Right. We're going to get started here. We're pleased to welcome back Stephanie Ferris, President and CEO of FIS. Stephanie became President of FIS in 2022, CEO in January of 2023, following leadership roles as COO and Chief Administrative Officer. Since taking over as the CEO, she has led significant strategic transformation of FIS, including the separation and eventual divestiture of Worldpay, while also sharpening the company's focus on its core fintech business. Thank you, Stephanie, for being here.
Thank you.
It's obviously been a few consequential days for the company and the stock. Maybe just to start off, as you reflect on where the company stands today, what do you think is the single most important thing that investors are missing about the company or misunderstanding about the company?
Yeah. I think, first of all, thanks for having me. If you take a big step back and you think about where FIS is positioned today versus where we were three or four years ago, we're fantastically improved position. You think about from a strategic standpoint, we are focused squarely in the financial services industry. We're focused in the financial services industry at a time when banking is growing, at a time when cyber resiliency, security, risk is critically important, at a time when technology is changing everything about the way we operate, but also is enabling banks and financial services solutions for the first time to really get after some of the fixed cost inside their infrastructure to actually generate more revenue on the top side.
From us, for an FIS standpoint, we feel really good about where we are positioned serving that industry, and we are focused on that industry globally, which is a durable, kind of recurring, very important sector in the world and for us to serve. We are one of, if not the largest player in this industry, serving specifically there, in an industry where infrastructure, resiliency, and cyber is critically important. At the same time, we have spent the last three or four years significantly investing in our franchise to serve those clients. What do I mean by that? We have significantly invested in infrastructure and resiliency and cyber, that goes without saying. We have significantly invested in account management, both in terms of technical account management, client service management, service delivery management, for a significantly increased account coverage across our customer base.
All of that has materially changed in terms of our own client sentiment from where we have been historically. We feel really good about where we are positioned right now from a durability standpoint, from a revenue standpoint. Then post the TSYS acquisition, thinking about the cash flow position of the company and where that sits for us post-separating Worldpay, which was a non-cash generating asset, and then bringing TSYS into the fold. So feel really good about where we are strategically. That being said, we obviously had a bit of a bump last quarter, and we are here to earn back credibility. But in terms of where we sit strategically, what industry we serve strategically, where that industry is in terms of growth and opportunity, feel really strong about it.
Right. We will dig into some of these topics, maybe just starting with the operating and spending environment for banks today, where that is versus a year ago. From your standpoint, are technology budgets for banks still healthy, or are they getting more selective in where they want to spend today?
No, look, banks' operating and technology budgets continue to be robust, and they have been robust. I think you see that they spend or increase tech spend 7%-8% every year. What is most critically important is where they are spending money. They absolutely continue to spend money on cyber risk and infrastructure, more so now post-Project Glasswing than ever. They are spending more money on the biggest cost in their bank is fraud, every kind of fraud, account takeover fraud, check fraud, agentic fraud. Being in that category and space is critically important. You think about bank modernization, gone are days of the, "I am going to move from one big bank core to another big bank core." Banks are thinking about bank modernization differently based on their own individual strategies. Am I on the right core is important, but also, am I focused on commercial deposits?
Do I need to have sophisticated money movement capabilities? I'm going to modernize in that way first. Am I focused on a fantastic digital experience for my consumers? How do I think about digital capabilities in a headless scenario where agents now start to come in and take eyeballs away from mobile apps and online apps? How do I think about having an API and agentic gateway from you, FIS, in terms of making sure I have that channel available to me? All of these things are robust and exciting for banks. Banks continue to be very strong, very resilient. The financial services industry is very focused on resiliency infrastructure in all of those items, and they always have been. But they're also very focused on, how do we embrace technology using FIS? How do we embrace technology inside banks?
How does that look as we look at the world and we make sure that the financial institution industry continues to serve its customers and doesn't get disintermediated by whomever wants to come in and disintermediate and compete? That's our job as FIS, to make that technology available and have those capabilities based on each individual bank strategy available for them.
Maybe turning to last week's results, you guys gave sort of a 2027 framework for guidance, and the reduction there seems to stem from three specific buckets. One was client implementation delays. You talked about lower non-recurring revenue, and then also increased investments in cyber and resiliency. Was there a specific catalyst or broad change in client behavior that you think caused you to maybe conclude the prior framework wasn't the right one, and sort of we saw like a broad-based delay
Yeah
In client implementation among the larger clients?
Yeah.
So any sort of trends going on there?
Sure. I did talk about this transparently. We did see some of our larger financial institutions make different decisions in terms of timing of their projects. Some of it relates to cyber, some of it is delayed modernization inside a bank. It is all individual. The good news is none of them are canceled, and they will all come in. This is more of a larger. We deal with delays across clients every day, all day. However, given that these were larger, we had to make obviously a bit of a transparent and a change there. I think in terms of how we think about the company going forward, we do want to provide an outlook that is more consistent and prudent than we have historically, so that we can earn back some of the credibility we have potentially lost by having too tight of a guide.
Under normal circumstances, for example, these 10 delays in a world of how big of our company is, shouldn't create an earnings issue, and we did. So we own that ourselves, and we are really coming into looking towards providing a lot more of a focus around giving ourselves some room to have those kinds of movements inside the company, which are frankly normal.
That is good to hear. Specifically on the timing of these delayed implementations, is the majority of revenue, you said this was all contracted revenue, so no fear of termination, but is the majority of that revenue now expected to shift into 2027, or are some of these projects potentially moving beyond that timeline?
No, they are in 2027. One or two of them actually just restarted. As you think about, it is not a big bang type of conversion, so people come on, their volumes shift up, so we would expect it to come in through 2027 and into 2028.
Is there anything that FIS can do to potentially accelerate the timing of some of these implementations, or is it mostly?
It is client directed.
That by the clients?
Yeah, it's client directed. Yeah.
Got it. I think one of the important messages coming out from the quarter was also the ongoing shift away from traditional licensing revenue towards more subscription and SaaS. How far along are you in that transition, and should we expect this to be a multi-year headwind at this point?
Yeah. So two different pieces there. When you think about FIS, I've talked many times about what I think the competitive and structural advantages of the company are. The first is global distribution, a marquee product and client set, and scaled technology. I've talked about having and being able to take advantage of those structural advantages. When you think about global distribution, we have done a couple of things. One is we've brought in partners' products and put them inside our distribution base and tried to sell other people's products alongside ours. Transparently, nah, has not really worked that well. We're just much better at selling our own products than other people's products. We continue to endeavor though, because this should be an opportunity for us to accrue more revenue.
That's point one, and we've been actively working on that, and we have a lot of great partners who probably would tell you, "We wish they would focus more on selling our stuff." We will continue to endeavor there. The second opportunity that we have not really advanced materially is giving our products to a distribution channel and letting them sell our products, and either individually or wrap their own managed service and other products around it. I've talked about this multiple times. What I was really pleased about was when we did it, we've had gangbuster demand, which gives me a lot of confidence we have a great set of products. That created a set of license revenue though for us, as we thought about 2026.
What we're doing, which is great, except for what we really want is an ongoing distribution channel and recurring revenue. We expect to have that as those license get sold and those distribution channels become more viable, and we would expect to see recurring revenue in the midterm, but that created a little bit of a one-time grow over. We have been very transparent about it. I haven't been trying to hide it. It is something that we've been very clear on. We think it's a really interesting opportunity for us to, as we said, put our products inside other distribution channels. Think about globally, we can't reach every market. Think about who I serve from a financial services standpoint. Oftentimes, there's SIs that are selling against us or sitting with us and selling with us. Those are the channels that we're activating.
Very excited to see how that comes through. Separately, capital markets is really where we're talking about license. For those of you who understand FIS, you know that capital markets has been on a journey to move out of a licensed set of products into a SaaS product. Less about why FIS wants to do it and more about how the market actually consumes products. I'll use the easiest example, which is treasury. We have a historical treasury product called Quantum. Large companies bought it, large banks bought it. You install it on-prem, you run it on-prem. It's a fantastic product. That's a license revenue. However, the market has moved. We created a SaaS product called Integrity. The demand for our treasury product is the same. However, the market wants to buy SaaS, cloud-based products versus on-prem licensed products.
It is a market demand shift, and we've been responding to that over the last three or four years. As we came into 2026, we continue to see high demand for products. We're seeing a material shift of, "I don't want to buy licensed product. I want to buy a SaaS product," which is very consistent with what you've seen in terms of SaaS software companies. Could be kicked up because of AI now. People less so want to run this on-prem. They want a SaaS product, and they want to start consuming data capabilities out of that SaaS product. That's what we saw happening.
Right. That probably obviously creates a near-term revenue headwind, but longer term for retention, for recurringness of the revenue should be stronger.
Yeah. Much more higher revenue, higher recurring. It is a better outcome. Yeah.
Just to be clear on the strategic partnerships, you had called out about $140 million of headwind from the licensing revenues you guys got in 2027. Can you help us understand, like you talked about the long-term opportunity of seeing the recurring revenue come through that channel. Is that sort of already baked into the 2027 guide to some extent, or is that potential upside?
No, I think, so sales cycles for these types of things takes a while. So I would expect to see it, the recurring revenue come in in 2028 and 2029. In 2027, we are working with these companies to figure out how to help them sell our products if they are bundling it in with their managed services. So we would expect to see in 2027, that takes some time to show up.
Are there any specific products where you see this model would work better as opposed to selling it yourself?
Well, TBD. I mean, we're selling it all ourselves. Some of the partners want to bundle it in with their managed service capabilities and another SaaS product they sell. Some want to just sell alongside us. It just depends. Let's see how they work out.
Got it. You spent a significant amount of time discussing cyber resiliency and AI-driven security on the earnings call. You talked about it upfront when we started talking today. It seems the bar for being a trusted infrastructure provider is fundamentally shifting. Where does FIS feel like you guys still need to invest to stay ahead of that shift, and how confident are you that you have the right talent and the expertise to continue to execute on that?
Fundamentally, where I think our brand is, and actually our moat is around trust. I mean, if you consume a product or a service or you do business with FIS, fundamentally what you know you get from us is, it has high level of resiliency, it has high level of cybersecurity, it has high levels of privacy, data, et cetera. In terms of investment in cyber, and I have some peers as well, we got in Project Glasswing, I think, in April. It's a little bit like a car crash. After you see it, you can't unsee it. The good news for the industry is, this industry and FIS has very, very strong cyber investment in it. It has strong cyber framework. It has a very, very strong cyber team. I have 15,000 technologists that I can lean on in terms of cyber and cyber vulnerabilities.
That's not the issue. The issue is the pace at which you have to clear the vulnerabilities is now much faster. As we have worked with our banks, and we've been very communi- And I will tell you, from the smallest to the largest, as we're talking to them about clearing vulnerabilities at a pace that we've never done before, every single one of them, "Yes, yes, please," and every day, they're very, very, very appreciative of it. In fact, I talked to a lot of my banks after my earnings and gave them a heads-up, "Just wanted to make sure you were aware, making a very difficult decision around margins and investing in cyber resiliency and infrastructure." Every single one of them appreciated the investment. I think the issue isn't, do we need to make incremental investment? The issue is we have a existing capacity.
We want to clear the cyber demand. At the same time, we want to make sure we get all of our products and implementations done. I have a lot of cost programs going on. Reallocating instead of driving margin out as we do this, I want to serve clients and be able to clear cyber risk at the same time I can get them through their product and demand. I don't want to tell clients that we can't do both. We're working with them individually to figure out how we pace one over the other. But we have to be cyber secure and resilient. They appreciate that. And we have to help them with their product implementations. When I think about margins, it is a client decision to make sure that we do both.
The margin expectation will be impacted as we think about 2027.
That makes sense. I guess despite the outlook reset, you were very clear that the demand environment is still very strong. Competitive dynamics remain stable. What are some of the KPIs you can point us to that sort of show where you are seeing the strong sales momentum across both banking and capital markets?
Yeah. Sales ACV continues to remain strong. We have a lot of demand for the products we've brought to market, whether it's our bank modernization products, our treasury products, our lending products, our digital capabilities. All of these banks are very interested in as they're trying to grow their franchise. I think that's probably what I would point you to. Obviously, it needs to show up in revenue, and that's the ultimate measurement stick. But demand continues to be strong. The cycle times for these are a bit. I do think the one thing that's super interesting in the industry that I do expect to continue to drive a lot of demand is M&A and consolidation. I think we've been at elevated levels we haven't seen over the last two years. I would expect we will continue to see those for a bit of time.
That is a good thing for FIS. That doesn't mean that we don't have some variability, like I talked about with Fifth Third and Comerica, which was we were on both sides of that, and there's some timing, Huntington, Cadence, et cetera. I would expect that to drive some demand as well. It's a fun time to be in the industry.
Maybe we move to talk a little bit about the modernization journey that you have gone through yourself, rationalizing the product portfolio and focusing on the modern products that you're selling to clients to help with their modernization journey as well. Where would you say the company is in that journey today?
I mean, I think we're at the forefront of bank modernization. We've always been at the forefront of bank modernization, and that's what banks expect from us. I think the difference is, it used to be very clear that you had to move to this core, and that was the right core, and that's the end. I think what we're seeing now is banks want to modernize differently depending upon the strategy that they want to employ. It's our job at FIS to not say, "This is the only core you're going to have." As you know, we have consolidated cores, and we have what we think is a best-in-class core for community banks, for commercial banks, and then if you're upmarket and you want to have componentized core, we have that as well.
What we're seeing from every size bank is, it depends on the strategy that you want to employ. Are you trying to go after commercial banking? That might mean you might want a different technology strategy from us and componentization strategy. Are you worried about resiliency? Is your worry that you want to have a core on-prem and in the cloud, or you want to be dual cloud because you care about resiliency that much? We have a capability that allows you to do that. So, our job at FIS is to make sure that we have the strategies and the technologies that can support what a bank's looking to do.
I think gone are the days of, "It's this core and that core and this core." It really is about, what are you trying to accomplish as a bank, and how can our technology stack get you to those goals?
Over time, do you see that as a margin benefit because some of the older cores that you have will collapse? What do you think about the timeframe on when we could start to see some of that margin benefit come through?
Well, we already went through our core consolidation, so I think you've already seen the benefit of that. But we continue to modernize more than just the core, but I feel like we're probably already done with that.
You have a strategic review ongoing, which initially seemed to focus only on portions of the capital markets business, but I think your comments last week suggested the evaluation probably is a little bit broader. So, what are some of the guiding principles as you think about what ultimately belongs inside FIS and what may not?
Yeah. The way we think about it, first of all, we are always doing portfolio reviews and looking at our portfolio. That's what we, when we put items in corporate and other, it's for either sale or ultimately wind down. We did announce during this call that we sold a prepaid business that was in the banking side. The way we think about it strategically is it a product set that we think we can sell or cross-sell inside our financial services customer base? Does it make sense in the product set, or is it a product that we primarily sell to one vertical only? That's where we start first, because fundamentally, we accrue value by cross-selling into our existing base. You're not going to see us take one of our key products that we would cross-sell across our entire base and move on that.
The other thing that we look at is it a product that potentially could have AI risk or AI risk could come and consume it, and is it saleable in the market? We think about that, and then we think about what's the profitability, and ultimately, how do we think about this being around prioritizing debt paydown? The challenge, transparently, for FIS is anything that we sell is dilutive. It's virtually impossible to sell anything that's not dilutive. It's fully taxable, and it's fully leveraged. Everything we have is fully leveraged across the cost base, hence why you have the good margins. That being said, though, there's always things that we look at in terms of that meet the following criteria and really keep us focused on paying down our debt.
Got it. Couple of other questions maybe before my last one. One on the TSYS acquisition. You talked about, I think when you were here last year at this conference, you talked about how having credit, debit, and the bank relationship all under one roof gives you an edge, particularly in the AI world. A year on, how do you feel about that, and how have your client conversations gone on that front?
Yeah. We feel really good about it. We just announced and launched our FIS AML Investigations Agent, fortuitously at the same time where you're seeing a lot of banks having some issues and getting some fines. We're seeing a lot of benefit around that and demand around that. That agent is literally taking and going across 14 systems inside, for example, a financial institution. Six to seven of them are ours, and then the rest are inside that institution. Feeding and learning that AML agent, having that set of core capabilities, credit, debit core, is meaningful in terms of building that agent. That's one small piece of where I see the benefit of having multiple of them. Also meaningfully changing our opportunity around fraud insights, and giving us opportunities to think about VAS in a meaningfully different way than simply just having debit, credit, and core.
But by the way, having debit, credit, and core is critically important and very valuable. Now having the level of transactions and account activity where we can accrue more VAS that we sell into our clients, we are pretty excited about. More to come on that.
I guess just about the opportunity with TSYS itself in selling credit card issuing to larger clients, like, how are you feeling about the synergy targets that you have put out there?
Yeah. So I think we reiterated our expense targets, and obviously revenue synergy targets are a long sales cycle and still feel good about those. We are seeing a lot of demand and a lot of competitive wins outside the U.S. As you know, the U.S. is pretty consistent and standard, but outside the U.S., we have been very competitive. Again, we tend to win the banks that have real scale. If you want to run a credit card program or a debit card program outside the U.S. that has proven capability that can run a larger bank, Total Issuing Solutions wins hands down every time. So feel really good about that, and we should continue to see a bunch of revenue synergies accrue in those areas.
The U.S. North American market tends to be a little bit more tied up, so I think you will see more revenue synergies from us internationally.
Got it. You talked about the AML agent a moment ago. Just maybe a little bit more on the Anthropic partnership, how that is rolling out, what the product roadmap there might look like.
Yeah. It is great. We have our first agent in market, and it has gotten a huge amount of demand. That is where we are talking to all of our existing clients, all the way from the largest down to the smallest in terms of what we can do for them. Lots and lots of demand. We have two partner banks that built out with us, and we think that is the best way to move forward with significant, the next set of agents is having these partner banks really design with us. The thing with whether it is AML or let us go into disputes or something like that, it is not deterministic. It has to be exactly right every single time.
The benefit that we bring to that is having the compliance and the regulatory resources internal that can work with the bank to make sure every edge use case that happens is exactly right every single time. That is where we see FIS having a competitive advantage and where we think we should win and own market share versus just putting out kind of utility agents. We are interested in that too, of course, and we have our own utility agents, but we are really testing whether the trust, the resiliency, the cyber, and the risk, and all the regulatory know-how, can we bring that to bear in a meaningful way with Anthropic and/or with our partners to say, "Can we do something meaningfully and change the outcome for your bank?" Next up, we are really looking at the dispute space from a card standpoint broadly.
It is a pretty broad market there, so we will see what we can do, and more to come.
Great. So maybe just final question to wrap it all together. Clearly, under the hood, there's still a lot of momentum in the business and a lot of good things happening. The message from you is that 2027 is sort of a transition year and that 2028 represents a return to more normalized growth. Just what gives you the highest conviction that the earnings power of the business in 2028 is materially better than what investors are extrapolating today?
Well, I think we are institutionally important to the financial services industry. We have high demand. If you speak with any of our customers, I hope that they would tell you they're very committed to our success. We're committed to their success. It is a very durable recurring revenue model with high levels of profitability, so feel very good about it. I think we're in financial services, just like the world, is in a very interesting time, and we take our role in financial services very seriously. Very, very seriously. Trust and risk are at the forefront of everything we do. We are here for banks, but also for the strength of communities. We believe in what we do here.
Great. We'll end it right here. Thank you so much for doing this.
Thank you. Thanks for having me.