FIS - NYSE

Good day, and thank you for standing by. Welcome to the Fidelity National Information Services Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Georgios Mihalos, Head of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us today for the FIS Third Quarter 2025 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Joining me on the call this morning are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial results. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and adjusted free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn the call over to Stephanie.

Thank you, George, and good morning, everyone. I'm very pleased to report we delivered strong third quarter results that exceeded expectations across our key operating metrics. Our performance demonstrates real momentum across the business with adjusted revenue growth of 6.3%, adjusted EBITDA margins of 41.8% and adjusted EPS of $1.51, up 8% year-over-year. These are great proof points that our Future Forward strategy is working by leveraging our strong foundation, executing to deliver profitable growth and allocating capital with discipline. Let me walk you through what's driving our strong performance. This quarter's 6.4% recurring growth demonstrates the success of our commercial excellence initiatives. We achieved sequential margin improvement of approximately 200 basis points, driven by strong segment profitability across both Banking and Capital Markets. Adjusted free cash flow conversion was 142%, enabling us to increase our share repurchase target to $1.3 billion for the year. These results demonstrate the strength of our execution and validate the strategic investments we've been making to position FIS as a technology company at the forefront of financial services innovation. During the quarter, we returned $509 million to shareholders across share repurchases and dividends. Most importantly, we're entering the fourth quarter well positioned to achieve our full year 2025 financial goals and move into 2026 with real momentum. Based on our performance and visibility, we're raising our full year outlook for revenue, EBITDA and cash conversion. Turning to Slide 6. Now let me talk about what we're seeing in the marketplace. Bank technology spending remains strong, and our clients are prioritizing spend across our high-growth verticals, digital solutions, payments innovation and lending modernization. We anticipated that AI would transform financial services, but the pace and depth of adoption have exceeded our expectations. In fact, industry surveys indicate that more than 3 out of 4 banks have actively launched or piloting Gen AI and Agentic solutions, a marked increase from just a year ago. Our clients are leaning in and asking us to help shape their AI journeys, viewing us as a strategic partner. Data powers the algorithms that underpin AI. And for this reason, FIS holds a foundational advantage with over 200 petabytes of data, powering on average 20-plus products per client across the money life cycle. This advantage will grow significantly post acquisition of the credit Issuer Solutions business, adding almost 1 billion additional accounts to our platform. As the operating environment for banks continues to improve, they are investing with confidence. Consumer spending patterns support this optimism. Debit and credit card spending remains resilient year-to-date, and we're seeing strong account growth across our bank clients. Year-to-date, FIS core accounts are up mid-single digits as our clients continue to grow. We are also seeing an acceleration in bank M&A across the market. The third quarter had the highest level of quarterly bank consolidation in 4 years, driven by a more favorable regulatory backdrop. We expect industry consolidation to continue to be a long-term tailwind for FIS. We're the vendor of choice for financial institutions, positioning us to benefit as the industry consolidates and acquirers seek scalable enterprise-grade technology partners. The acquisition of credit Issuer Solutions, which we now expect to close in the first quarter of 2026, will further strengthen our offerings, providing us with scaled credit processing capabilities. Finally, let me address pricing directly. The pricing environment remains stable. Net pricing has been a tailwind for us year-to-date across both Banking and Capital Markets, supported by a continuous product, feature and functionality enhancements that strengthen our value proposition with clients. We operate in a rational market, and we're confident in our ability to continue to price for value. Let's turn to Slide 7. Our strong execution and laser focus on helping our bank clients is translating into high-quality sales performance across our business. Our sales pipeline annual contract value, or ACV, has expanded 13% annually since 2023. And we're deploying AI early in the marketing sales cycle for lead generation, making our go-to-market motion smarter and more efficient. Renewal retention has also shown steady improvement of approximately 3% in 2024 and 2025. This is a key driver of the accelerating banking growth we are delivering. Net pricing has contributed 60 basis points of growth on average over the last 2 years as we continue to price for value. And in 2025, both segments will have a positive pricing contribution for the year. Recurring ACV, the fuel for future revenue growth has compounded annually at 11% with particular strength in verticals such as payments, where our network solutions and Money Movement Hub are driving outsized sales growth. Our strategic investments are paying off. Taken together, all these improvements across our sales engine are fueling the durable recurring revenue growth acceleration we're seeing across our business. Now turning to Slide 8. We are translating this market momentum into sustained growth in our Banking segment, which remains the cornerstone of our business. At Investor Day, we outlined 3 strategic priorities to drive sustainable, accelerating growth: operational excellence, core and digital, and payments. On Operational Excellence, we're maintaining our relentless focus on client experience and sales execution. Happy clients renew, expand and advocate, and the numbers I just shared on retention prove we're getting this right. We're achieving this through our investments in AI, which are fundamentally transforming how we operate and improve everything from client support to risk management to product development, modernizing our solutions to help our clients run, grow and protect their businesses more effectively. We're helping clients run their business through intelligent automation, predictive insights and operational efficiencies of the back office that reduce costs and improve service delivery. We're helping them grow through AI-powered personalization and intelligent decisioning that drives revenue and deepens customer relationships. And we're helping clients protect their business through advanced fraud detection, real-time risk scoring and behavioral analytics that stop threats before they impact customers. Let me next update you on the progress we're making in 2 of our key high-growth vectors: Digital and Payments. Beginning with Digital on Slide 9. Our digital business is performing very well with growing traction across both our retail and commercial offerings. The U.S. TAM for digital solutions is $10 billion, growing at approximately 12% annually through 2028. Banks are spending aggressively on digital capabilities and open banking adoption is accelerating. We're capitalizing on this by embedding AI-powered capabilities such as predictive insights and hyper-personalized recommendations into our Digital One platform to deliver a more seamless, intelligent digital banking experience. Clients are also prioritizing solutions with seamless integration and robust API connectivity, which are core strengths of our platforms. We've seen over 30% growth in users across our digital platforms, and we see this as a growth engine for our Banking segment for years to come. We also had significant competitive takeaways this quarter. SMBC MANUBANK, a U.S. subsidiary of Sumitomo Mitsui Bank Corporation, selected our commercial online banking offering, Dragonfly, to help the bank better service enterprise customers. This win displaces a monoline digital competitor and underscores the rationale behind our targeted M&A strategy. As year-to-date, our sales in commercial digital solutions have nearly tripled with our win rates improving by 13 points with Dragonfly. During the quarter, we completed the acquisition of Amount, an AI-powered platform providing seamless unified digital account opening capabilities. This acquisition is a perfect example of how we are using AI to help clients grow their business. Amounts platform fundamentally changes how banks acquire and onboard customers while helping to grow revenue and reduce friction and risk. And we've hit the ground running, signing 7 new deals since closing the acquisition and expanding our relationship with a top 10 U.S. bank. Now let's turn to Slide 10. Payments is the other major growth driver, and the momentum here is equally compelling. We're operating in a $53 billion U.S. TAM that is growing 5% annually. Card issuing debit transactions remain robust at 6%, providing a steady foundation. But the real market acceleration is in instant payments and digital currencies, which represent the future of money movement and areas where FIS is strategically invested. The complexity of this growing market is creating new opportunities for FIS as banks increasingly rely on us to help them navigate the changing landscape. And we're seeing this in our sales performance. Our payment sales have been outstanding, 50% recurring sales growth year-to-date and a 5% improvement in win rates. In addition to traditional debit and credit offerings, we are leading the way in alternative payments with modernized cloud-native solutions like our Money Movement Hub, which is our core agnostic real-time payment gateway for our clients. Launched just a quarter ago, we're already seeing strong traction with over 40 new clients signed. Additionally, the NICE network has been a particularly bright spot, with sales more than doubling and a pipeline growth of 3x versus last year. Here again, AI is a critical differentiator. Fraud is one of the biggest threats facing financial institutions today. We're using machine learning and behavioral analytics to detect and prevent fraud in real time across billions of payment transactions daily. We also continue to expand our capabilities and geographic presence. We recently acquired Everlink to strengthen our payments offering in Canada. And the credit issuer acquisition will add scale in both U.S. and international credit processing, and significantly higher cash flow when we closed that deal in the first quarter. In closing, let me bring this all together. FIS delivered a very strong quarter that exceeded expectations. We're seeing favorable market conditions, and we're executing on our strategy as a technology company at the forefront of financial services innovation. This isn't a 1-quarter story. We're building sustainable, profitable growth on a foundation of operational excellence, product leadership and client partnership. We're confident in our trajectory and are raising our full year outlook. With that, I'll turn it over to James to walk through the financial details.

Thank you, Stephanie, and good morning. I'll begin on Slide 12 with a summary of our financial results. We had a great quarter, exceeding our outlook on revenue, EBITDA and EPS. Revenue grew 6.3% to $2.7 billion, driven by outperformance from our banking business and strong recurring revenue growth across both segments. Adjusted EBITDA grew 7.1% with margins expanding by more than 50 basis points. Margins were up nicely in both segments, led by strong execution across our cost-saving programs. Adjusted EPS increased 7.9% to $1.51, led by strong operating growth. Turning now to free cash flow. Moving forward, we will report on both adjusted and unadjusted cash flow measures, and I'm happy to report that both are performing well. As we have messaged on prior calls, we are running extensive cash optimization programs, and we drove significant improvements in the third quarter. Free cash flow was $800 million in the quarter and more than doubled year-over-year. Adjusted free cash flow was approximately $930 million with cash conversion coming in at more than 140%. While we anticipated a cash conversion of over 100%, the outperformance was driven by accelerated working capital actions with particularly strong results from our accounts receivable initiatives. Capital expenditures were 7.9% of revenue, in line with our expectations. On a year-to-date basis, cash conversion was 91%, and we now expect full year cash conversion of more than 85%, and we are well positioned to deliver on our 2026 Investor Day goal of 90%. Leverage remained steady at 3x or 2.9x, excluding the impact of currency fluctuations. We returned over $500 million to shareholders, including $300 million of share repurchases, and we recently increased our annual target for share repurchases from $1.2 billion to $1.3 billion. In summary, we outperformed across all key metrics. Strong execution is driving high-quality growth, and this gives us great confidence as we look forward to 2026. Turning now to our segment performance on Slide 13. Adjusted revenue and recurring revenue both grew 6% with strong recurring revenue growth from both segments. Banking exceeded our expectations in the quarter. Revenue growth of 6.2% was well above the high end of our range, reflecting strong core growth and an M&A contribution of 150 basis points. The performance was led by recurring revenue growth of 6% with strong transaction growth across our payments business in addition to strength in digital banking. Nonrecurring revenue increased 8%, mostly due to card personalization and deconversion fee timing. Professional services accelerated the 6% growth and net pricing was positive in the quarter and on a year-to-date basis. Banking EBITDA margin expanded by 68 basis points, primarily due to a rising contribution from cost-saving programs. We expect these positive trends to continue into the fourth quarter and drive even stronger margin expansion. Turning now to Capital Markets. Adjusted revenue growth of 6.4% came in close to the high end of our expectations. M&A contributed 130 basis points, consistent with prior quarters. Recurring revenue grew 7.6% as we saw a rebound of lending activity and stronger momentum in our treasury and risk businesses. Nonrecurring revenue increased 12.6%, reflecting strength in license sales. Lastly, professional services declined 5.6% due to the timing of some engagements. Capital Markets EBITDA margin expanded 60 basis points, reflecting higher cost savings, accelerating growth in high-margin recurring revenue and higher license sales. As with banking, we expect segment margins to expand in the fourth quarter. Moving now to Slide 14. Year-to-date results are strong with both adjusted revenue and recurring revenue growing over 5%. Banking growth of 4.8% is in line with our increased outlook, and we are confident in delivering a strong fourth quarter. It's a similar story in Capital Markets with year-to-date growth of 6.6% aligned to our full year outlook. Overall, we delivered good results across both segments, and we are executing well on the second half revenue acceleration and margin expansion that we guided to earlier in the year. Turning now to our increased full year outlook on Slide 15. We are raising our ranges for revenue and adjusted EBITDA to reflect the stronger operating results and the recently closed Amount acquisition. We are raising our revenue range by $65 million at the midpoint, resulting in an adjusted revenue growth of 5.4% to 5.7%, well ahead of our Investor Day outlook. For Banking, we are increasing our revenue growth range from 4% to 4.5% to 4.9% to 5.3%, an increase of almost 1%. The recently closed Amount acquisition is expected to contribute around 20 basis points of additional growth, with stronger operating performance driving the remaining 65 basis point increase. For Capital Markets, we are updating our outlook to approximately 6.5% to better align with the performance we have seen year-to-date and reflecting a tough comparison in the fourth quarter. We are raising our full year EBITDA outlook to reflect our third quarter performance, and we are updating our margin outlook to include the impact of M&A. Importantly, we are confident in delivering margin expansion across both segments in the fourth quarter. Lastly, we are tightening our EPS range by $0.02 and reiterating double-digit growth of 10% to 11%. Consistent with prior quarters, we have provided updated modeling assumptions in the appendix. Before closing, I wanted to reiterate some points related to the coming year. While tuck-in M&A tends to weigh on margins in the short term, the M&A deals signed in 2024 and 2025 will be accretive to FIS margins in 2026, with further margin benefits in the out years. Because of this and combined with the underlying margin profile of the business, we are confident in delivering margin expansion of greater than 60 basis points in 2026. As you can see, we are driving improved cash conversion, going from 77% in 2024 to over 85% in 2025, and we are on track to deliver 90% conversion in 2026 as our cash optimization initiatives continue to bear fruit. Overall, we are seeing positive revenue trends across the business, and we have good momentum as we exit the year. Lastly, we're excited the credit issuing acquisition is expected to close in the first quarter of 2026 and continue to expect the transaction to be accretive in the first year and add $500 million of free cash flow in 2026 rising to $700 million post integration. I'll conclude on Slide 16. In summary, our third quarter results were ahead of expectations, driven by strong recurring revenue and margin expansion from both segments, and we are increasing our revenue and EBITDA outlook for the year for the second time. Free cash flow was exceptional in the quarter, and we are increasing our 2025 cash conversion target to over 85%. We returned over $500 million to our shareholders, and we've increased our full year target to $2.1 billion. With that, operator, could you please open the line for questions?

[Operator Instructions] And our first question will come from the line of Jason Kupferberg with Wells Fargo.

Nice to see these numbers. Your commentary clearly on the health of the end markets for banking sounds quite positive across the subsegments, both from a demand and pricing perspective, definitely reassuring. So I'm wondering if that translates to a more bullish view on how fast you can grow the Banking segment structurally over the next couple of years. I think at the Analyst Day, we talked about approximately, call it, 3% organic growth for banking as a medium-term target. But clearly, you're performing above that level currently.

Yes. Thanks, Jason. Yes, we are feeling very good about technology spend in banking, as I talked about. Banks are spending money on technology in the places that are important to them. And we've been very focused on ensuring that our product sets and solutions are in those right places like digital, for example, like payments, like bank modernization. You're exactly right. We are exactly on or actually ahead in our banking business from an organic basis and with M&A in 2025. It gives us a lot of confidence as we go into 2026 around the banking business. Not sure I'm ready yet to call a higher midterm guidance on banking, but it certainly gives us a lot of confidence as we go into 2026 in terms of the step change we've seen in revenue in banking. And that's multiple things happening at the same time. The end markets are very strong. We're the beneficiaries of large-scale M&A, but most importantly, around commercial excellence and we gave some of the stats here of how important and how successful that's been as we really have changed our sales force, not in terms of -- not only in terms of the leader, but also how we're focusing and where we're focusing there in terms of recurring, highly profitable revenue, which is driving both our banking revenue growth as well as helping us change the mix on our margins. So overall, feeling really good about 2026, but I'm not yet ready to call higher midterm guidance there.

Okay. Well, fair enough. But let me ask a follow-up on 2026 specifically. You touched on margins going up over 60 basis points. But from a revenue perspective, should we feel comfortable modeling the numbers consistent with the medium-term guide from the Investor Day? And just, James, any one-off headwinds or tailwinds on revenue we need to be mindful of either at the segment level or for total company for 2026?

No, I think as Stephanie said, our banking is sizably outperforming and capital markets. The only thing I think you should consider is our guide longer term included the impact of acquisitions. So effective once credit issuer closes, we won't be doing any tack-on acquisitions. So that will kind of pull down a little bit the capital markets. But I think you hit the nail on the head. The banking business right now is clearly outperforming, and we've now had 3 quarters of above. I would say on an organic basis, the recurring is around 4.5 plus percent, so that's a really positive one. And I think -- so I think, overall, we're super comfortable on the revenue trajectory. I think capital markets is probably a little lighter and banking just generally stronger. And I think the overall business, what I think you will see is, our recurring revenue is much, much stronger. And Stephanie has covered it in prior occasions. There's a big shift in quality as we work through driving the ACV in the current year. So think about a business model now that is -- we're currently above 80% recurring. The focus going forward is more and more recurring, less nonrecurring and professional services. And then within the recurring a much greater tilt to higher margin products such as the payments category, digital, the core business. So I think it's a strong quality discussion for next year.

One moment for our next question. And that will come from the line of Darrin Peller with Wolfe Research.

It's good to see the organic banking trends in that mid-4s, mid- to high 4s range we're seeing now this quarter, and I think embedded in your guide for next quarter, if I'm not mistaken. Maybe just Stephanie and James, if you could just give us a little more on the building blocks. You started touching on it in your slides around issuing and digital payments and then core. A little more color on what you're seeing in each of them, specifically in terms of growth that's driving that trajectory, just to ensure we know that's somewhat sustainable going forward would be helpful.

Sure. You're exactly right. We're feeling really good about the organic banking revenue in the mid- to high 4s in Q3 and then the guide expresses that in the fourth quarter. And like we talked about, feel good about that going into 2026. I think the way to think about it is really around making sure that we are selling. So our net new sales is delivering about 100 basis points every year of growth for us. As we think about where that growth comes from, we're really taking advantage of our investments that we've made, both in terms of organic and inorganic and driving new sales into the higher quality. So I think bank modernization and continuing to drive growth out of our core business, really leaning into our digital business as banks continue to invest in their digital capabilities to drive both new business into the bank as well as service and then in payments. So if we focus there and we think about that on an annual basis on a net new sales perspective, driving about 100 bps in those categories, then it fully supports what we would typically see around organic, the organic overall base of the banking business, which, as you know, is a combination of transactions going across the platform from a payments perspective and then accounts on file, so think about more accounts coming across on core and digital. And that gives us a lot of confidence around what we've historically seen with organic in terms of 2 to 3 points of growth every year. So you start with your new sales and make sure you're selling in the categories that are higher quality, higher recurring with higher organic growth in them. And you get a net new sales number of about 100 basis points, you get organic growing for you on 2 to 3 points per year. And then you come down to a net pricing capability, which we've been talking about anywhere from 0 to 50 basis points per year, and we're really starting to see a tailwind in that. So overall, if you think about the basic building blocks of banking to support kind of a 3.5% to 4.5% range, that's how we think about it. And for us, it's really been about making sure we focus on the mix of what we're selling so we can get that really strong organic growth and we can deliver the profitable margins that go down at the segment level.

Okay. Stephanie, that's helpful. I guess one quick follow-up, James, on free cash. You're talking constructively about what we're seeing now and into next year, 90% plus. Obviously, that's adjusted when you consider the deal you're going to be closing soon in first quarter. And so just help us understand how you're going to think about segmenting out what, I guess, will be some restructuring charges and how close we can get to that, let's call it, 80% plus even with some of those restructuring? Just want to know the quality of free cash that we're hoping for next year.

Yes. I think it's a little bit early to give precise numbers on the acquisition, we didn't give them before. But the way I think about it is, we -- on the core business, we're going to exit this year. And I think if we hit the 85% guide, we're talking about free cash flow growing roughly 15% to 16% year-on-year, so outpacing EPS. And on a GAAP basis, it's the same number. So GAAP is trending in line with adjusted. So that's the first thing. And we'll exit with a healthy 85% conversion. And then I'll get into some building blocks on the base FIS, so I'll cover that first. One is a slightly lower capital intensity next year will drive incremental cash conversion. And then the other thing is this year, we've been hampered all year by higher cash taxes in the current year compared to last year, but pulled down conversion. That normalizes next year. So literally, by addressing capital intensity and the tax rate just naturally flows through, we're really comfortable about a 90% cash conversion. There is probably even slight upside to that because our working capital programs, you've see in the third quarter, we significantly outperformed. We pulled a little bit from prior quarters, and we executed strongly against the programs themselves. So we're feeling really, really comfortable on the deal on the base. During diligence, we went through their business. They're roughly at a 90% conversion as well. So we're going to add two 90s together. I think it's a little bit early on the onetime expense, but think about, you could take our cash flow today on an adjusted basis. You increase it probably at a faster pace, increase it at a faster pace than the EPS growth. You add on $500 million of adjusted cash flow coming from the issuer business. And you're going to get a substantial step-up in cash flow. We do need to absorb some incremental onetime expenses coming from the integration. It's too early to call that number. So -- but I think you will see a strong year on both adjusted and GAAP free cash flow next year.

One moment for our next question. And that one from the line of Tim Chiodo with UBS.

I think the 2 of the key numbers, at least for next year, the 60 bps plus on the margin expansion and then the free cash flow conversion, both on the adjusted and the non-adjusted. I think we just covered the free cash flow quite well. Maybe we could dig into the margin expansion a little bit in terms of the moving parts. We know there's kind of a lower exit run rate of costs this year. There's the TSA headwind this year, which I believe is 70 bps or so to margins. That will be a lesser headwind next year. Maybe you could give an update on that and then the associated cost savings. And then you already mentioned, but maybe dig into a little more on the accretion from the past few years, smaller M&A deals and starting to contribute a little bit more to EPS -- or sorry, to EBITDA next year.

Yes. So thanks, Tim. I'll start, and then I'll let James kind of get into the nitty-gritty of the numbers. You're exactly right. So in 2025, we have had some dilution overall on an EBITDA margin standpoint, even though we've been able to care for it in the absolute dollar from M&A, which we've been very clear about, and we feel really good about that becoming accretive in 2026. So we will not have that headwind feeling really good about that. So that's number one. The second is, you're right, the TSA this year for us, and both of these were very well known as we went into the year, the impact of Worldpay separation and the TSA revenue going down is impacting our margin because as those revenues go away from us and the costs go away from us, we have -- it takes us a little bit of time to get the cost out of the system. So we're going to benefit as we move into 2026 from no longer having those grow-overs. We'll have moved the M&A into an accretive position. We'll have taken the cost out from a TSA standpoint. And then you can see in the third and fourth quarter, we've moved significantly in terms of margin expansion in both the banking and the capital markets businesses in Q3 and what we're guiding for Q4, which is exactly what we had expected as we're executing against our Future Forward savings in terms of both making sure that we're selling high-margin recurring revenue, so we have quality of revenue and then also making sure that we are taking out cost as we reposition the company as we have separated on Worldpay. So those are very strong tailwinds for us as we move into 2026. James, any other comments you might make?

Yes. I think, Stephanie kind of covered them. So principle one, and it's easy to conceptualize the M&A tack-ons this year, that cost -- that pulled us down by about 45 to 50 bps this year. Rough numbers, it will probably be slightly accretive next year, probably 10 bps. So a headwind disappears completely, and that gives you a lot of confidence in next year because we're not doing tack-on M&A next year. The TSA is like 50 bps negative this year. That's not going to change very much next year -- sorry, this year was 50 bps. It's roughly the same number next year. So that doesn't change anything. Where the change is coming from is what Stephanie said, it's the quality of the mix of the ACV that sold already this year has substantially pivoted, and there is a stronger pivot to core digital and the payments business, and those margins are north of 50 compared to some of the categories that are growing slower. So we're going to see a natural favorability coming from revenue mix. And I want to emphasize that the banking margins are -- you've seen it in Q3, the banking margins have recovered strongly. It will be even stronger in Q4. And then the final one, the biggest lever we actually have and the one that's been pulled quite strongly in the second half of this year. And what we said this at the beginning of the year would have been a first half, second half story. You're seeing it come true now. There's a reason why the margins are up in both segments in Q3, and we're projecting in Q4, that's the strength of the cost programs. So they're second half loaded, which means we'll start next year very strongly out of the gate with the level of cost reduction. So 3 drivers: The M&A less dilutive, the natural product mix and the quality of the ACV sold this year. And then the third one is the cost programs will probably give you even more tailwind next year compared to this year.

Stephanie and James, if you don't mind just a brief comment on any of the debit network pricing environment, just given it's been a little bit of an investor topic over the past week or so, if there's anything you could comment around pricing environment related to NICE.

Well, I would say on a pricing standpoint broadly, you heard me say, and I do want to reiterate that we live in a rational pricing environment. I know there's been a lot of commentary around it. And I really -- we really tried to give some good stats from us. I think overall, we are in a rational pricing environment, whether it's new business and whatever product. We obviously -- and we have some great competitors. And we obviously all compete with each other. But I don't see an irrational pricing environment, whether it's in any of the products and in particular, in NICE. So we're happy with NICE's performance. Generally, as we've talked about the strong performance for us, it's been more around adding more account volume to the platform, which is about winning more merchants onto the NICE network. That's not a pricing per se issue. That's how do you deliver value out to those merchants and least-cost routing. So the pricing comment, I can't really make in terms of what's going on in the competitor. But I can tell you, we feel really good with where we are with NICE, the value prop it provides out to the merchant community and the issuer community in terms of delivering value there. And it's not something that you can just immediately drive price up or down and create a onetime benefit, but I'll leave it there.

One moment for our next question. That will come from the line of Trevor Williams with Jefferies.

I wanted to ask on some of the competitive dynamics in core processing. One of your major competitors is consolidating the number of cores they're running down by about 2/3. With a process like that, is that potentially a catalyst for banks to open up to an RFP where I'm just wondering how much of a potential opportunity that's either presenting -- could present for you guys to win new business.

Yes. So I think overall, you've seen across the industry a bank modernization trend. And this is really being driven by the end markets who are really looking for banks to modernize, drive digital capabilities, account open capabilities, real-time transaction capabilities. And these capabilities in order for them to deliver new products and services need to be able to be delivered in a componentized way. So that bank modernization trend is in market and continues to be really important. And everybody in the industry is at different places in where they are delivering their products and solutions there. Yes, we have heard about the platform consolidation. As you guys know, we went through that several years ago. We have effectively 3 strategic platforms, and we're really happy with how those are performing. Spent a bunch of money to make that modernization happen. We saw that in increased capital, and we've brought that down over time. Obviously, anytime anyone does anything in the market, it becomes a competitive opportunity. But as you know, overall, there's not a lot of core transitioning every year. It's pretty small. There's a lot of stickiness in this business. So we're really happy with our renewal rates. I think we talked about those in the year and increasing how much we've been able to retain our existing clients. So do we think it's an opportunity? Of course, we do. Do we think it's a -- we expect to see a massive swing? It's a competitive market, and I think it's a place where there's a lot of renewals and a lot of stickiness to it. So we're happy to compete and continue to focus for our own clients on our bank modernization journey. But we are at the tail end of that in terms of going from many to few and really investing now in terms of making sure that what we're doing is focused on helping our banks deliver products to their clients faster.

Okay. All right. And then just for my quick follow-up, I wanted to ask on the EBT exposure that you have within banking, if it's possible to give us a rough sense for how big that revenue pool is and if the shutdowns having any impact on that in Q4? And then with the changes in eligibility requirements that are being made at the federal level, just how you guys are potentially thinking about the downstream impact in '26 and beyond to that revenue pool?

Yes. I don't think we've ever given the size of the EBT revenue. It's not overall material to FIS. It is a nice piece of business for us. We don't expect the shutdown to have an impact on the EBT business. And if it does, we would expect to care for it within the guide we provided. We generally get paid on a number of cards, and so it's not necessarily how much is funded on a card. And generally, thus far, we're seeing cards continue to be active. I think as we think about 2026 and the criterion, it's a wait and see in terms of how much that really impacts the overall business. Again, it's based on number of cards. So if there's fewer cards, we'd obviously earn less revenue. But at this point, we're sizing that out and don't expect it to be a material impact for 2026.

One moment for our next question. And that will come from the line of Dan Dolev with Mizuho.

Stephanie, great results here as always. Stephanie, you initiated your Future Forward strategy 3 years ago. And I want to know like how much confidence do you have in your investing strategy and rationalizing the business appropriately? And maybe just as a follow-up to that is like how is AI shaping into the investment road map that you put together? And then I have a very quick follow-up.

Yes. Thanks, Dan. So we're very pleased with our Future Forward strategy. You've seen the benefit of it, both in terms of commercial excellence and you're seeing -- we're seeing really strong pivoting there in terms of driving high-value recurring revenue, so been focused there. Continue to focus on making the commercial excellence part of the company even better with AI. We spent a little bit of time in the prepared remarks talking about how Nasser and his team are using AI to not only increase top of funnel and the sales pipeline, but also to deliver higher productivity in terms of the sales teams. So I feel really good about the commercial excellence pillar. Then when you come to the client pillar around making sure that we're doing a better job serving our clients and making it easier to do business with us, we are using AI there. So our Chief Client Officer is very focused on in the back half of this year, using AI to make a much better experience, not only internally for our folks who serve our clients, but also putting tools into the hands of our clients so they can self-serve. And with that, we're obviously getting not only cost savings, and we're feeling really good about those coming into '25, but also really levering up in 2026, but more importantly, much better outcomes for our clients and making happier clients, and we're seeing the returns of that in higher levels of retention. And then finally, around innovation, we are really pivoting hard in terms of our overall investment strategy around where we see the opportunities in AI from a product standpoint. And just to spend a little bit of time thinking about that, the base level of AI and what everybody is wanting to do with AI is you do need to have access to your underlying data. And as you know, given our base systems are primarily ledgers, we do -- and then with the payment systems that have tons and tons of data in them and then very excited about adding the credit issuing business. we're working with our bank customers who really want continued access to their data faster, cleaner and more secure. So we're spending a bunch of time there in terms of investing in our underlying data infrastructure and piloting out capabilities in terms of how we deliver that data infrastructure up and down the stack. I think when you go to regional community banks, we're working with them and really turning our focus on Agentic workflows to help them automate their back-office operations. We have a major product launch that we're planning at Emerald, which is incremental to our banking assist solution that we rolled out last year. So focused on helping our banks automate and really drive down back-office costs. And then in the capital markets space, focused in our treasury business, we see a significant amount of clients adopting our neural treasury product with almost 700 clients live now, which is bringing AI to cash forecasting, risk management, payment optimization. So we're seeing through our Future Forward strategy, both -- or all around in terms of commercial excellence, client excellence and then really making sure that we can innovate and deliver best-in-class products. And we're seeing AI through -- we're using AI through all of that. Admittedly, we're at the beginning stages of that. And so it also makes us really confident in terms of how we end the year and where we're focusing in terms of our investment strategies, whether it's in making the back office more seamless, creating more capacity in technology for us to invest or to make some significant investments in continuing to make our products AI-enabled, we're feeling really good about where we are right now.

That's great. Amazing. And really quick follow-up, maybe just housekeeping and sorry if this is redundant for James. Like we're getting a lot of questions about M&A contribution, like organic, inorganic towards the end of the year and then into '26. Can you maybe help just make some order there in terms of what to expect from stuff that's been acquired thus far, that would be great.

Yes. We added some disclosure to the current charts that have laid out what's the impact in the quarter and on the full year in both of the businesses. So just to reemphasize that the banking contribution from M&A was 150 basis points in the quarter, and it's 110 basis points on the full year. And I believe we gave the Q4 guide as well for M&A contribution in banking. That a 120 basis points. So capital markets then full year is 130 basis points and roughly the same in Q3 and Q4. So we've increased the disclosure going forward. And then as you look at on the -- our call on the guide, so we called up 85 bps midpoint versus midpoint. The impact of the Amount acquisition, which wasn't in the previous guide was about 20 bps. So the majority of the increase on the full year guide in banking, 65 bps, that's coming from operational execution and strong execution, particularly in the third quarter.

One moment for our next question. And that will come from the line of Tien-Tsin Huang with JPMorgan.

Good quarter here. Just wanted to ask about the bank consolidation. Stephanie, you mentioned it's going to be -- there's quite a bit there. Do you have pretty good visibility or line of sight into being on the right side of the larger deals here? When do you expect to get more clarity on that? Could it be enough to impact growth next year, that kind of thing?

Yes. Great question. I mean, clearly, everyone's seen bank consolidation has certainly picked up in 2025. We tend to be, as you know, we serve the larger financial institutions. So when we are the -- with the bank that's being consolidated, we have a very high win rate where they pick us in terms of consolidating over to us. And then we have a really good win rate as well when we're battling with the incumbent provider on the other side. I think we have a pretty good visibility in terms of the 2026 M&A. But to be fair, Tien-Tsin, it feels like every Monday, we have a new announcement. So I say that, but I don't have a crystal ball into what's going to happen through the rest of the year with M&A, but I think we're feeling pretty good as we sit here today.

Yes. Well, history says you guys are usually on the right side. I know you got it. A couple of questions on AI. So going to different conferences, Stephanie, I just want to ask you on digital assets and deposit tokens, things like that. Any interest in investing more there or doing more there buying infrastructure? Is that on the road map for FIS in the near term? I know there's a lot on your plate with the deal coming soon.

Yes. No, I'm glad you asked that. We're doing a lot in digital assets and stablecoin. So in just a couple of comments. One is, in money motion -- Money in Motion, as you know, we announced last quarter a strategic partnership with Circle, which is enabling money to move across the Circle platform, and it's connected into our Money Movement Hub. Our Money Movement Hub continues to have and take a lot -- has a lot of demand in the market. We view ourselves to be agnostic there in terms of whether you want to move money across Circle or a payment network, ACH real-time payments, et cetera. So that capability is driving a ton of demand, and we tend to be agnostic there in terms of -- we're not a part of a digital asset. And per se, our job is really to enable financial solutions and financial technology. So we've done that in Money in Motion. Money at Work, in terms of tokenizing assets in the commercial loan and securitization space, we have a first pilot going on with a client to move close to about $0.5 billion on chain to create balance sheet capacity for them via some new technology. So around tokenizing assets, we're investing there and spending some time in terms of how to make that happen for our clients. Again, we're not looking to do something for us ourselves only. And then in terms of tokenized deposits, lots of activity there. We're spending a bunch of time there. And we're actively working through what our tokenized deposit solution needs to be in conjunction with various of our clients. We are hearing a lot of demand here, and we see -- we're looking to figure out how to enable that capability again. So our strategy in the digital space is really around enablement. You're not going to see us take a position in terms of issuing a stablecoin, FIS issuing a stablecoin. We're not going to compete with our banks in that way. We want to make sure that we're creating and providing the technology, whether we partner for it, buy it or build it to make sure that we have the capabilities we can deliver out to our financial services clients to enable it. We're not going to take a competitive position there. But lots going on, and we have a lot of folks that are keeping a close eye on it.

And we do have time for 1 final question, and that will come from the line of Bryan Bergin with TD Cowen.

So cap markets looks like it's back on track here. Can you comment on what you've seen in the loan syndication area and then the latest in some of the nontraditional vertical demand? I'm curious if you're seeing the underlying backdrop in those areas as healthy as banking or somewhat more mixed?

Yes. We are. We're pleased to see the capital markets loan syndication is back on track as we had expected in the second quarter. So that's good. So don't see significant trends negative there as we move into the end of the year. In terms of nontraditional demand, we're seeing the same thing that you're seeing. Private credit continues to be in high demand. The underlying markets, the nontraditional markets continue to be strong. Overall, we see strength in all of the non-traditionals. And as you know, it's been really important for us to make sure that we have our capabilities enabled there, whether you're traditional or nontraditional. So nothing new, Bryan, really to report there. Demand remains healthy.

Okay. Understood. And then in advance of the Issuer Solutions acquisition, can you just comment on how prospective banking client conversations are trending? I'm just curious if there's any updated views on the potential pipeline opportunities just as you bring broader credit into the fold. And particularly if you're seeing any incremental opportunities amid other challenges to move quickly on those opportunities post-close?

Yes. We continue to remain very excited about the opportunities. I would say, we're, in particular, excited about enabling a couple of products at the time that we closed the transaction that can really excite the existing base in terms of cross-sell. But as you know, we know each other's clients really well. We think there's a lot of opportunity to cross-sell. And we're getting a lot of positive feedback about Issuer Solutions. They like the team there. They think it's a great product. It served these financial services very well. And as you know, this has been a product for us that we have not had. So people are pretty excited about what we can do with it. And just to share a little bit, if you think about the number of accounts that come on file, thinking about bringing it back to AI enablement and doing something with Agentic commerce, et cetera, it's pretty exciting the amount of accounts and transactions we'll be able to see going across credit debit in all of our cores. So we're really bullish about that opportunity as well. And then on their modernization program, excited about getting our hands on that and what that can deliver for clients. So all positive. Looking forward to getting them on board with us and getting them in the team and getting going, but feeling really good about it.