Fidelity National Information Services (FIS) Q2 FY26 earnings call: guidance and Q&A

FIS's Q2 FY26 results demonstrate the success of its multi-year plan to reposition, with strong performance in Banking and Payments, expanded adjusted EBITDA margins, and significantly increased free cash flow. The transformation aims to make FIS more client-centric, simplify operations, and drive shareholder value, with the current quarter's outcomes reinforcing this strategic direction. The company achieved 5.3% pro forma revenue growth to $3.4 billion, 7.4% adjusted EBITDA growth, and a 9% increase in adjusted EPS.

FIS serves financial services companies of all sizes, with 72 of its top 100 clients consuming capabilities across banking, payments, and capital markets. This integrated model allows for expansion from core platforms to value-added services, generating nearly twice the revenue from cross-ecosystem clients. The rich data across these platforms provides a meaningful advantage for AI adoption, enabling smarter solutions and automated workflows, particularly in fraud and financial crimes. Enterprise-wide sales growth increased double digits over the last 12 months, reflecting a focused portfolio and strengthened commercial motion.

The Total Issuing Solutions acquisition is performing as expected, expanding FIS's total addressable market by $28 billion and providing access to a rapidly growing global issuing TAM. The business secured two new large financial institution wins (a top 10 Latin American bank and a top 10 private sector commercial bank in India) and renewed approximately one-third of its revenue since the start of 2025, with 72% of the portfolio now under contract through 2029 and beyond. Enterprise-wide ACV sold to joint clients grew 35% year-over-year in the first half, validating the 'Better Together' strategy.

The Capital Markets segment generated $1.6 billion in revenue in the first half, with 74% recurring and a 51.7% adjusted EBITDA margin. However, it faced challenges including a 1 percentage point revenue headwind from the UBS/Credit Suisse acquisition and underperformance in professional services due to lower sales and slower backlog conversion. The lending business also did not meet organic growth expectations. Management is addressing these issues and has initiated an evaluation of strategic alternatives for select products within the segment that do not align with the overall business's strategic profile.

AI is an increasingly important driver for FIS, with 10 AI products in market, 200 customers live, and a pipeline of over 500 opportunities. Internally, AI is enhancing engineering throughput by 1.5x to 2x with 30% fewer defects, and servicing operations have seen manual tickets decrease by 70% and triage time by 75% through agentic programs. The partnership with Anthropic is advancing AI-powered anti-money laundering and fraud capabilities, combining Frontier AI with FIS's regulatory-grade infrastructure, demonstrating AI's role as a differentiator in commercial outcomes.

FIS delivered stellar free cash flow, more than tripling to $525 million in Q2 and reaching $1 billion in the first half, leading to a $100 million increase in the full-year outlook to $2.15 billion to $2.25 billion. This reflects strong EBITDA growth, lower cash taxes, and accelerated actions to reduce one-time^📎 cash expenses, which are now projected at $730 million at the midpoint, a $70 million reduction. The company remains confident in achieving over $3 billion in free cash flow by 2028 through continued EBITDA growth and disciplined expense management.

Banking Solutions had a strong quarter with pro forma revenue increasing 6.1%, driven by 5.6% growth in banking and 6.4% in payments. Recurring revenue grew 5%, while nonrecurring revenue saw a 21% increase, primarily from strong license activity. Adjusted EBITDA advanced 10.6% with margins expanding 178 basis points, reflecting favorable product mix, cost savings, and integration synergies. The demand environment in banking remains robust, particularly for payments, fraud, data capabilities, and modernization efforts.