Fidelity National Information Services, Inc. (FIS) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the FIS Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, George Mihalos, Head of Investor Relations.

Thank you, operator. Good morning, everyone. Thank you for joining us today for the FIS Second Quarter 2026 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. On the call with me this morning is our CEO and President, Stephanie Ferris; and our CFO, James Kehoe. Stephanie will begin 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 call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings and adjusted net earnings per share. These are important financial performance measures for the company, but they 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.

Thanks, George, and good morning, everyone. Several years ago, we laid out a bold multiyear plan to reposition FIS. We committed to reaccelerating growth in our banking business, improving our margins and driving increased cash flow. Every one of those actions was in service of 3 outcomes: to make FIS more client-centric, to simplify how the company runs and to drive shareholder value. Our second quarter results demonstrate that this transformation is achieving the outcomes we set out to deliver. Banking grew at the high end of our range with continued strength across Banking and Payments. Adjusted EBITDA margins expanded and free cash flow more than tripled year-over-year. Our Total Issuing Solutions acquisition thesis is playing out as expected, with real client wins and revenue growth across the portfolio as well as significantly improved cash flow. At the same time, our partnership with Anthropic is progressing. While our overall results reinforce the strategy and priorities we've been executing against for several years, you've seen by now our expectations for Capital Markets for the remainder of the year. I want to assure you that we are not satisfied with our performance in Capital Markets and remain focused on improving those results. Both James and I will cover this in our prepared remarks. Turning to Slide 5. Our second quarter results are strong and demonstrate the durability of our business model. We delivered revenue of $3.4 billion, up 5.3% on a pro forma basis. Banking grew 6.1% at the high end of our outlook, driven by continued momentum in both Banking and Payments. Capital Markets grew 3.2% at the low end of our outlook. Recurring revenue grew 5% across both segments, and recurring sales grew 14%. Adjusted EBITDA grew 7.4%, margins expanded 113 basis points and adjusted EPS grew 9% toward the high end of the range, reflecting stronger execution across the business. Free cash flow was extremely strong in the quarter, increasing more than threefold and leading us to raise our full year free cash flow outlook by $100 million. These results reflect the financial model we've been intentionally building, durable revenue, expanding margins, disciplined capital deployment, cash generation and to drive shareholder value. Turning to Slide 6. Let me spend a moment on how we've structured FIS because it is central to understanding both this quarter's results and where we're headed. We serve financial services companies of every size, from the largest and most complex financial institutions in the world to small banks and credit unions. We are central to our clients' day-to-day operations and modernization efforts, and we deliver against that [indiscernible]. Post the Total Issuing Solutions acquisition, we expanded our total addressable market by $28 billion, significantly increasing the opportunity for our combined solution portfolio. Most importantly, that broader portfolio complements the way clients have always engaged with us. Now 72 of our top 100 clients consume capabilities across Banking, Payments and Capital Markets. We typically enter a client relationship through a core ledgering platform, whether a banking core, a commercial lending core or a trading system in Capital Markets. And once that foundation is established, we expand the relationship by selling Payments and other value-added services, executing our cross-sell and expand strategy. The economics of this model are compelling. On average, clients consuming solutions across all 3 ecosystems generate nearly twice the revenue of clients using only a single solution. A second benefit of our integrated portfolio is AI. Because we run many of our clients' core systems, we sit on a rich set of data across Banking, Payments and Capital Markets. As AI adoption grows, that data becomes a meaningful advantage and enables us to deliver smarter solutions, automate workflows and improve outcomes for clients. We're already seeing early proof points in areas such as fraud and financial crimes, where connecting data across our platform creates value for clients and further differentiates FIS. The third benefit of serving clients across an integrated portfolio is showing up in our commercial performance. As I said earlier, we serve financial service companies of every size. Our consolidated commercial engine continues to gain momentum as we execute our strategy to shift from lower-margin products to higher-margin solutions. Enterprise-wide sales growth increased double digits over the last 12 months, reflecting a more focused portfolio and strengthening commercial motion. One of the best examples of this is in our Total Issuing business. Turning to Slide 7. Let me remind you of the thesis for this deal. Through the acquisition of TSYS, we gained access to a large and rapidly growing global issuing TAM, a market we did not previously serve at scale. And we did it by acquiring the industry's best, most scaled processor. And importantly, that platform serves the same set of financial institutions FIS has built its business around. The strategic fit was there from day 1, same clients, complementary capabilities, one integrated value proposition. In the quarter, we won 2 new very large financial institutions, a top 10 Latin American bank and a top 10 private sector commercial bank in India. And on renewal velocity, we continue our momentum of renewals. And since the start of 2025, we've renewed approximately 1/3 of Total Issuing revenue with 72% of the portfolio now under contract through 2029 and beyond, up from 65% the last time we spoke. That's validation of the platform and the predictability of the revenue base that was [Technical Difficulty] U.S. banks on opportunities of 1 million accounts or more is above 85%, further proof that when the deal is big and complex, we win. The most important part of our thesis, though, is the Better Together story, and it is starting to compound. Enterprise-wide ACV sold to joint clients grew 35% year-over-year in the first half. Put simply, strength and complexity at scale plus a modern road map is driving commercial momentum. This is exactly what we envisioned when we brought these businesses together. Total Issuing strengthens FIS, FIS strengthens Total Issuing, and clients are choosing the combined proposition. I know there's been some concerns around Visa Pismo entering this space and disrupting our business. You heard from the CEO of Visa last week that their strategy around Pismo is to target small to midsized banks and fintechs, not large banks where we operate. The complexity and scale needed to win and serve these large clients is the strength and strategy of Total Issuing Solutions. Taken together, client wins, renewal performance, modernization progress and growing cross-sell momentum give us confidence that the acquisition thesis is playing out as expected. The business is performing very well, and we are very much on track to deliver against our synergy targets for 2026 and beyond. Let me now turn to Capital Markets on Slide 8. We are providing additional detail on this segment because it is important to understand the factors shaping performance through 2026. Capital Markets operates across 3 solution ecosystems: Trading and asset services, lending and treasury and risk. In the first half of the year, the segment generated $1.6 billion in revenue, 74% of which was recurring and delivered a 51.7% adjusted EBITDA margin. This is a business that is actively transforming. In 2026, we leaned in hard to accelerate that transformation across a genuinely tough operating backdrop. We began the year with a known revenue headwind related to UBS' acquisition of Credit Suisse. The resulting client attrition is impacting 2026 revenue growth by approximately 1 percentage point. That impact has been concentrated within trading and asset services and together with the timing of renewals, negatively affected both recurring and total revenue growth in the business during the first half of the year. We entered the year leaning in hard to accelerating our sales momentum and the conversion of our existing backlog as well as an expectation for organic growth to recover in our lending business from the volatility we saw in 2025. Unfortunately, these expectations did not materialize. We began the year expecting the lending business to drive 1 point of organic growth for the segment. First quarter interest rate pressures weighed on lending volumes, and we now expect growth to be tempered, creating a modest drag on the segment recurring revenue growth. Rest assured, we are actively addressing these misses with actions that we've already taken and with new actions that we're putting in place now. What has not changed is the underlying business fundamentals. The backlog is strong, demand is strong. Client relationships are strong. Margin quality, our recurring revenue base and our market position all remain intact. We have confidence in this business going forward. As a result, we're rebasing our Capital Markets guide to reflect actual first half trends with modest reacceleration in Q4. As part of that same disciplined review, we're also announcing an evaluation of strategic alternatives relating to select products that we're actively managing within our Capital Markets segment that may not fit the strategic profile of our overall business. That work reflects our commitment to focus this segment on its highest value, highest margin solutions. James will take you through the shape of the revised outlook in a moment. Turning to Slide 9. AI is becoming an increasingly important driver of growth, innovation and client value across FIS and is increasingly a core driver of how we build, sell and serve. Today, we have 10 AI products in market, 200 customers live on those products and a pipeline of more than 500 opportunities. Adoption is showing up across 4 layers of the business. On engineering, our teams are seeing 1.5 to 2x throughput and 30% fewer defects. On servicing, we've launched 5 Agentic programs with manual tickets down 70% and triage time down nearly 75%. And on the workforce side, we now have more than 40,000 active AI Copilot users, generating over 16 million total assisted actions. The partnership we announced with Anthropic earlier this year has moved from conception to execution. Together, we're advancing AI-powered anti-money laundering and agentic fraud capabilities that combine frontier AI technology with FIS' regulatory-grade infrastructure and deep domain expertise. Taken together, our AI investments are compounding in our products, in our productivity and in our client conversations, and they're becoming a differentiator that is showing up in commercial outcomes. Turning to Slide 10. Let me leave you with this. The bold multiyear plan we set in motion is delivering the outcomes we committed to, a more client-centric FIS, a simpler business and a stronger financial position. Our commercial engine is strong. Our Total Issuing acquisition thesis is compounding. Our AI investments are in real products, real productivity and real client conversations. We acknowledge the challenges in the Capital Markets segment and are actively addressing them. With that, I'll turn it over to James.

Thank you, Stephanie, and good morning. Overall, we delivered solid results in the second quarter with a strong performance on cash flow. Revenue grew 5.3% on a pro forma basis, with Banking coming in above the high end of its outlook and Capital Markets closer to the lower end. Pro forma EBITDA grew 7.4% with margins up 113 basis points, ahead of our outlook of 75 to 110 basis points. Margin expansion was led by favorable product mix and cost savings with a very strong performance from the Banking segment. Adjusted EPS increased 8.8%, led by EBITDA growth. Cash flow was stellar, more than tripling to $525 million, reflecting EBITDA growth, lower cash taxes and accelerated actions to reduce onetime cash expenses. Our leverage ratio decreased to 3.5x, and we returned $270 million to shareholders, primarily through dividends. Turning now to our segment results on Slide 13. Banking Solutions had a good quarter. Pro forma revenue increased 6.1%, with Banking up 5.6% and Payments growing 6.4%. Recurring revenue grew 5%, steady with the first quarter and in line with our expectations. Nonrecurring revenue grew 21%, primarily led by strong license activity, which is skewed more towards the first half of the year. Adjusted EBITDA advanced 10.6% with margins expanding 178 basis points, reflecting favorable product mix, continued cost savings and integration synergies. Overall, another strong quarter for Banking Solutions. Turning now to Capital Markets on Slide 14. Capital Markets revenue increased 3.2% with recurring revenue growth accelerating to 5.3% from 3.6% in the first quarter. Nonrecurring revenue grew 12% as the team executed on select license opportunities. Professional services declined by 17% and fell short of expectations due to lower sales and a slower-than-anticipated conversion of backlog. Margins were slightly lower than prior year as the timing of operational expenses more than offset favorable mix. We do expect margin expansion in the back half of the year as these timing impacts normalize. To be clear, we believe in the strength of the Capital Markets business, but we are not pleased with our performance against expectations. As Stephanie laid out, we have taken a number of actions on a number of fronts, and these actions will lead to improving results as we exit 2026. Turning now to Slide 15 for a quick update on our year-to-date results. Revenue increased 5.9% with Banking at 6.9% and Capital Markets at 3.1%. EBITDA margins expanded by almost 100 basis points on a pro forma basis, reflecting favorable revenue mix, cost savings and integration synergies. We generated approximately $1 billion of free cash flow in the first 6 months of the year, bringing our trailing 12-month free cash flow to $2.2 billion and allowing us to increase our outlook for the year. Now let's turn to our full year outlook on Slide 16. We are forecasting adjusted revenue growth of 4.5% to 5% as compared to 5.1% to 5.7% previously. We are reiterating our Banking revenue growth outlook. As expected, second half growth rates will moderate compared to the first half due to a much lower contribution from M&A and a smaller growth contribution from nonrecurring revenue. Overall, we are feeling good about the Banking business. We expect steady organic recurring growth in the second half despite more difficult year-over-year comparisons. Capital Markets revenue growth is reduced to 3% to 3.5%. This is a 225 basis point reduction compared to our prior outlook of 5.5% growth and includes a 120 basis point impact from lower professional services, with the remainder coming from slower recurring revenue growth. Both professional services and recurring revenue are negatively impacted by 2 factors: Firstly, sales are behind plan in the first half of the year. And while we anticipate improvement over the second half, a slow start to the year has and will impact revenue over the course of the year. Secondly, the team assumed faster implementation of the robust backlog and pipeline that we had exiting 2025, and we are tracking behind the targeted conversion time lines. Entering the year, we anticipated mid- to high single-digit recurring growth, and we now anticipate mid-single-digit growth. While we are not providing a formal 2027 outlook, I do want to help frame the key drivers as you think about the future growth trajectory of this business. Recurring revenue is expected to accelerate from 2026 levels. Lower attrition and improved conversion will more than offset approximately 1 point of headwind from the absence of M&A. License and professional services in aggregate is expected to decline as we continue to transition this business to recurring revenue. Overall, we anticipate that Capital Markets adjusted and recurring revenue growth will accelerate modestly in 2027. Turning now to margins. We have reduced the EBITDA outlook to reflect the lower revenue projections for Capital Markets, and we now anticipate full year margin expansion of 85 to 105 basis points, broadly in line with our prior outlook of 95 to 110 basis points. Adjusted EPS is expected to grow 7% to 8.5%. And given our strong execution in the first half, we are raising our free cash flow outlook by $100 million to $2.2 billion for the year. Now let's turn to our cash flow goals on Slide 17. Free cash flow is a story of strong execution. First half cash flow is 2.5x prior year levels, and the latest 12 months is already running at over $2 billion. Strong execution and faster-than-expected reduction in onetime cash expenses have allowed us to raise our free cash flow outlook by $100 million to a range of $2.15 billion to $2.25 billion. This represents year-over-year growth of 36% at the midpoint, a meaningful step-up on the 19% growth we delivered in 2025 and well above our prior outlook of 30% growth. We have a clear path to greater than $3 billion of free cash flow by 2028, driven by growth in EBITDA dollars and a disciplined reduction in onetime integration and transformation expenses. Our increased guide for 2026 is a positive step in building confidence that at $3 billion in 2028 is well within reach. Turning now to onetime cash expenses on Slide 18. We are moving quickly to rationalize non-GAAP cash expenses, and the results are evident. We are reducing cash costs by $70 million to $730 million at the midpoint. Legacy FIS non-GAAP cash expenses are reduced by 17% compared to our original guide, reflecting disciplined cost management. And let's be clear, we intend to build on this success over the rest of this year and into 2027. Looking further out, we are confident in our ability to significantly reduce onetime cash expenses. Combined with EBITDA growth and strong execution, this improved trajectory underpins our confidence in delivering free cash flow of greater than $3 billion in 2028. Now let's turn to Slide 19 for an update on our integration synergies. The Total Issuing Solutions business is performing very well, and we are very much on track to deliver against our synergy targets for 2026 and beyond. We've captured $13 million of cost savings year-to-date, and we are tracking close to the high end of our $30 million to $40 million full year target. We are reiterating our goal of over $150 million in EBITDA benefit by 2028, with cost synergies of $125 million and revenue synergies of $45 million. Lastly, we have an extensive pipeline of revenue synergies, and we have a long runway with over $125 million of revenue synergies across our global footprint. Turning now to our third quarter outlook on Slide 20. We are projecting pro forma revenue growth of 2.9% to 3.7%. In Banking, we expect pro forma growth of 3% to 4% as we lose around 100 basis points of M&A contribution compared to the second quarter. In addition to lower M&A, the outlook reflects more moderate nonrecurring revenue growth compared to the first half, in line with our expectations. In Capital Markets, we are projecting growth of 2.5% to 3% with M&A contributing 105 basis points. Recurring revenue growth is expected to pace ahead of adjusted revenue growth. Company EBITDA margin will expand by 80 to 100 basis points with margin expansion across both segments. And adjusted EPS is expected to grow 4.6% to 7.3%. In summary, we had a solid quarter across most metrics. We are reiterating our Banking growth outlook, but reducing our projections for Capital Markets to reflect current performance. EBITDA margins are projected to expand by 85 to 105 basis points, broadly in line with our prior outlook. Finally, we delivered excellent cash flow results, and we are increasing our full year outlook to $2.2 billion at the midpoint, reflecting growth of 36%. With that, operator, could you please open the line for questions?

[Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan.

I appreciate you going through the puts and takes here. I just want to better understand the Capital Markets piece, if you don't mind, just the weakness in the professional services. Was that broad-based? Are the clients choosing cheaper forms of delivery? Are they prioritizing other tech projects to ramp instead. Just again, trying to better understand what drove the change in expectations from your delivery team?

I think I'll start, and then James can potentially quantify it. No, we think this is on us. We don't see any trends in market that are changing here. We had expected -- we had come into the year with a strong backlog in professional services, and we had leaned in hard to continuing to accelerate both sales and professional services and the conversion of that backlog. So the miss is on us. It's not a market condition. What I would say broadly, though, is we don't expect our nonrecurring professional services items to be growth on a go-forward basis. We are focused on recurring, but we're acknowledging this miss in PS because we did plan for it to grow, and we do think the miss is operationally on us.

Okay. I appreciate you on that. And on the -- just on the -- you're reviewing some of the products within Capital Markets. Stephanie, you mentioned that. Can you share a little bit more on how this will work? Are these stand-alone products within Capital Markets? I assume some of that might be bundled with some of your other contracts or perhaps these are just stand-alone. Just give us a little more flavor.

Yes. That's a great question, Tien-Tsin. Thanks for asking. So within that -- as I talked about broadly, just taking a step back, Capital Markets is primarily serves large financial institutions. And so when you think about it, it isn't a stand-alone business. And that's what we really tried to express here in terms of within FIS, our largest financial institutions consume across Banking, Payments and Capital Markets. So when you think about whether you're a large financial institution, you're taking our trading and asset services products as well as our commercial lending products as well as our consumer lending products as well as our banking cores and our Payments capabilities. So that's really important to understand. That being said, within the Capital Markets portfolio, there are products, not businesses, but there are several products that don't strategically fit with our business. And what I mean by that is they may not serve that set of large financial institutions or they may be products that don't meet the strategic fit of what we're trying to accomplish, like risk management solutions or we have some data analysis products that we may not sell to that existing LFI base or if we do this set of products isn't within the natural solution ecosystems, we've really focused the business around. So we're going to really focus -- we've always been focusing on them, by the way, and harvesting them to the extent it makes sense. We're going to double down on that. I just want to be clear, though, it's not a Capital Markets segment sale. It is looking at products within the segment that don't fit the overall company's strategic profile.

Our next question comes from Dan Dolev with Mizuho.

Great progress on the Banking and lowering the cost base and specifically on raising the free cash flow guide. I have 2 questions, Stephanie. More on the Banking side. So how did like TSYS performed this quarter? What are you seeing on the competitive landscape here? And then I have a quick follow-up.

Really pleased with the Total Issuing Solutions business, Dan. And by the way, thanks for the comments. It performed in line with the Payments growth for the quarter. As you know, it is a significant part of that growth. I mean we're really, really pleased with how the Total Issuing Solutions business is growing organically. And then we're seeing how well it fits inside the FIS ecosystem. I think in terms of the competitiveness, we're thrilled with how competitive we are here. I gave some of those key insights here because I know there's been a lot of concerns around Visa Pismo. I mean, guys, we serve the largest financial institutions here. We win 80% of the time. We are very competitive. We are the large-scale player. I think you heard from the CEO of Visa. This is not where he's focused. This isn't where big banks are looking to bring things internal. This is a scale game, and we continue to win very strongly here. So feel really good. And then as you think about us bringing this together and putting it together underneath an FIS ecosystem, on a year-over-year basis, I also shared some of the key wins. We're selling more together than we did individually. So really pleased with the performance here.

Great. And then just a quick follow-up. I noticed about 30 million new accounts on file converted over the last 12 months in the presentation. How should we think about this KPI going forward? And what can you do to reaccelerate this down the road?

Yes. No, it's a great point. The team here is pretty fantastic at converting accounts. You can imagine there was a very large player in the U.S. who bought another player in the U.S., and we effectively have converted a significant amount of those accounts. Quite frankly, it's been the biggest conversion I've ever seen, and I've been around fintech a long time, and it's gone. We've done a couple of tranches, a couple more to go, and it's gone absolutely flawlessly. So huge shout out to the Total Issuing teams there. I think as we go forward, you should expect to see -- I'm not going to comment on a number of accounts, but this is -- we win in the U.S., in the large space. And then globally, I don't want to discount our prime product because it wins not just large, but also up and down the stack and is quite competitive. So this is an important metric for us as we continue to move forward, and it continues to grow across the platform. I'm extremely pleased.

Our next question comes from Vasu Govil with KBW.

I guess, Stephanie, just first on the strategic review within Capital Markets. Could you provide any parameters around the size of assets under consideration? And when should investors expect more clarity on the outcomes of the review?

Yes. Thanks, Vasu. No, not yet. I mean, obviously, transparently, we look inside the portfolio of the entire company. You've seen us move on assets. So we're always looking from a rationalization standpoint. I think with respect to Capital Markets, though we're going to do a deeper dive. I don't have a number for you, and we'll come back to you as soon as we have something.

Got it. And then I guess a quick one on AI as that continues to be a big topic in the industry. I wanted to ask, AI is also driving sophistication of cyber threats across the financial ecosystem. So -- are you seeing a need to reaccelerate your investments in security and fraud prevention? Or do you feel like those requirements have already been contemplated in your long-term outlook?

Yes, Vasu, that's a great question. Cyber is one of our biggest technology spends. It has been and it continues to be. We don't see a need to invest more. We continue to prioritize our investment around cyber and resiliency is absolutely critical to us. I do see significant amount of investment broadly across the industry. And so when you think about us as compared to a smaller player, I think we're much better positioned given how much you have to invest here. I also think being in Project Glasswing gives us an opportunity to fortify our defenses much more deeply as we think about being a scaled player here. We take our position in the industry very seriously. We do spend a lot on it, and it is continuing to be the biggest threat we have. It will continue to be a prioritized effort for us. The good news for us is we have a significant amount of technologists. So when we find the vulnerabilities, it is not all going through one team. So it's not sitting in a funnel. We can allocate those -- we have the vulnerabilities we can clear pretty quickly. Also, my cyber team has done a fantastic job in terms of using AI itself to once we find the vulnerability or have the attack to be able to be more productive with clearing the vulnerability or identifying and moving on the attack by identifying our own capabilities. So really pleased with our cyber team who continue to work for us 24/7.

Our next question comes from Darrin Peller with Wolfe Research.

Stephanie, could you just revisit the comments you touched on with regard to Pismo and the competitive landscape for a moment. And just to sort of set the record straight given how many questions we get about it. Maybe help us understand the bundling and the cross-sell and just why you have a right to win both on the -- on both the core banking side but also the issuer processing side.

Yes. So maybe I'll refresh some of the conversations that I had in the prepared remarks. Just to be clear, we serve the largest financial institutions globally. And we have -- just in terms of evidencing the competitive market, we have continued to renew our clients, evidencing competitively. We're continuing to keep share. We're winning new business at significant pace. Our win rate is over 85% when you're competing for large financial institutions with over 1 million accounts on file. We were pleased to announce new net -- sorry, completely new top 10 banks around the world. So when we are competing, we are winning. How are we winning? We have the scale and the products and the capabilities. We are the only known processor that can convert accounts at scale and size. We've never had a failed -- deconversion or migration. Above and beyond that, I think it's important to understand and highlight the comments the CEO of Visa said, he's not focused in this area where we play at all. So I think the notion of Visa Pismo is going to disrupt Total Issuing Solutions is very challenging to prove given our renewal velocity, given our net new wins and given that the fact that Visa has told you very clearly, they're not competing there. The competitive market is perfectly aligned for us to continue to win.

Just on the Banking segment, can you just highlight what are you seeing right now, a, in the top few areas of demand from your customers? And then when you think about decision-making, just given -- we've heard some checks that institutions are holding back on decisions given AI and whatnot. I mean, it sounds like you're not seeing that in Capital Markets, at least it was more self-inflicted, I suppose. But on the Banking side, you're going -- it looks like results were strong. So what are you seeing there in terms of both what areas of the most demand and then decision-making timing?

Yes. I mean, I think I've talked about this before. The Banking demand environment is really strong. So when they're talking to us, they're talking to us about wanting to make sure that they can continue to compete in the Payment space whether it's with digital currencies or debit and credit capabilities, serving not only consumers and commercial -- large commercial customers, but also SMBs. So Payments continues to be a very big place where there's a lot of demand. We see a lot of demand around fraud and data. Fraud cost in the bank is escalating at very, very high paces. So there's a lot of demand in our fraud ecosystems. There's a lot of demand for data and data capabilities as banks want to ingest this data so that they can start to utilize AI internally. There's a lot of demand around lending and lending capabilities. There's a lot of demand around modernization and wanting to modernize. So we don't -- and we don't see banks putting decisions on hold, not in the areas that we're working on. We've been having a lot of conversations with banks as well in terms of cyber and making sure that they and we are all ready for cyber. They rely on us that's very important. It's not necessarily a product, but it's a capability. They know that we need to have and they need to have and we work together very closely. So we don't see the decision -- the delayed decision-making. Now again, they don't buy hardware from us. So if they are reallocating capital somewhere, it's not from the areas that we're focused in.

Our next question comes from Andrew Schmidt with KeyBanc Capital Markets.

Stephanie, James, maybe just ask about just technology strategy within the Banking segment. So you have the, obviously, emphasis on the core and the digital surrounds. But there's been a renewed focus on hollowing out the core. Maybe just talk about FIS' position in that environment. Obviously, the core remains important. And I think you made an acq-hire recently about -- with an orchestration platform, kind of a core light strategy. But talk about maybe the strategy when it comes to FIS' ability to adapt if things abstract beyond the core.

Yes, Andrew, thanks for the question. This is a very interesting and fun and exciting time for FIS. As you know, we hold the unique position in cores up and down the stack. So our strategy really aligns with how banks want to modernize the banks. It's less about hollowing out the core and how do they want to modernize and what do they modernize first. And so if you're in the very largest financial institutions and really, really, really large banks, they'll start talking to you about wanting to hollow out their core because they're running their own cores. And so they're starting to think about, do I want to have a ledger? Do I want to have an orchestration layer? Or do I want to have a customer master? And as you know, we run very large cores today. And we have done an acq-hire, and we're very excited about it. It brings a set of capabilities and frankly, a leadership and a leader and a team inside FIS that helps really start to put those capabilities in and around our existing cores, such that we can now start to modernize our cores from the inside out. Our customers don't have to modernize their own cores, or if they want to modernize their cores and go to a full hollow-out strategy, we have those capabilities. So very excited. More to come on this topic, Andrew. We think we're uniquely positioned because we do serve these largest banks generally, and we're a much safer bet in terms of moving from an existing core and hollowing out your core with us. We have, as you know, all the surrounds, as you think about hauling out the core, including Payments and all your value-added services. But this is a topic that we're looking to start talking to you about by the end of the year, we're hoping to have some pretty significant wins. So more to come on this. But we think we're uniquely positioned given that we have our existing cores, we have our modern banking platform, and now we have capabilities that we brought internal that will allow banks to either modernize on their existing core or completely hollow out their existing core with capabilities we have.

Got it. Yes, those are really interesting pickup. Stephanie, maybe just double down on Cap Markets for a second. Just -- I heard the comments on mid-single-digit recurring and then modest acceleration of '27. Maybe just dig a little bit into those assumptions, just confidence that we can attain those. And I don't want to use the word, derisked, but maybe just how you feel about those assumptions going forward.

Yes. Maybe I'll comment qualitatively and then James can add on if he thinks I've missed anything. I think as you think about -- and this is why we wanted to try and provide some detail on the prepared remarks, as we came into 2026, we came in with strong new sales momentum, and we knew we were going to have a point of attrition as a headwind as UBS closed and deconverted the CS capabilities in our treasury and asset services business. So we came in with a strong new sales outlook, but new attrition was going to increase a point on us. So as you think about 2027, we're going to get -- we'll grow over that and have attrition go back to more normalized rates. I think the other thing that we expected as we came into 2026, that frankly just didn't occur was we thought about the lending portfolio that had historically driven an organic growth -- an organic point of growth inside our segment, which really struggled, as you know, in 2025, we expected that growth to reoccur. Unfortunately, as we came into 2026, we're not seeing that organic growth, and we're not banking on it for '26. And I wouldn't bank on it for '27 either. So I think as you think about going into 2027, we should benefit from a stronger recurring number as we exit the year in the mid-single-digit range and then we should get a point benefit from attrition grow over. And then maybe I'll turn it over to James on how to think about kind of the rest of the pieces on nonrecurring.

Yes. Just to repeat, this year, we'll end somewhere in the mid-single digit, call it, 5-ish kind of range. And there'll be no M&A next year. So you got to take that out. And as Stephanie said, you're asking about the level of confidence. The attrition this year was really pushed up by that one client consolidation. So that will disappear next year and add back a point. And then the other piece is conversion. And we have, I would say, medium to high confidence on that. Essentially, the recurring NPS that wasn't converted in the current year or due to delayed time lines, will come back next year. So it gives pretty high levels of confidence to that. As we talk through this, I would not ascribe any upside on lending. The interest rates are incredibly -- they're just stuck where they are right now, and we can't count on any improvement on that. So we are looking for acceleration overall in recurring. And we do anticipate Q3 to be mid-single digit with some acceleration in Q4. So you don't have to wait until well into 2027 to see improving prospects. And then on PS and license. This is a business that is in the low 70s in terms of percentage of recurring and our Banking position -- business is 85%. Over time, we want to more aggressively grow and step up the recurring growth rate and deemphasize license and PS. So expect those to be flat to down next year.

Our next question comes from Jason Kupferberg with Wells Fargo.

I wanted to start on the Payments business. I mean it's actually now the largest of your 3 businesses. You were up 6% for the second straight quarter. Is that level of growth sustainable in the second half just based on the account conversion backlog that you're seeing and pipeline of new opportunities?

Wow, that's a specific question, Jason. I think -- yes, just weighing through that. I'll let James shuffle through his paper so he can try to get to an answer, but maybe I'll talk about it. We're really pleased with Payments. You're right, it is the biggest part of our business, which is why -- what gives us confidence around FIS continuing to maintain mid-single digit to be a mid-single-digit grower. As you know, in order to do that, we needed to have the Total Issuing Solutions business inside the FIS ecosystem because Payments in general, the credit issuing side adds some pretty nice growth for us. In terms of Total Issuing, it is growing at the same pace as the overall Payments business. I don't have in front of me the expectations of Payments as we go in the back half of the year, and I'm not sure that we guide to it.

I think we want to avoid guiding to it. What we would say is that we do expect it to continue at similar levels. Two is it will outpace Banking just in general and longer term, and it definitely will stay in this mid-single-digit range. So we're incredibly happy with it, and we're incredibly happy with the position of TSYS within that portfolio that's doing well as well.

Okay. Yes. No, that's good color. That's what I was looking for. And I just wanted to circle back on Capital Markets as well because it sounds like we're talking about company-specific kind of execution-related challenges. So just on the professional services side, any issues in terms of not having sufficient resources to perform implementations of the backlog? Or has there been just some miscoping? Or do you think in hindsight, just some of the projections on timing were a little too aggressive? Just wanted to kind of unpack what you think some of the root cause is here?

Yes. I'd be clear on one thing. It's principally the PS call down, which is, call it, half the overall Capital Markets is about $90 million in revenue. A little bit more than half is PS. The principal issue is actually it's not really the conversion. It's sales in PS. We had a pretty large miss in the first half in terms of, call it, ACV sales. And unfortunately, that has a disproportionate impact on the P&L because anything sold in the first half converts at about 75% in the current year. So unfortunately, this is already sold. And so I would say the largest part of the PS miss is actually lower ACV sales. And then there is a conversion part to it, but it's not the biggest amount. And conversion was a little bit different. We set goals on the timing and conversion of an existing pretty strong backlog and pipeline, and we've just missed against the execution of those. So it's purely on us. But I would say it's predominantly a sales issue in PS.

Our next question comes from Will Nance with Goldman Sachs.

James, I appreciate some of the color that you provided next year in Capital Markets. I wanted to dig through some of the dynamics on the Banking side. So a 2-part question. I guess, first, on the nonrecurring revenue growth in Banking, what's driving that 21% growth in the first half of the year on a -- or in this most recent quarter on a pro forma basis? And then I guess, more importantly, as we look out into 2027, like what kind of grow over does that represent? Is that going to be a headwind to overall Banking revenue growth? And then the second part is on the large bank issuing conversion that you mentioned. It seems like TSYS is running around 6-ish percent kind of in line with the overall Payments revenue growth on a pro forma basis this quarter. So just how are you thinking about some of the puts and takes as that normalizes and as the nonrecurring revenue growth normalizes into 2027?

Two big pieces as you look at term fees. I think you're looking at the year-to-date. I think in the second quarter, we had some term fees. These are probably pretty well known in the market, Huntington, Cadence and Jenius Bank. So they drove up. That's kind of brought the 12% above a normalized growth rate. And then you'll recall in the first quarter of the year, we signed some large strategic deals that had a onetime license contribution in the first quarter, but drive recurring revenue over a 5-year horizon. We didn't get into the specifics of with whom, but these are large deals, will become part of the business model going forward, more engagement with third parties to become alternative sales channels. And yes, we're -- all we're saying in the second half is we're returning to a normal level of license activity, and the bigger deals and term fees are behind us.

I think the other thing I might add is recurring. So as you know, license and term fees can be a little bit volatile quarter-to-quarter, which is why it's tough to guide this business on a quarterly basis. But if you look at recurring and banking, feeling really good about that staying nice and steady for us. I think James' comments in the prepared remarks talk about, obviously, as we get into Q3 and Q4, we're not -- we're lapping the M&A contribution, but it's still staying up there and even against tougher comps from the prior year. So Banking recurring continues to be really strong. And as you mentioned, Payments continues to be a big contributor of that. On expectations, I think you keep asking us to guide on Payments. We'll come back to you as we come into 2027 in terms of how to think about the segment. But broadly, I think Banking, in general, if you think about banking from a core and digital standpoint, typically would be a lower single-digit grower and payments would be more to a mid-single-digit grower. That isn't guidance for '27. That's just how to think about the pieces of the segment as you think about market growth. Obviously, we're driving a lot of synergies across both Banking and Payments as we bring Total Issuing into the solution. So there'll be some acceleration there. But we'll come back to you as we guide for 2027.

Got it. Appreciate that...

Sorry, it's really a tale of 2 stories here as well. While we have execution issues in Capital Markets sales, the actual sales performance in the Banking business is super strong. And I want to emphasize that it's actually -- the recurring is in line with plan in the first half of the year and actually, PS was slightly ahead. So it really is down to execution. And then when you look at growth versus prior year, we've had double-digit growth in the Banking -- total Banking Solutions ACV for 3 quarters in a row, with actually the second quarter being high double-digit growth in Banking ACV. So we're super happy about the sales performance in Banking and not happy at all about the Capital Markets performance in sales.

Got it. And then just a quick one on the strategic alternatives for Capital Markets. This might be another one for James. I know you talked about just some of the considerations around asset sales, like tax leakage, stranded costs and leverage levels overall. Just how are you thinking about the feasibility and the puts and takes of profitably offloading businesses in Capital Markets? And I guess, how does that weigh into the decision to either offload or keep a business?

Yes, it's tough because the businesses are all highly integrated in the core infrastructure. So every time you take it out, you don't see a proportionate reduction in the fixed cost, and that's what we always struggle with. But I think we need to take decisions that are creating the right portfolio to drive back to quickly to sustainable mid-single-digit growth in the Capital Markets business. And we probably have to take some choices on lower growth products and address the cost structure appropriately. But it is tough to make it work. They all will have leakage on -- all will have leakage, but we just got to work through that.

Our next question comes from Bryan Bergin with TD Cowen.

So my first one is just a clarification on the Capital Markets view. So to offset the trading and the asset services headwind, you mentioned an expectation of lending contributing to offset that. But was the 1Q weakness in the loan syndication areas expected to reverse? Or are you holding that constant at lower 1Q levels? And for the rebased 2026 outlook, I think you mentioned an assumed acceleration in 4Q. If that's the case, is that just based on lapping comps or something else you have visibility to?

The acceleration in 4Q, I think, is a more general comment across all of Capital Markets that the attrition starts -- you start lapping the attrition. So that is less of a pull down. And there's more of a contribution from sales sold earlier in the year. So that's where the acceleration is coming from, and we've pretty good line of sight to it. What we said about 2027 is -- in our remarks is we're not counting on a rebound on the lending business, those businesses that were small businesses that were impacted by the volatility of interest rates. That's the only comment. I think in general, if you look back over time, lending was a huge contributor to the overall growth rate, and the overall growth rate lending is down in the current year. So it has pulled down versus the long-term trend rate, the business quite a bit.

Got it. Okay. Understood. And then my follow-up, just as it relates to AI productivity. Can you comment on your progress adopting AI internally, particularly with efficiencies in engineering and customer support? Just any KPIs you can share as far as resource intensity, product velocity, things like that?

Yes. I think that we're at beginning innings. That being said, I think we've been really focused on productivity in general, and you can see that really coming through as we've expanded margins on a year-over-year basis. So we're using our cost programs plus AI. But what I would say is we've leaned in hard to AI in 2026. I think we gave some of the stats on Slide 9, 1.5 to 2x throughput we're seeing in AI engineering, 30% fewer defects. We're certainly getting a more productive and better quality technology organization. In the servicing side of things, we have put in some agentic capabilities that allowed us to take our manual tickets down by 70% and our triage time down by 75%. I think at this point, yes, it is driving productivity, but probably more importantly, it's driving a better client experience as well as faster product delivery for our clients. And so while we feel like AI is a great opportunity for us internally, we focus on it being productive as well as creating a better client outcome and client experience, and we think we're seeing both of those. And that's an unlock, I think, we'll expect to see as we go into '27 and '28, pretty excited about what we can do here.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.