We're going to kick off the next session. My name's Will Nance. I cover the payments in fintech. This is the first fireside chat. I've remembered to introduce myself, and I am really delighted to have FIS CEO Stephanie Ferris, as well as CFO James Kehoe with us today. Really excited to have you guys for the conversation yet again here at the conference. Yeah. Thanks for having us. All right. Stephanie, thanks for being here. I wanted to start big picture. The stock has had a tough couple of years. When we look at the numbers, yes, there's puts and takes. We talked about capital markets at earnings. Banking has been growing sort of high end of the range. Margins are expanding. Year-to-date free cash flow is up a lot year-over-year. As you sit here today, how do you assess the health of the franchise and the end market? When you think about what the market might be missing, what are you most focused on delivering from an execution perspective to help sort of turn that around? Yeah. I think the health of the franchise is good. It's strong. We're focused on what we can control, which is really to the point you made, how do we ensure that the banking business returned to the growth trajectory we expected. As you said, it's performing at the high end. We've been focused on margin expansion. That's been a very big focus for us. We're really pleased with the first half of the year and feel good about the rest of the year, all the way down to free cash flow. As you know, in the last quarter, we raised our free cash flow guide. In addition to that, we've been focused on quality of earnings, really looking at our acquisition and integration costs and bringing those down, which obviously shows up in the free cash flow. So for us, it is about execution and being focused every day on how do we get up and deliver revenue, margin expansion, free cash flow, and high quality of earnings. In terms of what the market does not understand, it is a tough one, right, in terms of the industry and the sector that we are in with respect to AI. I think we have been really pleased. Banking definitely has a growth agenda. We are seeing banks take advantage of M&A, whether they want to be buyers or sellers. We are seeing them focused on building out their digital currency stack. We are focused on them in general, talking about how do we modernize the bank from a technology standpoint. Then we are all focused on cyber, Mythos 5, Project Glasswing as a general category, and really focused on closing any holes that any of us have there. So really highly focused on execution. Yep. Let us continue that. You have talked about this as sort of a generational moment in banking, deregulation, record M&A, and now the intense focus on AI. What are you hearing from clients today in terms of technology budgets? If you characterize the spending that people have on technology, is it broad-based? Are you seeing prioritization within the budget towards AI-specific dollars? Overall, how does the environment feel for FIS? Yeah. I think in terms of technology spend, in general, it continues to grow at 7%-8% overall. That has been a trajectory that we have seen, well, I think for the last 10 or 15 years. Where banks are spending continues to evolve. Obviously, CISO's budgets are pretty big. We can participate there in terms of product capabilities with our fraud products, but we do not typically serve in the CISO world. But we are very linked with CISOs in terms of making sure that our products and services are all closed from a vulnerability standpoint. So we do take advantage of some of that spend with them. They are not reallocating, I would say, from bank modernization or technology modernization into cyber because generally they are doing really well. So they are in an environment where they have an ability to grow. They have an ability to buy or sell. They are really focused on how do they generate net new deposits. So when I think about where are bank CEOs spending their time and how are they talking to us in terms of where they want to grow, they know they want to be and continue to be very competitive around deposit gathering. When they think about deposit gathering, they think about, do I have the right digital assets to be able to gather deposits? Do I have digital account opening capabilities to gather deposits? Do I have digital currency capabilities? If you are a commercial bank and you want to gather deposits from commercial customers or make commercial loans, you have to have capabilities out for those treasurers to be able to take advantage of digital currencies like Circle. We have products like Money Movement Hub where you can plug in any of those capabilities. Banks are really focused on making sure they have the deposits they need to fund their balance sheet. Then they are looking at spend inside the banks in terms of AI. Where can they really get after with the regulatory cost of being a bank? When you think about things like that, you think about suspicious activity reports, AI, money laundering, and fraud are very big places and cost pools that banks spend a lot of human capital on. We have been in partnership with Anthropic building out our first agent that is focused on AML and SAR filings. We are seeing a very large interest in that because it is just trapped costs that banks have been never able to get after. When you talk to banks about that, they are not usually looking to take out those costs and drive margin expansion. They are looking to reallocate those costs, again, back to how do we grow the franchise. They are very much focused on how do we take advantage of this point in time where we have a nice balance sheet and we have nice margins and start to really reinvest in the bank in the capabilities that they need depending upon where they are. I think from an FIS standpoint, we feel good about all those categories. We feel good about having a conversation with the CISO on cyber. We feel good about having conversations around how to prevent fraud, which is a huge locked cost. We feel good about having an agentic agent going after fraud and money laundering, then we will go after credit card and debit card disputes. We feel good about that. Then bank modernization, we have all kinds of stuff. We feel really good where the spend moves and occurs, but that is something we keep our eye on every year in terms of where are banks spending. Let us talk a little bit about the Anthropic partnership. That was one of the bigger announcements this year. You said the financial crimes agent will land in the back half with BMO and Amalgamated. Nothing in the 2026 guide for that. Where does product development stand today, and how quickly can the revenue roadmap broaden beyond just financial crimes? Yeah. It is going really well, right on target in terms of having our first agent up and running inside BMO and Amalgamated end of year. We will be off to the races in terms of selling this capability out to the rest of our financial institutions in 2027. We are having a lot of conversations to figure out how to price it correctly in terms of making sure we get the biggest and fastest adoption we can. It obviously creates a huge amount of value for the bank because it does unlock a bunch of locked costs for them. We are talking about how we really launch. One of the reasons we partnered with Anthropic is we have a very big distribution channel out to financial institutions. We are working on our go-to-market and our pricing and our product capabilities to launch in 2027 a very material way and start to generate revenue on that agent. Right on the back of that is we are starting to build and work with our next set of banks on credit card and debit card disputes. Another really big capability that is locked inside banks, when you think about calling and you dispute on your credit card or your debit card, there is a lot of manual labor between you calling the bank. The bank then has to call the merchant. The merchant has to do something in Visa and Mastercard. A lot of locked costs in there. A lot of it is coming off of our systems that we deploy in the banks. We think there is a big opportunity there. The flywheel on agents should continue to get faster and allow us to really deliver real incremental value to our banks and unlock a different bag for us. Great. James, I want to get you involved here. Any notable call-outs this quarter as it relates to the outlook or anything that you would flag to investors about the way you are thinking about the second half of the year? No, I just reiterate what we said before. We reaffirm our guide for Q3 and the full year. As we look at the shape of the second half, we mentioned this before. In banking, we had an M&A contribution in the first half of 100 basis points. There's no M&A contribution to any great extent in the second half. So the overall growth rate will moderate slightly in banking. In capital markets, there's only one real call-out. It is in the third quarter of last year, it was exceptionally strong in capital markets at 9%. So that'll be a tough comp in the third quarter, but we'll see a strong acceleration from that level in the fourth quarter. I do want to reemphasize one thing. Both businesses will deliver mid-single-digit recurring growth on the full year. And we're pretty happy about where we are exiting the year on that basis. Let's stick with that theme about recurring revenue growth. You've been citing this metric around recurring ACV. I think you're up 20% in the fourth quarter, 24% in the first quarter. Maybe if you could help us understand what has fundamentally changed on the sales side to drive that and how you think about the durability of recurring revenue growth in banking as that backlog converts to revenue. Yeah. As we came into 2023, we really refocused the commercial engine on making sure that we were selling the products that had the right margin to deliver the revenue expectations, but also the margin expansion. So it's really, really important that we continue to focus on that recurring revenue and the recurring sales because if we get too focused on PS or we get too focused on license, you don't have a highly recurring, high margin, profitable business that you can bet on that will deliver our expectations. So I aligned on a Chief Commercial Officer and really focused him on selling the right recurring products with the right level of margins so we can deliver the ultimate margin commitment we made. Bringing the TSYS acquisition on obviously helps that. It is almost all recurring revenue with very high margin, so it gives us a lot of confidence in recurring as we go forward. We have really had our Chief Commercial Officer and all our product leads focused on that, versus on every dollar of revenue accrues the same value to the firm because it doesn' t. That's been really important to us. And then, on the non-recurring side, I think selling higher quality, higher margin recurring business has really been a central focus since you took over as CEO. You have seen a meaningful uplift on the non-recurring side in the first half in banking. Yeah. I think license activity in the first quarter, a termination fee, which I think most people understand in the second. Maybe just unpack on the license side, what drives the net new license activity in the business and how you just think about the contribution of licenses going forward? Yeah. So one of the benefits of the franchise is that we have a lot of partners in our ecosystem that become vendors of ours. They are also FIs sitting on the other side selling to our banks. As we look across our ecosystem, we end up paying a lot of our vendors and partners and also see them on the other side of the ecosystem with us. Our Chief Commercial Officer and I have been really focused on how can we turn these costs and cost partners into revenue partners for us. We started this year in the first quarter with a couple of big SIs that we thought we could partner with, that we had partnered with in our back office capabilities, and they came to us and said: Hey, we think we could also be a partner with you in terms of distributing your products. Big licenses to sell those. We ultimately think they deliver recurring revenue over time. We think this is a really interesting opportunity for us. We took our first shot of it with a couple of partners. That was the first quarter. Do we think that it won't happen every quarter, and we're trying out a model to see if our We have our own distribution. Can we enable other distributions of our product? Can that accrete more revenue for us? TBD as we look at the opportunities out there. That's kind of the genesis of that big license in the first quarter, and then to your point, a bit of a termination fee in the second quarter around Huntington Cadence, which is episodic with bank consolidation. Yep, that makes sense. Okay. I wanted to talk about the LFI focus of the business. I think it's something that you guys have been emphasizing more recently. It's always been a hallmark of FIS's business. A 72 out of the top 100 clients are now consuming across banking payments and capital markets. They have significantly higher ARPU. I think on paper, when you look across the big three providers in this space, it looks like everyone has sort of the same products and is somewhat indistinguishable. Can you talk about what is genuinely different about serving the large FIs versus what it's like serving a community bank or a credit union? Yeah. I mean, first of all, I would say we serve community banks, and that is as important of a channel as our large financial institutions. But they are different channels, and how you serve them and how they want to consume products is very different. Starting from large financial institutions, they're very sophisticated technology consumers. They're typically looking for best of breed. They may or may not want your products to be integrated, and you have to have high levels of scale, resiliency, and cybersecurity. The way they want to be serviced is different than the way community banks. If you think about community banks, their model, they want to make sure that everything is fully integrated. They obviously want best of breed if they don't think we're giving it to them, but they would prefer to have a one-stop shop in terms of a provider. The way we provide service to them is very important. They serve their communities. It is a higher touch model than the large financial institutions have. I think they are very different channels, and we serve them very differently. Also in the large financial institution part of the market, typically, if you are a large bank, you are serving commercial banking customers, so do the community banks. If you think about serving commercial banking customers, these are sophisticated corporates. They typically require pretty sophisticated money movement capabilities, including having digital currency capabilities. We make these capabilities available to all banks, regardless of large financial institutions or community banks. If you are of larger size or you are focused in the community bank market, we have the best-in-class products and services for that commercial bank segment. Whether you are large or a community bank, we just do hands down. It has been a marquee segment for FIS, and that is where I would say we are very differentiated. Maybe I will pause there. No, I think that is great. One of the other topics that has come up a lot, and it has probably come up more in the context of larger banks, has been the idea of core modernization, the idea of large banks hollowing out the core. You recently did an acquihire in the orchestration space, and I am just wondering what you are hearing from the largest banks on the modernization roadmap and where you see the biggest opportunity for FIS to facilitate versus maybe the opposing view that we have heard in the market about this maybe being a disintermediation risk for some of the incumbent providers? We actually call it bank modernization because it is really banks are no longer focused on big bank core migrations at the very large. It is too big, it is too risky. As they look to modernize their bank, and this is of the largest size, fairly sophisticated, they are looking to hollow out their core, typically, which means they want to pull out the customer master, they want to pull out the product master. They want to have an orchestration layer that goes across not just their deposit core, but also their commercial core, their mortgage core, and their consumer core. Remember, there are lots of cores inside of a bank, and banks have been moving in a hollow-out journey. It is an expensive way to go. It is definitely an evolution we have been seeing in the market. We did do an acquihire to your point, where we brought a team on with a set of capabilities that is very fantastic in this space. What we think is differentiating is completely AI-built, dual cloud, hot-hot. Never had that before, and that is also starting to become a requirement in the market as resiliency continues to become a very big deal. You can also be in the cloud, and you can be in your own data center. These are cutting-edge capabilities that we're seeing the largest banks want to have and have an orchestration layer to be able to do that. We brought that team in. They have a fantastic set of assets, and we're looking forward to some pretty exciting announcements in the future. Very good. Maybe we'll turn to TSYS or Total Issuing Solutions, I think, as we're now calling it. The business is growing in the mid-single digits. You've owned it now for a couple of quarters. How do you feel about visibility to the mid-single-digit growth algorithm that you've laid out? How is the cross-sell conversation going? I think it's growing 6% right now. What would you attribute some of the above-trend growth that you're seeing in the business? Yeah. I think it's been a fantastic acquisition for us. It fits exactly into our existing customer set with a product that we did not have. It brings in highly recurring revenue with high margins and a very easy view in terms of a mid-single-digit grower there. That being said, it is going very well. We're tracking towards our cost synergies. I think we shared that in the last quarter. We're continuing to feel really good about our revenue synergies. We think those take longer just given these are really big banks with long timeframes. We feel good about it. It is tracking above expectations when we originally bought it. I feel really good about it. I would say it's better management, but to be fair to them. Of course. It's probably from the prior management in terms of why it's tracking better. But we do feel really good about it, and it continues to execute in a really strong way for us. I think you called out a large account conversion with an existing client this past quarter, contributing to, I think you called out one of the largest customer migrations in the history of the industry. How impactful is that migration to overall growth, and how do you think about kind of the persistence of that 6% growth in the business? Yeah. This is evidence of one of the standout value propositions of Total Issuing Solutions. If you're a large bank having and migrating a large card portfolio from your existing provider to Total Issuing, they are best in class. I've never seen so many accounts migrated in my entire life with literally not one issue. That is a core competency of Total Issuing Solutions. When you think about if you're a large bank anywhere and you're going to move an entire consumer card portfolio, remember, that's revenue to you. That's not core banking, which is a cost structure to you. You want to have a lot of confidence in a team that's been able to do it and proven it at scale over time. Honestly, I've never seen anything that big. I've been in and around the industry, and hats off to the Total Issuing team. They did a fantastic job. That's likely a little bit of why we're accruing at a higher-than-expected number for us, and we feel really good about it. The client was very happy with it. A little bit more to go, but really great outcome. That's great. I think one of the topics that's sort of dominated conversations about this business year to date has been around the competitive environment. I think Visa this past quarter rolled out an an all-in-one debit and credit offering with their Pismo and Visa DPS platforms. How are you thinking about just competitive dynamics for this business, and are there any ways that you could frame just how much overlap you actually have with some of the competing solutions in the market on the debit side? Yeah. A couple of things. One, we talked about large financial institutions versus community banks. Large financial institutions buy best of breed. They're never going to move to a combined debit-credit environment. That's not how they operate. A lot of large financial institutions run credit issuing and run some of their stuff in-house and run debit. I don't see a combined debit-credit issuing value proposition for large financial institutions. In addition, I do think it's relevant down in community bank and credit unions where I think they're seeing some potential traction. I think you've probably heard Ryan, the CEO of Visa, also clearly articulate the large financial institutions is not where he's looking to win in the space. Remember what I just talked about. It would be a really hard decision to migrate a humongous portfolio to a competitor who's never migrated anything of that big size or scale. The other challenge, I think, for large financial institutions, to the extent that you would decide to migrate, for example, to Visa Pismo, you would never have any leverage with Visa Pismo again because fundamentally you can't change brands. I think for large financial institutions, it doesn't make sense. I do think for community banks and credit unions, and he's talked about fintech, it could make sense there. Got it. That makes sense. All right, let's pivot a little bit over to capital markets. You announced a strategic review of select products within the capital markets portfolio. Can you talk about just the parameters that you're putting around that process? How are you defining strategic fit in the business? Are there financial requirements around dilution, stranded costs, capital return that we should be thinking about as this plays out? Yeah. I'll ask James to pipe in if he thinks I'm missing something, especially around the financial criterion. We are looking inside capital markets in terms of is there a set of products and solutions that don't overlap with our existing clients and don't make sense for us to be an owner and could be a potential sale. When we think about the sale and the requirements on the returns, we obviously have to think about we are committed to pay down our debt. So can we get a value for the product or the solution that allows us to continue to pay down debt, either pay down debt and get back to share repurchase faster, or pay down debt to a period and an amount such that we could ultimately then incrementally do more share repurchase. But it all does depend on the returns. Do you have anything you might want to add? No, I just have. We're staring at the ones that have the least fit with the client base. Then secondarily, could it be accretive to top-line growth over time? Yeah. And I think we'll manage through the accretion dilution impact. It depends on the share price at the time. Sure. But with lots of pieces to work through, our goal would be to get back to share repurchases sooner rather than later. Got it. Okay. All right, so sticking with capital markets, the other aspect last quarter that came up was around guidance. I think you pointed to the low end of the range the quarter before, reduced the full-year guide this past quarter. Do you feel like the trajectory of that business has stabilized? Any changes in expectations around what that looks like, not just the remainder of this year, but over the next couple of years? And then just big picture, how are you thinking about the growth algorithm going forward and the mix between reoccurring revenue growth versus license and professional services? Yeah, I'll let you take this one. There's a lot of questions there. Yeah. Welcome. No, as I said, we reaffirmed the full year guide. Yep. What we said last quarter was, looking out into 2027, we expect a modest deceleration on both adjusted and on recurring. As I said earlier, we'll exit the year on a 5% recurring, so let's take that as a base. It's got about a point of M&A in there. Yep. So obviously we're not doing M&A next year. However, the last point of M&A will be more than offset by two factors. One is the attrition that Stephanie talked about on the last call of clearly the UBS and Credit Suisse doesn't repeat. Yeah. That's a point accretive due to lower attrition. Then better conversion of the ACV already sold will probably give you another point. We see, as I said, a modest deceleration from the five despite losing M&A contribution. What we do see in the business pipeline is pretty healthy across the products du hunt. The ACV sales on recurring are solid on a year-to-date basis, so we're cautiously optimistic. This is a business that's still doing a mid-single digit recurring and expected to do so longer term. Got it. We talked a lot in the banking discussion about reoccurring revenue versus licenses. Is that a different conversation in capital markets? How do you think about driving growth on the recurring side in that business? Yeah, I think that's potentially an opportunity versus the long-term growth rate on recurring. We have a strong preference for less episodic license activity and more recurring. It needs to be managed over time. Yeah. We would expect, in general, accelerating recurring and declining license activity. Got it. Okay. James, I am going to keep you involved here. The company has pivoted towards focusing more on GAAP free cash flow as kind of the primary metric. You changed that around guidance. Yep. I think that has been a big focus for investors as well. You raised the guide on free cash flow in the most recent quarter, and then you have laid out this path to $3 billion+ by 2028. The big topic of conversation, I think, revolves around one-time expenses. I was hoping you could talk about a breakdown of the one-time expenses, how they break down today, and your line of sight to managing those numbers down over time. Yes. But I still want to go back to what you said first, which is the cash flow story on a GAAP basis. We called up $100 million - $2.2 billion. That is 36% growth year-on-year. Yep. It is coming from numerous vectors, and we have a huge pipeline to get to the $3 billion. We are very confident on the $3 billion by 2028. One-time expense is one of the levers. The biggest lever is actually EBITDA. The second biggest is one-time expense. You saw in the most recent call, we did reduce the total one-time cash expense from $800 million - $730 million. If you take that $730 million, what is in there? What do we spend it on? Around $275 million is on the TSYS integration. Another $90 million is on other M&A activity. That can be taking Worldpay out of our systems or integrating those tack-on acquisitions. Top of 50% of the total one-time cash spend is on M&A or integration activity. By the time we get out to 2028, that number will be substantially lower just because TSYS will be, for all intents and purposes, integrated by the end of 2027. Call it change on change, that's well over $300 million. The other big spend item in the current year is severance. That's around, I want to give a percent, around $200 million. Big spend item. That will, over time, moderate more over the period. We've taken a strong commitment on this, and what we've said in past forums is we expect the original 800 to be reduced by at least 50% over the next two years. We're well on the path to that. You saw in the current year, taking out 70, it was, I think, a 15% reduction in the core FIS spend. Got it. We're going to be dogmatic about this and ruthless on reducing this. It is a key driver of the continued improvement in free cash flow. Yeah, makes sense. Okay. Last question here, just on capital allocation. Deleveraging has been a big priority in the aftermath of the TSYS acquisition. You're at around 3.5 turns with a target to get back to high two's range. Buybacks have been paused. Target is to get back to buying back stock middle of next year. How are you thinking about the capital allocation framework, I guess, into 2028, when things are more normalized, once you're through that deleveraging? What would make you consider something other than share repurchases as a use of cash? At our current stock level, nothing. We would do all share repurchase. There is really nothing that we could do beyond that that would have any incremental value. I wish we were in the market right now. I think we would love to be. That is the plan. Just cannot even imagine anything that would accrue any kind of value besides the share repurchase. Very much look forward to getting back in the market. Yeah, makes sense. Any opportunities for accelerating the timeline to get there? We talked about the capital market strategic review. Yeah. What are some of the guidelines around that? No, I think that is exactly it. It is not limited necessarily to capital markets. We have been actively pruning the portfolio, but we will look at, to James Kehoe's point, the construct of, is there something that does not fit with the existing portfolio, might be dragging the revenue growth down. It does have an EPS dilution accretion effect, but given where the share price is, if we can get back to repurchasing shares faster, that may go away on us. So that is our focus. For the long term, at the risk of doing math on stage, $3 billion + of GAAP free cash flow in 2028, your leverage constraints in the business, obviously you have a healthy dividend. What governs the payout ratio beyond that? Say that again, the last piece. What governs how much of the remaining after dividends that you would consider allocating towards share repurchases? I guess half the different way. I think it is essentially what Stephanie said. I think the first thing is to fully fund internally the capital expenditures and ensure resiliency, cyber investments in growth. Then leftover, we will continue to increase the dividend in line with EPS. We have a large investor base that places a high premium on the dividend. Yeah. Simplistically, all the rest goes back to share repurchase. Yeah. Now, could there be a situation three years from now where a small tech con comes along and you do something? Yes. Our primary goal is our share price is way too cheap. Yeah. It would be a tragedy to not buy back the stock as quickly as we can. The same goes if we divest something of any magnitude, we will have a discussion with the agencies as to the deployment of some of those proceeds against share repurchases. Yeah. What is important is we need to exit this year having hit our commitment with the rating agencies. Yeah. We are well on track with that. They will obviously give us much more leeway when we get into 2027 on the deployment of any divestiture proceeds. Makes sense. Okay. Well, I think with that we are just about out of time, but thanks for being here again. Really enjoyed the conversation. Yeah. Thanks, Will