FISERV INC Q1 2026 earnings call

Thank you. 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 in this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise noted, 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. Now we'll turn the call over to Mike.

Thank you, Walter. Good morning, everyone. As we began the year, we were firmly in execution mode. Our Q1 results were in line with the expectations we shared with you in February. Our teams continued to be laser-focused on executing against the One Fiserv action plan. While there is still significant work to do, we are taking the right actions with the right sense of urgency and feel really good about the progress to date. We are confident in our strategy. The unprecedented pace of change in banking and payments is creating an extraordinary opportunity for us. As our clients and prospects want a trusted partner to deliver sophisticated technology and value-added solutions, we are uniquely positioned to do exactly that.

To drive these efforts, we continue to add outstanding talent across the organization, including new heads of operations for both Merchant Solutions and Financial Solutions, new chief revenue officers for Clover and Enterprise Merchant, and a new head of product for Financial Solutions. With respect to business performance, I'll start with Merchant Solutions, where we saw solid growth in Clover GPV, supported by good execution against our strategic initiatives and a stable macro. Clover VaaS revenue represented 27% of Clover revenue in Q1, growing 18% from a year ago, driven by software and Clover Capital. We also saw steady growth in enterprise transactions. While anticipation lending volumes in Argentina remained strong, lower inflation and interest rates in Argentina were a revenue headwind to Merchant Solutions in Q1. I would note that this revenue softness was largely offset by lower interest expense below the line.

Our preliminary April merchant volume growth, including Clover GPV, remained solid around Q1 levels. Going forward in Merchant, we're watching the impact of various environmental factors, including higher gas prices from the conflict in the Middle East, which, if sustained, can impact the mix of consumer spending. We saw some of this dynamic in the most recent Fiserv Small Business Index data. In Q1, we signed 27 new banks as merchant referral partners. We also announced our largest agent bank partnership in our history with Western Alliance Bank, which has more than $90 billion in assets and expands our reach with merchants across the Western U.S. We also hit important milestones in the quarter, going live with Commerce Hub omnichannel capability across a number of our largest petro customers. We also went live on Commerce Hub with Bilt Rewards in neighborhood hospitality and Viamericas in cross-border remittance.

Our broadening global releases and customer go-lives are driving Commerce Hub transaction growth, which was up nearly 200% in Q1. Other key Enterprise Merchant wins in Q1 included a retail energy provider, Blue Shield of California, a leading tax compliance platform, and a large telecom provider who added on fraud capabilities. In Financial Solutions, we saw solid underlying business volume growth, particularly in Finxact and our payments businesses, excluding Bill Pay. New business sales showed continued momentum. We hit important product delivery milestones, and we saw an improvement in key client service metrics. While core bank account and revenue attrition remain above our long-term trend, we've seen early signs that our client service initiatives have been well-received. We're also getting positive client feedback on our decision to continue supporting all of our cores, and we are signing and renewing customers across all cores.

Also contributing to an enhanced client experience is the value we are delivering from our recent acquisitions of StoneCastle and Smith Consulting, where both our strategic and financial results are in line with our business cases. Key new business wins in Financial Solutions included OceanFirst Bank, which is a $14.5 billion Northeast regional bank that is growing rapidly through its announced acquisition of Flushing Bank. It extended its Premier core and surrounds agreement with us, adding digital payments and committing to deploy CoreAdvance. Nicolet National Bank, a $16 billion Wisconsin-based bank, is adopting our Premier core with its MidWestOne acquisition. Truliant Federal Credit Union, a $5 billion+ North Carolina-based institution, chose to move to our debit processing platform. We expanded our long-standing digital money movement relationship with PNC Bank to include CashFlow Central AP and AR services for their small businesses.

We had embedded finance wins with a large payroll provider and a large retailer to bring new capabilities to their payroll members and customers. In these wins, we will leverage new integrated capabilities across Fiserv, including Finxact for Ledger, Payfare for banking applications and program management, and Vision Next as a cardholder platform. Finxact was named Best SaaS for FinTech at the 2026 FinTech Awards, recognizing the combination of its market-leading innovation and scaled customer deployments. Finxact continued to grow strongly in Q1, with accounts and positions up over 70%, as clients find value in its ability to provide financial infrastructure to enable any asset class in any domain at scale under a common platform and business model. Our execution is improving across both businesses.

As expected, that progress is not yet visible in our reported financial results as we are still lapping a higher mix of non-recurring revenue, feeling the lingering impacts from prior client service challenges, and absorbing the incremental expense from investments that will drive long-term client-focused growth. All necessary and important elements of our transition year in 2026. We look forward to the second half of the year and 2027 when we expect our operating performance will be more fully visible in our financial results. I'll now provide an update on our execution against the One Fiserv action plan. Of course, we will cover all aspects of the plan in greater detail at the May 14th Investor Day. Under our client-first pillar, we continue to make targeted investments to raise the bar for client coverage, relationship management, service delivery, and product resilience.

The number of client-facing personnel we have is up significantly, meeting a key demand from clients. Importantly, we are seeing better day-to-day execution. Our time to resolve client inquiries is down 27% year-on-year. While we still have significant work to do, high-impact client incidents are down nearly 60% year-on-year. We launched important AI initiatives to enhance the performance of our primary client portal and call centers in Financial Solutions. Turning to Clover, our second pillar, we continue to make progress towards establishing it as the preeminent small business operating platform. We launched two new verticals in March with PracticePay in the healthcare space and our professional services offering.

We are seeing promising early results with annualized GPV per healthcare outlet running at double-digit levels above our existing Clover healthcare merchants and a 20%+ increase in new professional services outlets that attached our paid SaaS offering in the month. Internationally, our momentum continued with Brazil Clover outlets up over 30% sequentially. We had another strong Clover quarter in Canada, where we remain on track to enable TD Merchant Solutions to provide Clover's product offering, processing, and servicing to its clients in the second half of the year. After launching in Q4, we continued to expand our digital merchant activation capability and now have 22 of our top bank partners signed. We will also add this capability to our clover.com online merchant referral partners. Through integration with StoneCastle, we remain on track to launch Clover Savings, our merchant cash management program, before the end of Q2.

Through a number of important partnerships, we continue to build agentic capabilities for our Clover merchants, and we'll showcase some of these at Investor Day. Finally, we are excited to share that Clover is slated to support 30 World Cup games this summer in the U.S. and Mexico. Next, on the innovation front, we continue to hit critical milestones on key strategic products, including Experience Digital, Cash Flow Central, Vision Next, Optis, and Commerce Hub, as I mentioned earlier. In our Enterprise Merchant business, we delivered a new developer portal supporting agentic commerce. Our teams have further ramped up their usage of AI tooling in the software development process with early results showing a significant reduction across key steps in new feature development and delivery time with mainframe modernization. Finally, we are on track to launch our previously announced stablecoin pilot this summer to facilitate interbank money movement.

Fourth, we are in full swing with Project Elevate. With AI at the center of this program, we are very encouraged by the early results. The teams have identified hundreds of opportunities to drive revenue uplift, reduce expenses, increase simplicity, and improve productivity, and we're moving with urgency to operationalize them. Paul will outline our financial targets for Elevate at Investor Day. Beyond Elevate, we took several important actions in Q1 to drive efficiency, including closing two subscale offices, exiting underperforming merchant businesses in India, reducing management layers and implementing more aggressive performance management. Just last week, we completed the migration of all customer activities from a significant data center as we continue our modernization activity. Last, but certainly not least on One Fiserv, is our commitment to highly disciplined capital allocation.

We continue to sharpen our focus on the businesses and assets that best align to our go-forward strategy, including evaluating potential dispositions. I'll conclude by saying, we look forward to seeing you at Investor Day, where among other topics, we will further highlight our strategic priorities, describe how our businesses are converging further to unlock more synergies, and share how we're using AI to transform systems of record into systems of collaboration, create new TAMs, and increase efficiency. Together, these actions will support the mid-single-digit adjusted revenue and double-digit EPS growth that we've discussed since last fall. This will position Fiserv to return to its roots and create significant shareholder value as a constant compounder. I want to thank our employees for their hard work and dedication, and our clients for their continued trust.

Thank you, Mike. Good morning, everyone. I will cover details on total company and segment performance in the Q1 and reiterate our guidance for 2026. Beginning on slide 6, total company Q1 adjusted revenue was $4.68 billion, a decrease of 2.4% compared to the prior year period, and was in line with our guidance as we lapped higher non-recurring revenue from a year ago. Q1 adjusted operating income was $1.4 billion, resulting in adjusted operating margin of 29.7%, also in line with the just below 30% view I provided on our last call. Total company organic revenue was down 3.6% in Q1, with a differential in organic to adjusted revenue of just over 1%, in line with the approximately 1% delta we communicated in February.

Q1 adjusted earnings per share was $1.79. Our Q1 results reflect an adjusted effective tax rate of 11%, driven by the release of a tax valuation allowance in the Q1. Relative to our expected annual adjusted tax rate of between 19% and 19.5%, this lower tax rate resulted in a $0.17 positive impact to adjusted earnings per share in Q1. This 11% rate in Q1 is strictly a timing-related impact. Our full-year adjusted tax rate guidance of 19%-19.5% remains unchanged, and we expect higher quarterly effective tax rates through the balance of the year as an offset.

Free cash flow for the quarter was $259 million and in line with our expectations we noted in February and reflects typical seasonality where Q1 is our lowest free cash flow quarter of the year. Now I will turn to the performance by segment for Q1, starting on slide 7 for Merchant Solutions. Merchant Solutions organic revenue declined 1% for the quarter, while adjusted revenue was flat, which is largely in line with our expectations as we fully anniversary the CCB transaction. As Mike mentioned, lower inflation and interest rates in Argentina did have a negative impact on adjusted revenue in our merchant business. Small business revenue declined 1% on an organic basis in Q1 and grew 1% on an adjusted basis. Small business volume grew 7% in the quarter. Clover revenue grew 6% in Q1.

Excluding higher non-recurring revenue from the Q1 of 2025, Clover revenue growth would have been in the mid-teens. Clover revenue from payment processing grew 10% more in line with volume trends. As we noted in February, we expect similar trends for Clover in Q2, with this period representing the peak in non-recurring impacts, and also expect that Clover processing revenue will grow in line with Clover GPV. Clover volume grew over 9% on a reported basis and was in line with our expectations as we saw stable growth both in the U.S. and in key international markets. Clover volume, excluding the previously discussed gateway conversion, grew 12%. The previously discussed gateway conversion continues to run off, the delta between Clover reported and ex-gateway growth will converge.

We continue to expect Clover revenue growth in the low double digits for 2026 and GPV growth of 10%-15% ex the gateway conversion. The lower end represents the core growth rate, while the higher end assumes more significant conversion of non-Clover merchants. Value-Added Services revenue contributed 27% of Clover revenue in Q1, growing 18% from a year ago, driven by software attach and lending, including Clover Capital. Moving on to Enterprise, our revenue grew 3% on an organic basis in Q1 and grew 2% on an adjusted basis. Enterprise transactions grew 8%. Finally, in processing, organic revenue declined 14%, while adjusted revenue declined 9%. Q1 adjusted operating income for Merchant Solutions segment was $626 million, down 23%, with adjusted operating margin of 26.4%.

Now I will cover Financial Solutions starting on slide 8. For the quarter, organic revenue declined by 6% in Financial Solutions, while adjusted revenue declined by 5% relative to our expectations of adjusted revenue decline at the high end of mid-single digits that I mentioned on our last call. In digital payments, both organic and adjusted revenue declined by 5%. Our underlying account and volume growth in Financial Solutions was in line with what we expected and our recent history. This included low single-digit growth in debit processing and low double-digit debit network volume growth. Zelle transactions grew 18% in the quarter, in line with recent trends we have seen, while we saw Bill Pay transactions down high single-digits. Also, we saw further ramp in CashFlow Central revenue in the quarter.

In issuing, revenue declined by 6% on an organic basis and 5% on an adjusted basis. While global accounts on file grew in the low single-digits, revenue comparables were impacted by non-recurring revenue in Q1 last year, a trend we expect to be more pronounced in Q2. Finally, in banking, revenue decreased 6% on an organic basis and was down 4% on an adjusted basis as we continued to be impacted by certain actions taken over the last several years, as well as higher non-recurring revenue in the year-ago period, as well as attrition that remains above our long-term target. We saw core accounts decline 2% year-over-year, while overall accounts and positions, including Finxact, grew 6%.

Q1 adjusted operating income for the Financial Solutions segment declined 24% to $877 million, and adjusted operating margin was 38.1% versus 47.5% in the prior year period. From a leverage standpoint, we finished the quarter with a debt to adjusted EBITDA ratio below 3.2x measured on a gross basis. We expect to finish the year at approximately three times. Turning to slide 9, we repurchased 3.3 million shares during the quarter for approximately $200 million. As we noted in February, we are focused on managing our leverage ratio and remain committed to returning capital to shareholders. Now with slide 10, I'll move on to our 2026 guidance.

First, on revenue, we continue to 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. Consistent with February, we expect adjusted revenue growth in the range of 1%-3%. All of this continues to assume a stable macro environment. As we told you in February, we expect the Q2 to be the trough in terms of our year-on-year revenue decline, and we expect our Financial Solutions business to decline at the high end of mid-single digits in Q2. We expect our weighted average share count to be approximately 530 million, resulting in adjusted EPS of $8.00-$8.30, consistent with our prior guidance. We continue to expect adjusted operating margin of approximately 34% for the year.

In line with our commentary in February, we expect first half adjusted operating margin of approximately 31%-32%. In the second half of the year, we continue to expect adjusted operating margin of 35%-36%, with Q4 representing the high point in the year. We continue to expect capital expenditures to remain approximately flat with 2025 levels. We continue to expect free cash flow conversion of approximately 90% of adjusted net income for the year, in line with historical levels and our February guidance. With that, I will turn the call back to the operator to start the Q&A session.