Fiserv, Inc. (FI) Q2 2025 Earnings Call Transcript

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Overview

The earnings call indicates strong financial performance with 30% Clover revenue growth, improved VAS penetration, and a 120 basis point increase in operating margin. Although there are some delays in product rollouts, management remains confident in achieving future targets. The strategic acquisitions, new partnerships, and international expansion further support a positive outlook. Despite some margin decline and less specific guidance, the overall sentiment is positive, especially with the anticipated acceleration in merchant revenue growth and strong Clover performance.

Key Financial Performance

Adjusted Revenue Growth 8% adjusted and organic revenue growth in Q2 2025. This growth was driven by solid performance in both segments.

Adjusted EPS Growth 16% adjusted EPS growth in Q2 2025. This was achieved through expanded adjusted operating margin and good free cash flow.

Share Repurchase $2.2 billion returned to shareholders in Q2 2025 by repurchasing 12.2 million shares, which is 26% more than Q1 2025. This reflects increased share repurchase guidance to approximately 130% of free cash flow.

Clover Revenue Growth 30% Clover revenue growth in Q2 2025. This was driven by VAS penetration, hardware sales, and pricing and other services.

VAS Penetration 24% VAS penetration in Q2 2025, up from 20% a year ago. This was driven by software sales and capital, including Clover Capital.

Merchant Solutions Organic Revenue Growth 9% organic revenue growth in Q2 2025. This was supported by Clover's performance and other strategic initiatives.

Financial Solutions Organic Revenue Growth 7% organic revenue growth in Q2 2025. This was driven by strong growth in issuing and digital payments business lines.

Free Cash Flow $1.2 billion free cash flow in Q2 2025 and $1.5 billion for the first half of the year. This reflects typical seasonality and timing of inflows.

Adjusted Operating Margin 39.6% adjusted operating margin in Q2 2025, an increase of 120 basis points year-over-year. This was achieved through revenue growth and efficiency actions.

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Operating Highlights

FIUSD stablecoin: Introduced as a white-label stablecoin integrated into banking and payments infrastructure for real-time 24/7 settlement in digital asset capabilities. Early client interest is promising, with pilot launches expected by the end of 2025.

Clover: Continued growth with 30% revenue increase in Q2. Expanded into new geographies like Brazil, Mexico, Australia, Singapore, and Europe. Launched Clover Hospitality for the upper restaurant market and Clover PracticePay for healthcare providers. Partnered with TD Bank Canada and expanded distribution through US Foods and other channels.

CashFlow Central: Signed 23 new clients in Q2, totaling 77 since launch, with nearly 500 more in the pipeline. U.S. Bank became the second bank to go live on the platform.

Experience Digital (XD): Demand remains strong, but implementation delays have occurred. Integrated merchant digital acquisition into XD to help bank partners identify leads.

International Expansion: Expanded Clover into Brazil, Mexico, Australia, Singapore, and Europe. Acquired CCV in Belgium to support sales in Germany and the Netherlands. Strengthened presence in Canada through a partnership with TD Bank Canada.

New Partnerships: Signed agreements with Rectangle Health, US Foods, and Adobe. Expanded relationships with Fanatics Commerce and Bank of Hawaii.

Revenue Growth: Achieved 8% organic revenue growth and 16% adjusted EPS growth in Q2. Adjusted operating margin expanded by 120 basis points to 39.6%.

Shareholder Returns: Returned $2.2 billion to shareholders in Q2 by repurchasing 12.2 million shares. Increased 2025 share repurchase guidance to approximately 130% of free cash flow.

Strategic Acquisitions: Acquired the remaining 49.9% of AIB Merchant Services and a portion of TD Bank Canada's merchant processing business. These acquisitions aim to enhance enterprise and SMB market penetration.

Product Modernization: Progressed on card issuing platform modernization with Optus and Vision Next. Vision Next is set to launch in Q4, integrated with Finxact and Payfare for a unified embedded finance solution.

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Risk or Challenges

Delayed product launches and initiatives: Some product launches and strategic initiatives are taking longer than planned, impacting the timing of realizing strategic and financial benefits.

Economic conditions: Economic conditions have been less favorable than assumed in the company's original plan, contributing to revised revenue growth guidance.

Macroeconomic uncertainty: Macroeconomic uncertainty is affecting consumer and issuer behavior, leading to a more moderate pace of growth in active accounts.

Slower client implementations: The company has experienced slower-than-expected client implementations, particularly in the banking segment, delaying revenue realization.

Pricing competition: Increased pricing competition in certain areas of the banking segment has been noted, which could impact profitability.

Integration challenges: Integration of recent acquisitions and new product launches requires significant investment and time, potentially delaying expected synergies and benefits.

Geopolitical and regulatory risks: Expansion into international markets such as Brazil, Mexico, and Europe may expose the company to geopolitical and regulatory risks.

Dependence on partnerships: The company’s growth strategy heavily relies on partnerships, such as with TD Bank Canada and Adobe, which could pose risks if these partnerships do not perform as expected.

Technology and innovation risks: The success of new technologies like FIUSD stablecoin and Vision Next depends on market adoption and successful implementation, which are uncertain.

Supply chain and operational risks: Investments in hardware and software for Clover and other platforms could face supply chain or operational challenges, impacting delivery timelines and costs.

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Guidance & Outlook

Organic Revenue Growth: The company has refined its full-year organic revenue growth guidance to approximately 10%, which is at the low end of the original guidance range of 10% to 12%. This adjustment reflects delays in product launches and initiatives, as well as economic conditions.

Clover Revenue: The company is maintaining its guidance for $3.5 billion of Clover revenue for 2025. Clover volume growth is expected to accelerate in the second half of the year, with revenue growth supported by new initiatives and international expansion.

Adjusted EPS Guidance: The company has raised the bottom end of its adjusted EPS guidance range by $0.05, now expecting adjusted EPS to be between $10.15 and $10.30 for 2025.

Merchant Solutions Segment: Organic revenue growth for the Merchant Solutions segment is expected to be at the low end of the 12% to 15% range for 2025. The company anticipates an acceleration in organic revenue growth in the second half of the year.

Financial Solutions Segment: Organic revenue growth for the Financial Solutions segment is expected to be at the low end of the 6% to 8% range for 2025.

Adjusted Operating Margin: The company has modified its adjusted operating margin guidance to approximately 100 basis points of expansion for 2025, down from the previous guidance of at least 125 basis points. This reflects the impact of recent acquisitions, refined revenue growth expectations, and investments in new product launches.

Share Repurchase Guidance: The company has increased its 2025 share repurchase guidance to approximately 130% of free cash flow, up from the previous guidance of 110%.

Clover International Expansion: Clover is expanding into new geographies, including Brazil, Mexico, Australia, Singapore, and various European countries. The company has also increased its presence in Canada through a partnership with TD Bank Canada, which is expected to close later in 2025.

New Product Launches: The company plans to launch Clover PracticePay for healthcare providers in early 2026 and expects to pilot FIUSD stablecoin with several clients by the end of 2025.

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Shareholder Return Plan

Share Repurchase Program: During the second quarter, Fiserv returned $2.2 billion to shareholders by repurchasing 12.2 million shares, which is 26% more than the shares repurchased in Q1. The company has increased its 2025 share repurchase guidance to approximately 130% of free cash flow, indicating an active share buyback strategy for the second half of the year. This aligns with their targeted leverage range of 2.5 to 3x debt-to-adjusted EBITDA ratio. At the end of the quarter, 56 million shares remained authorized for repurchase.

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Key Q&A

Q:Could you talk about some of the activities being done to unlock the TAM for Clover Capital and provide context around the current penetration level and medium-term expectations?

A:Management highlighted that Clover Capital is significantly underpenetrated compared to competitors like Toast and Square. They are focusing on operational refinements, risk management, and pricing strategies to improve penetration. They are at the early stages of a holistic approach to Clover Capital and expect progress over the coming months and quarters.

Q:What changed from the beginning of the year until now on the merchant growth rate, and what are the building blocks for Clover growth and overall merchant growth?

A:The company refined its organic growth rate guidance from 10%-12% to approximately 10%. This adjustment reflects the timing of product rollouts and strategic initiatives, which are progressing but slightly delayed. Clover revenue growth remains strong at 30%, supported by value-added services (VAS) penetration of 24% and a 50% growth rate in VAS. Merchant margins declined by 200 basis points due to tough comparisons, acquisitions, and increased investments in software and hardware.

Q:What initiatives are being extended, and what is being done to address them?

A:Management explained that the year was built on a back-half plan with many granular initiatives. Delays in product rollouts and external factors like partner integrations and macroeconomic conditions have impacted timing. They remain confident in the quality of the initiatives and their ability to deliver financial and strategic benefits over time.

Q:Can you provide more details on merchant operating margins and the cadence from here?

A:Merchant margins declined due to acquisitions, increased investments in marketing, distribution, and product development, and a slightly lower organic growth rate. The full-year margin guidance was revised from at least 125 basis points to approximately 100 basis points. Management stated that the margin performance was generally in line with expectations.

Q:What is driving the acceleration in merchant revenue growth in the second half of the year?

A:The acceleration is driven by easier comparisons due to the absence of transitory benefits from inflation and interest in Argentina, strong Clover growth (30% revenue growth), international expansion, and enterprise client adoption of Commerce Hub. These factors contribute to the expected mid-teens growth in the second half.

Q:What is the confidence level in hitting the $3.5 billion Clover revenue target for 2025 and the $4.5 billion target for 2026?

A:Management expressed confidence in achieving the $3.5 billion target for 2025, as they are on track with current growth initiatives. They highlighted horizontal and vertical expansions, international growth, and distribution channel enhancements as key drivers. They did not update the $4.5 billion target for 2026 but emphasized that current efforts position them well for future growth.

Q:What is the outlook for Clover value-added services (VAS) and the competitive environment?

A:Management is focused on expanding VAS both in the U.S. and internationally. They see significant opportunities to grow VAS penetration in international markets, which are less developed compared to the U.S. The competitive environment is stable, and management is focused on building a business operating system rather than competing on point-of-sale devices.

Q:Review of Unclear Management Responses

A:Management avoided providing specific numerical details or timelines for several questions, such as the exact penetration levels of Clover Capital, the breakdown of Clover revenue growth components, and the quantification of merchant margin drivers. Their responses often included general statements about confidence and progress without detailed evidence or clarity.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

FI Transcript

Fiserv, Inc. (FI) Q3 2025 Earnings Call Transcript

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The earnings call reveals several negative factors: a decline in adjusted operating income and margin, a decrease in EPS, and unexpected revenue weakness in the Financial Solutions segment. Although Clover shows strong growth and share repurchases are positive, the financial performance issues and unclear management responses in the Q&A section raise concerns. The guidance adjustment to the low end of revenue growth expectations and the decline in margins further contribute to a negative sentiment. The lack of clear visibility into revenue issues and potential risks in execution suggest a negative stock price reaction.

Fiserv, Inc. (FI) Q2 2025 Earnings Call Transcript

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