Welcome to the Fiserv Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Chariell, 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 Adviser 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 the 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 5 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, 2 large, economically critical and 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…

Thank you, Mike, and good morning, everyone. I want to first take a minute to say how excited I am to be part of the Fiserv team. I have known Fiserv for a long time. But after spending the last 2-plus years in fintech venture capital, I have a better appreciation for the unique construct of the company, the quality and depth of the assets on this platform and the differentiated value of its unique distribution capabilities. I look forward to working alongside the fantastic leadership team that Mike has assembled and playing a role in leveraging the company's unique strengths and market leadership positions to drive compelling, long-term shareholder value. While we have room for improvement, this is truly an exciting time to join an industry-leading company serving large and important industries, who are rapidly adopting new technologies. With that, I will now cover the financial results of the company, starting with financial metrics and trends on Slide 5. Total company third quarter adjusted revenue grew 1% to $4.9 billion and adjusted operating income decreased 7% to $1.8 billion, resulting in adjusted operating margin of 37%, a decrease of 320 basis points. Year-to-date, adjusted revenue grew 5% to $14.9 billion and adjusted operating income grew 5% to $5.7 billion, resulting in an adjusted operating margin of 38.2%, flat versus the prior year. Organic revenue grew 1% in the quarter, with 5% Merchant Solutions organic growth and a 3% decline in Financial Solutions. On a year-to-date basis, organic revenue for the company is up 5%. Third quarter adjusted earnings per share was $2.04, compared to $2.30 in the prior year, down 11%. There are 3 unusual dynamics impacting the company's adjusted EPS of $2.04 for the quarter. First, the company experienced a $53 million foreign currency expense or a $0.10…

[Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan.

Lots to ask here. Just maybe, Mike, I'll ask it this way. How long was Fiserv over-earning with deferred investments and this focus on short-term revenue and expense initiatives that you called out? And of course, it's early. But how long will it take? And at what cost for Fiserv to reverse this and get back to what I call a hallmark of double-digit EPS growth, you did call that out double-digit EPS growth. And of course, I'm getting the question to you, given your analysis and over the last few months, is double-digit EPS growth, the right target? And why are you confident that that's the case?

Yes, thank you. And I'll start -- I don't know how much history I can go back and give you, but in the 6 months I've been here, obviously, we've made some recalibrations last quarter, which were more focused on some of the big projects being relatively new in the seat. Some of the stuff we saw coming out of Q2 prompted the analysis that we did, which was a much broader and more rigorous analysis included a broader group of people here and external advisers, and we looked at every part of the company and as I said in the remarks, we've got a great company with great assets and great growth opportunities, and we want to run the heck of it. It is an unbelievable engine, and we got to go do it. As I said, there are 4 things that we found, obviously, [ noise ] from Argentina, which by the way, is an outstanding business. We're talking about clarifying our growth numbers for how good Argentina has been, but it's important to clarify that to understand the rest of Fiserv. We talked about the short-term initiatives. It just showed a short-term focus versus doing what our clients want, helping them achieve objectives and aspirations, some deferred investment, which we think is totally addressable, as I said in the earlier part, and then just making sure that we're accurately reflecting what the business is capable of when we give guidance to you all. So I think we're trying to give you a couple of different approaches to understand this, and we'll keep going through this with you, if it's helpful. But the first is if you take Argentina out, which we did in the slides, and you look at '23, '24 and year-to-date '25, it's 6% growth,…

That covers it well.

Next, we'll go to the line of Darrin Peller from Wolfe Research.

And Paul, congrats and welcome. I guess, I just want to understand a little bit more in detail what changed specifically in the Financial Solutions segment from last couple of quarters of the growth trajectory, given that segment was one that we always thought it was more stable. And I know the banking side, you talked about consolidating your cores a bit more. But when we see that growth rate drop to negative 1% without the periodic from what was a mid-single-digit algorithm, it just brings questions of what's really going on under the surface and what you think that segment truly can be. And then just one quick add-on to Tien-Tsin's question around the overall algorithm long term. The merchant side, I know, Mike, you just mentioned a mid-single-digit growth rate. Do you -- are you confident that your experts and you guys have screened everything properly to ensure that any price actions or anything else that you needed to take is already done? Or is there more to go? Are you fully done with the review?

Yes. I'll go with the last part first then work back, and then let Paul give you some specific numbers. We've completed our review. Obviously, you learn more every day, but the rate of learning has plateaued some time ago, and we're -- the numbers and the baseline we're giving you today, we are highly confident, reflect where the company is today. We're bringing in a leadership team to complement an existing leadership team where we feel we can execute on it. So I'm highly confident in the numbers we're giving you today. We've taken a great look at the company. We've gotten an outside perspective on that part of it. And it wasn't all -- it's not -- we're not saying everything is perfect. We're saying we have work to do. But structurally, today, we're take away cyclical growth. And certainly, obviously, we showed you with cyclical factors, Argentina highlighting a fine degree, we certainly could grow faster than mid-single digits. But if you take out cyclical and focus on structural long-term sustainable growth, that's where we are today. When you go into the 2 businesses, I think you have to look at different pieces of it. We have a world-class -- within banking, we have a world-class issuing business that continues to gain share and really has formed the basis when combined with merchant for how we go to market in the fast-growing embedded finance world, and we're incredibly excited about opportunities there as you take the issuing platforms the Finxact platform, the Commerce Hub platform, the Payfare acquisition with the orchestration layer, and we think we can offer something to digital commerce and payment platforms that really reflects how the world is evolving in payments. So you have that business in there. And then you go back…

Yes. And Darrin, I would just add, I've spent a good bit of time on this financial side. Obviously, given my background, this is an area I know really well. And I would just say in the quarter, we had a lot of things happening across kind of the 3 businesses there. On the digital side, obviously, we had strong debit volume growth. We did take some actions to position us competitively for the longer term in that side. So that's reflected in kind of the quarterly results. On the issuing side, good account on file growth, fundamentally strong there. We had some comparisons to last year in the output services area that didn't repeat, and you know how those can be somewhat kind of project related in the output services area. And then on banking, and we called this out, we had a license compare that was pretty hefty for this quarter. But fundamentally, it's strong. We're going to -- in the fourth quarter, we expect kind of a similar -- it won't be as dramatic because of the sequential kind of change. But fundamentally, we'll kind of see a similar kind of result in the fourth quarter. On a nominal basis, it will be about the same. But on the longer-term outlook, is it fundamentally strong? Yes. The answer is yes. The volumes are holding. Each one of those businesses, we've taken actions to make sure that we're competitively strong. And I know the sequential quarter move kind of is bigger than you would have expected, but underneath that is a strong business.

And I'd just finish that, we mentioned earlier that there are some businesses in there that aren't as well positioned. They're relatively small in terms of revenues that we're not going to be in any longer, and there's others in the market who want to be in those businesses. So again, part of the analysis and the actions we've taken from it.

Next, we'll go to the line of Jason Kupferberg from Wells Fargo.

Thanks for all the candor here. I did want to ask a little bit about Clover. I know you mentioned 10% revenue growth there for the fourth quarter, wondering if that's a decent proxy for next year until you anniversary some of these actions to deprioritize some of the short-term revenue initiatives. And then just as part of that, I mean, you can give us your latest assessment just your competitive positioning across merchant, both from a Clover and non-Clover perspective?

I'll start with the second part. Paul, can go into the numbers. I think certainly, and I just mentioned it in the prior answer. But if you -- Clover is an unbelievable asset. We continue to feel great about our competitive positioning. There are great competitors in the market, but we continue to see significant opportunities to bring an all-in-one business operating platform to small businesses. There's a desire for that, there's a need for that. And so we continue to build Clover in the areas that talked about vertical expansion. We're traditionally very, very strong in core restaurants, in retail, build that out to health care, professional services, higher-end restaurants, a horizontal expansion, super excited about our partnerships in Homebase and ADP, and we'll bring on others there. International expansion is going well. Brazil is obviously the highlight of that. I think if there's a place that we were most focused on Clover and where Takis and his team are doing the most amount of work is really a full overhaul of the client experience as they engage with us. Operationally, we can be more excellent. And especially, we see just a tremendous opportunity across Clover and really across our platforms and gateways and orchestration layers to apply AI in an effective way, and that's really what the project with IBM is about. But that's probably the greatest area that we're doing work there. The opportunity to expand TAM, we continue to see. And then as we talked about for a long time now, we'll introduce a very thoughtful and paced back book conversion going into next year. On the enterprise side -- and I guess the other small business platform, we're very, very happy within our merchant business is our ISV business, which continues to grow rapidly. I think we're very, very well positioned there. And our customers need both -- in many times need both online and a physical presence to the ability to introduce Clover into that world or other of our assets. Super excited about that business. On the enterprise side, again, awesome core business continue to build out a global omnichannel integration platform with Commerce Hub, and there's a lot of ongoing work on that front. So overall, feel very good about the merchant business in terms of where we can grow at Clover. Obviously, the growth highlighted there along with the ISV business. I'll let Paul go through the numbers on Q4 and next year and then long -- some indication of longer term.

Yes. So Jason, yes, obviously, we highlighted what we expected in the fourth quarter. And we would see a tick up into kind of a low teens roughly range is our expectation is we're in the early stages of planning for 2026. So there is a little bit of kind of comparative dynamic that exist there. And then we would expect that to get better on the 2027 and beyond to kind of move up into the more higher teens kind of level as we get into the '27 time frame. So there's sales noise as a 2026 comp, but it is a pickup, an acceleration from the fourth quarter growth rate. And we do see, once we get past that compare in 2026 for an additional pickup going in '27 and beyond.

And as I said in the prepared remarks, 10% in Q4 reflects the pricing reversal, that's high teens. Without it, a fair amount of noise, as Paul said, still going into 2026 as we rightsize the baseline and going from there, we continue to see similar to what we've seen, excluding the Gateway conversion, 10% plus GPV growth and mid- to high teens, closing 20% long-term revenue growth. And again, that can go back to the opening, that reflects a normalization of Argentina, a normalization of short-term initiatives and the appropriate levels of investment into the business, especially around the operational excellence thing. But Clover continues to be just an awesome asset and couldn't be more excited about what we can do with it for small businesses across the world.

It sounds like Q4 is the trough. Got it.

Yes.

Next, we'll go to the line of Dave Koning from Baird.

I guess my question is on margins and how that works into the first half. When we look at Q4, it looks like margins will be down about 800 bps or $400 million of lower EBIT. Is that the peak investment quarter, that $400 million down? And maybe how does that progress through the first half of next year? And what's invested in? Like what are you doing in Q4? And then maybe how does that dissipate into the first half of next year?

Yes. So Dave, I'll start and Mike may want to add. But obviously, we -- you can kind of impute by our guidance what the fourth quarter looks like. And then we do trough out on the margin in the first half, particularly in the first quarter, where we've got the biggest kind of comp challenge there. And so we kind of -- if you're kind of saying the mid-30s is where we would expect to be roughly next year, right around that kind of, call it, 33% to 35% kind of percent range for next year. The trough would be the first quarter, and then we would continue to kind of build up to be back roughly at a run rate level by the end of next year kind of back to just roughly where we would end up this year. So we clearly have a plan to restore kind of the margin back to the levels that we would expect here in 2025 and then build beyond that in kind of a more kind of consistent way on a go-forward basis. So trough kind of in first quarter, it will kind of continue to then build as the comps get more kind of normalized as we progress through 2026. And then obviously, from there on, we would expect margin expansion to kind of more normalize.

Yes. You're getting the double whack in Q4 because Q4 of last year was sort of peak in terms of short-term initiatives. And then we've reversed a lot of that taking the pricing changes. So again, I think it's -- we're trying to get you forward to a baseline rather than take the noise out of every single item for every single period in the historical numbers. And I think the guidance we've given you sort of sets that baseline. And again, it's baseline we're confident in. In terms of where we're going to invest, the really 2 things, the core investment in the company, which we talked about some, which is streamlining the cores, modernizing and getting to market our surrounds, again, which are getting unbelievable client interest and receptivity. We have hundreds in the pipeline for XD and approaching that on CashFlow Central. So we've got great things want to get those to market, continue to invest heavily in Commerce Hub. We talked about Clover and building the platform there and enhancing operational excellence. We're super excited on the issuing side, both in the modernization of Optis, our current platform and the introduction of Vision Next, which will be the platform for embedded finance alongside Finxact, and it's also the platform we'll go to market with internationally, totally modernized cloud-based API-driven issuing core, excited about what we're doing on the stablecoin front, including the acquisition -- pending acquisition of StoneCastle. And then the modernization and the enhancement and excellence of our core technology has been a huge focus this year and a bulk of where the incremental capital spend this year has gone. You take the project we're going to do with IBM, that will also dictate based on the returns and investments that we'll get there, that also dictate the nature of our spend next year. Again, we're early in that project, but are very, very optimistic about what we can do, not only from what we've learned in the first 5 or 6 weeks, but working with the IBM team, who did the same exercise for themselves in a very successful way, which you go through on almost every one of our business applications are primed for the use of -- we're already using it, but for the even greater use of AI and then taking a hard look at all of our internal functions and applying AI and modernization to structurally change the cost base and how we do business internally in both employee and client enhancing way. So those are the major areas. Most of what we've done this year, it's not like we've been just doing the analysis, we've been going after some of the footfall we've seen. Most of the stuff we've done this year, we covered at Fiserv Forum to address our clients' needs.

And for our final question, we'll go to the line of Harshita Rawat from Bernstein.

Mike, I want to follow up on the Financial Solutions business. And I understand kind of the forward-looking expectations reset and kind of the deprioritization you talked about. But I want to ask about the third quarter. You trimmed the full year guide 3 months ago when you were 1 month into the quarter. At the time, I think we heard that the team kind of underwrote -- re-underwrote everything. So trying to kind of figure out, and I know you talked about many of the drivers here, like how could things change so dramatically in 2 months in a segment, which is by definition, somewhat of a recurring segment. So also trying to figure out kind of the -- why wasn't there like that much visibility into this level of revenue weakness intra-quarter?

I appreciate the question and understand it. Obviously, this wasn't a reset I wanted or expected. But in July, roughly 10 weeks into the job, no excuses, but I focused on underwriting some of the major projects, we talked about those that were driving growth in the company's original 10% to 12% guidance. Some of the bigger projects we talked about, we successfully re-underwrote those and their performance since then has largely remained on track. As more financial surprises emerged over the -- in the start of Q3, that prompted not just the annual strategic planning process, but this much more rigorous review into our financials, and that was also driven by some of the stuff we're hearing from our clients. That analysis not only uncovered some additional assumptions that needed to be revisited either stuff that was either out of our control, is macro stuff, industry stuff, that we had assumed in the company's original guidance to go one way in a pretty deliberate manner. Then there were a whole bunch of embedded assumptions away from the major projects that even with strong execution would have been hard to do all of them simultaneously and successfully broad-based productivity initiatives, significant record -- embedded record sales activities and then stretch revenue numbers on top of it. And then there were a series of initiatives. Again, we've gone through it, but there were a series of initiatives that were -- clients, customers businesses always have these that were more short-term driven in nature that were a big part of the back half of the year to get to the guidance. And as I got a more fulsome understanding of those, that obviously prompted some dissatisfaction with the way we do the process, and we've made leadership changes around that and giving you today what we believe is a solid tangible baseline to grow from. So what was in the original 10% to 12% guidance, I've worked through it. It took me 5 or 6 months. But I'm confident today, the numbers you have represent who we are structurally as a company, and we've given you the outlook from which we can grow at and put together a team that's going to execute the hell out of the business, and it's a great business to run.

And I'll just add to that. As it relates to just financial, specifically, if you look at that business and you look at kind of the first half, at the 7% and kind of 8% growth rates, those are a higher level of growth rate for the collection of businesses here than you kind of typically see, given kind of the underlying fundamentals around some of the TAM growth rates for those business areas. And so I think when you kind of look at it on a full year basis, when you look at our expectations on a full year basis next year for this business, it's kind of in that more lower single-digit range at that kind of higher level, maybe of that lower single-digit range. But that's more of the normal kind of growth if you look at what accounts all file grow, what debit transactions kind of growing at the mid-single digit if you look at kind of what banking does. And so that's kind of a more normalized way to look at the business. We just have some variability because of all the things Mike just described that's presenting this kind of sequential move or first half versus back half move. We'll have the similar dynamic in the first half of next year as we kind of normalize everything. And then you'll start seeing that more normalized, stable growth that you would expect out of this line of business starting in the back half of next year and continuing throughout 2027.

And then from there, we'll take -- we've got these incredible assets, Vision Next, Finxact, a core ledger system, deep systems of records for banks that we can expand to new sectors that grow much faster than that, whether it's embedded finance or something else. But you got to go execute on that. You got to invest in it. You got to be deliberate about how you operate on it. And that's the part we can't wait to get to. And with today, that sets the baseline and sets the starting point for that. So we're excited about the -- and that's the long-term structural growth rate we can drive.

And that was our final question for this call.

Thanks, everyone, for joining. I appreciate talking with you more of this quarter.

Thank you all for participating in the Fiserv Third Quarter 2025 Earnings Conference Call. That concludes today's call. Please disconnect at this time, and have a great rest of your day.