitability non-core businesses, and second, it evaluates whether every product is best-in-class for Fiserv's clients, since clients want best-in-class solutions regardless of provider. If Fiserv cannot deliver a best-in-class product, all options (including divestiture or alternative ownership structures) will be considered. The review prioritizes areas where Fiserv has consistently underperformed expectations and where it is expending significant technology resources on non-strategic products. Management is conducting the review with urgency but is still early in the process (the CEO has only served in the role for 5 weeks) and will update investors once more concrete conclusions are reached, with no preconceived notions about the size of potential divestitures.

• Q: What areas does the incremental $100 million H2 2026 technology investment cover, and is underlying SMB volume deteriorating? /

  A: The entire incremental expense increase is the $100 million incremental investment focused on cybersecurity and general infrastructure resilience for the Financial Solutions segment, which benefits clients and positions Fiserv for long-term success. For SMB volume, the weak Q2 2026 growth is almost entirely due to lapping the anniversary of the CCV acquisition, not underlying deterioration. Clover SMB volume growth remains in the double-digit range, consistent with expectations for 2026 and the medium-term outlook.

• Q: What is the strategic value of the new MasterCard partnership for Commerce Hub? /

  A: Commerce Hub is Fiserv's end-to-end modern omnichannel technology stack for the entire merchant business, integrating gateway, backend, value-added services, and Clover into one unified platform. The team has made very fast progress on Commerce Hub when focused on a single clear strategy, but there are still capability gaps to compete with best-in-class enterprise providers. MasterCard has complementary geographic coverage, client relationships, and merchant capabilities that align well with Fiserv's existing strengths. Integration will take a couple of quarters, but the combined offering will significantly improve Fiserv's ability to win large enterprise merchant deals, and MasterCard has been a strong long-term partner.