FISERV INC Q4 2025 earnings call

Thank you and good morning. With me on the call today are Mike Lyons, our Chief Executive Officer, and Paul Todd, 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 the reconciliation of those measures to the nearest applicable GAAP measures, unless otherwise stated performance references or 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 will turn the call over to Mike.

Thank you, Walter, and welcome aboard. Good morning, everyone, and thank you for joining us. This quarter marked a decisive and positive step toward building the foundation to consistently deliver on the pillars that have long distinguished Fiserv. These include exceptional client service, world-class execution, value-added technology, and cutting-edge innovation. While there remains significant work ahead of us, we are clear on our strategy, laser-focused on our priorities, and are optimistic about our multi-quarter path towards delivering strong, sustainable operating performance and ultimately realizing Fiserv's full potential. While Paul will review our financial performance in detail, I would note that our Q4 results demonstrated stable, broad-based business activity trends, and there were no major surprises relative to the outlook that we provided in October and that our 2026 guidance is in line with the preliminary view from Q3.

As we told you in October, our headline results are below our go-forward expectations, and they will remain that way for the first half of 2026 as we invest in the franchise and lap a higher mix of non-recurring revenue. Importantly, we continue to add senior talent complementing the high-quality team that was in place when I came aboard. In addition to Paul, Walter, and Dhivya, we have added leaders in technology, Clover, and merchant product and sales, among other areas. Overall, I'm encouraged by the team's energy and pleased that our overall employee retention is up, with retention of our top talent reaching a multi-year high in 2025. With the team in place and focused, we were firmly in execution mode in Q4, taking decisive actions across the One Fiserv plan. One Fiserv is at the foundation of our strategy and firmly integrated into our 2026 plan.

With this in mind, I want to provide a brief update on the progress we have made across each of the five strategic areas of the plan: operating with a client-first mindset, building the preeminent small business operating platform through Clover, creating differentiated, innovative platforms in finance and commerce, delivering operational excellence and efficiency enabled by AI, and finally, employing disciplined capital allocation for the long term. Under our client-first pillar, we made targeted investments to better align around client needs, especially in our Financial Solutions business. Over time, we expect this shift to enhance client satisfaction and ultimately drive sustainable growth in average revenue per customer, which has been a hallmark of Fiserv.

The actions we took this quarter included broadly increasing client-facing resources, revamping and improving our approach to working with consultants, including closing the Smith transaction, delivering against the first phase of product development-related commitments we made at our Fiserv Forum client event, leveraging innovation, including AI trained on our DNA core, to streamline product upgrades and implementations, and accelerating our investment to modernize our technology platforms, including additional multi-site resiliency measures across most of our consumer-facing payment platforms. We remain on track to complete this effort by mid-2026. We are encouraged by the early positive client response to these efforts and will be steadfast in our focus on delivering great service and value-added solutions to our clients. And to this point, corporate sales were up solidly in Q4 versus last year and the prior quarter, with positive contributions from both the Merchant and Financial Solutions segments.

Some of the more meaningful wins included new and expansion Commerce Hub agreements with a leading medical device company, a large specialty retail company, and AT&T, among others. An expansion of our relationship with California-based Mechanics Bancorp, now with over $22 billion in assets, which selected Fiserv's core and added our XD digital platform following their merger with HomeStreet Bank. On Optis, we signed a multi-year extension with our client, Atlanticus, a leading issuer, which includes converting the accounts they recently added with their Mercury Financial acquisition to Fiserv. A new core deal with Republic Bank & Trust Company, a Kentucky-based $7 billion bank, moving to DNA, enabling the bank to give their clients faster access to deposited funds through real-time continuous processing and enabling real-time account alerts, and an expansion of our credit card relationship with Robinhood to add debit processing.

Turning to our second pillar, Q4 saw continued momentum toward establishing Clover as the preeminent small business operating platform. In vertical markets, we remain on track to launch our Practice Pay healthcare initiative and our professional services offering this quarter. In restaurant, we continue to see market share gains as we consolidate a number of strong assets to expand our offering under the Clover Hospitality brand and achieve economies of scale. As part of this, we are rolling out new capabilities, including multi-location support, AI-generated menus, streamlined delivery enrollment, checkless dining, and new diner engagement tools. Horizontally, we are seeing strong early success in our workforce management partnership with Homebase, and we continued our build-out with ADP, a partnership that is already producing strong sales collaboration and that has significant potential over time.

In December, we integrated CashFlow Central, our transformative AR/AP product, directly into RUN Powered by ADP, allowing small businesses to manage their cash flow more effectively. Finally, on the horizontal front, Clover Capital grew 30% in 2025 in North America as we continue to see significant upside with this high-value client offering where we only have mid-single-digit penetration of our eligible client base today. Internationally, our launch in Brazil continues to be highly successful, with results tracking ahead of plan and reflecting the importance of partnering with market-leading financial institutions like Caixa. Canada grew strongly in 2025 and should further accelerate as we ramp up our new strategic relationship with TD. And we introduced our flagship partnership with SMCC to offer Clover to SMBs in Japan starting later this year. This is a focused market for us given its size and low card penetration.

Additionally, we are excited about the special support Fiserv is providing in this partnership. We grew and further diversified Clover distribution channels across the board in Q4, including adding 47 banks to the Clover referral ecosystem, refreshing our merchant relationship with Truist, which will now support businesses of all sizes across the bank's large footprint, including 1,900 branches. Expanding our industry-leading ISO and agent platforms. Continuing to add direct salespeople in North America, where we have over 600 today. Launching a new digital tool for our bank partners, which integrates Clover merchant onboarding into the bank's digital banking experience. Introducing AI prospecting tools to assist with the identification and conversion of high-value merchants. And finally, building on the takeaways from prior pilots, we began targeting select non-Clover SMB merchants in the U.S. with a Clover offering.

While these efforts have been narrow in scope and it's still early, we have seen some promising results with benefits for our clients and higher revenue yield for us. Our efforts here will remain deliberate, ensuring we prioritize the right experience and fit for the client. To finish on Clover, we are driving a number of merchant experience improvements, including digital feature enrollment and setup, AI-driven end-to-end merchant lifecycle orchestration, a range of automated and high-touch service capabilities, and simplification to pricing and billing statements. Next, on the innovation front, we have prioritized appropriately resourcing and completing a focused set of deliverables that are driven by strong demand from our customers. In the quarter, we made significant progress on these strategic priorities. Commerce Hub is progressing well towards a fully integrated cloud-native global omnichannel gateway supporting a best-in-class enterprise value proposition.

In Q4, we launched this capability across the Americas and are ramping a leading video streaming service provider client. The platform continues to scale in North America, processing over $200 billion in 2025, a greater than 200% increase year-over-year. In Financial Solutions, we continued to invest in modernizing our core banking and card issuer processing platforms. In banking, we are building cloud-based, real-time secure, API-enabled, and more open capabilities, a modernization effort that began in 2022. At our client forum in September, we made it clear that there will be no forced upgrades or conversions as part of this effort, reflecting feedback we received from our customers. With respect to our newest cores, we went live with our first clients on Core Advance, and Finxact continues to perform exceptionally well and gain broad recognition for innovation.

The Finxact platform surpassed 30 million total accounts and positions, representing over 80% growth in 2025, and is becoming the ledger of choice for fintechs and digital banks. In card issuer processing, we continued to modernize Optis and build out Vision Next, our next-gen card issuing platform. On Optis, we signed a multi-year extension with PNC and a new mandate with Fidem Financial, a fast-growing credit card asset manager that has acquired over $15 billion in assets. Fiserv will power Fidem's new co-branded credit card programs. We are now live with five FI clients on CashFlow Central, with over 100,000 of their SMBs using our transformative all-in-one AR/AP payments platform and seeing real value. With over 155 FIs signed since launch and a pipeline of over 400 prospects, we are excited about CashFlow Central's long-term potential.

We advanced our efforts in stablecoin through the exploration of pilots with Huntington and several other banks, including use cases in cross-border payments, digital escrow, and interbank money movement. With the closing of the StoneCastle acquisition, we introduced stablecoin custody capabilities, allowing us to recycle reserves back to financial institutions, a unique capability in the space. We're also excited about StoneCastle's ability to introduce next-gen cash management capabilities to our merchants, including Clover clients. Lastly, on innovation, we continue to develop agentic commerce capabilities for our merchants and are particularly excited about our unique position with Clover to bring turnkey agentic capabilities to small businesses. We see agentic fundamentally changing the payments landscape and are working with Google, Mastercard, and Visa to bring agentic to mainstream commerce. Additionally, we're exploring arrangements to enable agentic commerce across the landscape of conversational AI platforms.

Thank you, Mike, and good morning, everyone. I will cover details on total company and segment performance in the fourth quarter and full year and then review our guidance for 2026. Beginning on slide six, total company Q4 adjusted revenue of $4.9 billion was flat, and adjusted operating income was $1.7 billion, resulting in adjusted operating margin of 34.9%. This results in full year total company adjusted revenue of $19.8 billion, up 4%, with adjusted operating income of $7.4 billion, resulting in an adjusted operating margin of 37.4%, a decrease of 200 basis points, right in line with our guidance. Total company organic revenue was roughly flat, down approximately 40 basis points in Q4, resulting in annual organic revenue growth of 3.8% in the upper half of the 3.5%-4% guidance range we gave on our last call.

Turning to slide seven, Merchant Solutions grew 6% organically for the year, while Financial Solutions grew 2%. Fourth quarter adjusted earnings per share was $1.99, resulting in annual adjusted earnings per share of $8.64, above our guidance range of $8.50-$8.60. Free cash flow for the quarter was $1.6 billion and $4.44 billion for the year, ahead of our guidance of $4.25 billion, representing approximately 93% conversion. Now I will turn to the performance by segment for Q4 starting on slide eight on Merchant Solutions. Merchant Solutions organic revenue growth was 1% for the quarter, while adjusted revenue grew 2%. Small business revenue grew 2% on an organic basis in Q4 and 3% on an adjusted basis, with the impact of the CCV acquisition slightly greater than the FX headwind.

In addition, the Clover fee eliminations we discussed last quarter were a two-point headwind to small business growth in Q4. Small business volume grew 7% in the quarter inclusive of CCV. Clover revenue grew 12% in Q4, 2 percentage points higher than our guidance. There was a six-point growth headwind to Q4 Clover revenue from the fee eliminations we called out on our last call. Clover volume grew 6% on a reported basis and 9% excluding the previously discussed gateway conversion. Clover volume growth was below our expectations for the quarter, driven largely by softness we experienced in the month of November in the U.S., particularly in the restaurant and retail sectors where we have a large presence. This softness in the U.S. was consistent with broader industry trends, and Clover volumes reaccelerated on a combined basis in December and January to approximately 11% ex the gateway conversion.

Value-added services contributed 27% of Clover revenue in Q4, up five points from a year ago, driven by anticipation, software attach, and Clover Capital. Clover revenue finished the year at $3.3 billion, up 23%, while non-Clover small business revenue ex Argentina was flat in Q4 and up 3% for the year. Consistent with our preliminary view in October and assuming stable macroeconomic conditions, we expect Clover GPV growth of 10%-15% in 2026 ex the gateway conversion. The lower end represents the core growth rate, while the higher end assumes more significant conversion of non-Clover merchants. Based on these volume expectations, the impact of Clover fee eliminations and more moderate growth from Argentina, we expect Clover revenue to grow in the low double digits for 2026. On a structural basis, our medium-term revenue growth rate target for Clover remains in the 15%-20% range.

Moving on to enterprise, our business grew 1% on an organic basis in Q4, while declining 2% on an adjusted basis. Excluding the revenue from network fee timing associated with a large PayFac client that went live in Q3 2024, adjusted revenue for enterprise would have been 6% higher in the quarter and more in line with the 6% transaction growth. Transaction growth slowed sequentially from Q3 due to lapping the ramp of the large PayFac client mentioned earlier. Finally, in processing, organic revenue declined 1%, while adjusted revenue grew 1%, driven by FX tailwinds. Fourth quarter adjusted operating income for the Merchant Solutions segment was $816 million, down 17%, with adjusted operating margin of 32.1%. For the full year, Merchant Solutions adjusted operating income was down 2% to $3.5 billion, with adjusted operating margin of 34.5%. Now I will cover Financial Solutions starting on slide nine.

For the quarter, both organic and adjusted revenue in Financial Solutions declined by 2%. In digital payments, organic and adjusted revenue declined by 1%. We saw good volume growth in debit processing and network volumes, consistent with the growth levels from last quarter. Zelle transactions grew 15% in the quarter as we continue to see a slowing of the growth curve for Zelle as the product matures. Also, we started to ramp revenue from CashFlow Central in the quarter. Finally, ATM managed services was an approximate one-point headwind to revenue growth in digital payments. In issuing, revenue declined 1% on both an organic and adjusted basis as global active accounts on file grew in the low single digits.

Finally, in banking, revenue decreased 4% on an organic basis and was down 3% on an adjusted basis as we continue to be impacted by certain actions taken over the last several years. While an improvement sequentially, we are still facing comparative headwinds and will continue to face these throughout the first half of next year, after which we expect a return to stability. As Mike mentioned earlier, this is a significant area of investment and focus for us. Fourth quarter adjusted operating income for the Financial Solutions segment declined 20% to $997 million, and adjusted operating margin was 42.2% versus 51.7% in the prior year. The most significant impact on margins in Q4 was related to incremental vendor spend and headcount investments to improve client experience. For the year, adjusted operating income for the segment was down 2% to $4.4 billion, with adjusted operating margin of 45.3%.

At the corporate level, our adjusted effective tax rate was 19.3% for the quarter and 18.6% for the year. From a leverage standpoint, we finished the year with a debt-to-adjusted EBITDA ratio of 3x in line with our expectations. We continue to target long-term leverage at 2.5x-3x. Turning to slide 10, we also repurchased 3 million shares during the quarter for approximately $200 million and paid down over $1 billion in debt after funding the acquisitions of StoneCastle and a portfolio of TD merchant contracts. With respect to Project Elevate in Q4, we incurred $73 million of expenses related to this program, and we will continue to have related one-time costs in 2026. Now with slide 11, I'll move on to 2026 guidance, which is in line with the preliminary view we gave on our last call. First, on revenue.

We are continuing to provide guidance regarding our organic revenue growth for 2026, and we plan to supplement this with additional information about our assumptions to help investors and analysts arrive at adjusted revenue. Also, to provide further insight, we are giving growth expectations for the Merchant and Financial Solutions segments. We expect 2026 organic revenue growth in the range of 1%-3%, with Merchant Solutions revenue growth in the mid-single digits and Financial Solutions flat to slightly down. Reflecting higher non-recurring revenue a year ago, we expect adjusted revenue growth in both quarters of the first half of 2026 to decline to the low single digits, with Q2 representing the trough in terms of the rate of decline. In our Financial Solutions business, we expect a more pronounced growover trend in the first half, resulting in a decline at the high end of mid-single digits.

As we get to the second half of the year, we expect our adjusted revenue growth to be more tightly correlated to underlying drivers such as volume, transaction, and account growth. We expect offsetting FX and M&A impacts for 2026, driving our expectation for adjusted revenue growth that is also in the range of 1%-3%. As a reminder, Q1 is the last quarter of impact from the CCV acquisition, and thus we expect an approximate 1-point difference between organic and adjusted revenue in this period. We expect Argentina will have a modest positive impact to organic revenue growth in 2026, while having a slightly larger negative impact to adjusted revenue growth. As compared to prior years, based on our current expectations, this is a much more modest contribution from Argentina.

We expect our effective tax rate to be in the range of approximately 19%-19.5% for the full year, and weighted average share count to be approximately 530 million. Putting it all together, we expect adjusted EPS of $8-$8.30. Similar to our expectations around revenue, we expect a different level of operating margins in the first and second halves of the year. In the first half, we expect adjusted operating margin of 31%-32%, with Q1 representing the low point just below 30%. In the second half of the year, we expect adjusted operating margin of 35%-36%, with Q4 representing the high point in the year. For the year, this translates into approximately 34% adjusted operating margin.

To complete our strategic investments, we expect capital expenditures to remain approximately flat with 2025 levels and end the year with a leverage ratio of approximately 3x. We expect free cash flow conversion of approximately 90% of adjusted net income for the year in line with historical levels. As always, Q1 will be our trough for free cash flow conversion. Finally, to the extent we generate any excess cash from business and asset optimization activities, we intend to deploy this additional cash to share repurchase. And with that, I will turn the call back to the operator to start the Q&A session.