[Fidelity National Information Services Q2 2026 Earnings Call] FIS Raises Free Cash Flow Guide, Cuts Capital Markets Outlook as Q2 Cash Flow Triples to $525M

FIS Inc. delivered a mixed second quarter that showed the strength of its cash flow engine and Banking Solutions business even as management was forced to slash its Capital Markets growth outlook and acknowledged execution failures in that segment.

The company raised its full-year free cash flow guidance by $100 million to $2.15-$2.25 billion after quarterly free cash flow more than tripled to $525 million, but cut its Capital Markets revenue growth forecast by 225 basis points to 3%-3.5%. CEO Stephanie Ferris was blunt about the shortfall.

"We are not satisfied with our performance in Capital Markets," Ferris said on the call. "We think this is on us. We don't see any trends in market that are changing here."

Financial Overview

FIS reported revenue of $3.4 billion for the quarter, up 5.3% on a pro forma basis. Banking Solutions grew 6.1% at the high end of the company's outlook, while Capital Markets grew just 3.2% at the low end. Recurring revenue rose 5% and recurring sales grew 14% year-over-year.

Metric	Q2 2026	Growth / Change
Revenue	$3.4B	+5.3% pro forma
Adjusted EBITDA	—	+7.4%
Adjusted EBITDA margin	—	+113 bps
Adjusted EPS	—	+8.8%
Free cash flow	$525M	More than tripled

CFO James Kehoe called cash flow "stellar," attributing the performance to EBITDA growth, lower cash taxes, and accelerated reductions in one-time cash expenses. The company ended the quarter with leverage of 3.5x and returned $270 million to shareholders, primarily through dividends.

Segment Breakdown: Banking Shines, Capital Markets Stumbles

Banking Solutions delivered another strong quarter, with pro forma revenue up 6.1%, driven by Banking growth of 5.6% and payments growth of 6.4%. Recurring revenue grew 5%, consistent with the first quarter, while non-recurring revenue jumped 21% on strong license activity. Adjusted EBITDA advanced 10.6%, with margins expanding 178 basis points.

Capital Markets, by contrast, saw recurring revenue growth decelerate to 5.3% and professional services revenue decline 17%. Kehoe said professional services missed expectations due to lower sales and slower-than-anticipated backlog conversion. Margins were slightly lower year-over-year due to expense timing, though management expects expansion in the second half.

Segment	Q2 Pro Forma Revenue Growth	Recurring Revenue Growth	EBITDA Margin Change
Banking Solutions	+6.1%	+5%	+178 bps
Capital Markets	+3.2%	+5.3%	Slightly lower

Kehoe was candid about the root cause: "I'd be clear on one thing, it's principally the PS call down, which is call it half the overall Capital Markets — 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."

TSYS Momentum and AI Progress

Despite the Capital Markets weakness, management emphasized that the Total Issuing Solutions (TSYS) acquisition is compounding. FIS won two new top-10 financial institutions — a Latin American bank and a commercial bank in India — and has now renewed roughly a third of Total Issuing revenue since the start of 2025. 72% of the portfolio is under contract through 2029 or beyond, up from 65% at the last update.

Cross-sell metrics improved as well: enterprise-wide ACV sold to joint TSYS/FIS clients grew 35% year-over-year in the first half. Ferris pushed back on concerns about Visa Pismo, citing a win rate above 85% for deals with more than 1 million accounts and Visa's own public statements that Pismo targets small-to-mid-size banks rather than the large institutions FIS serves.

On AI, FIS now has 10 AI products in market with 200 live customers and a pipeline of more than 500 opportunities. The partnership with Anthropic is progressing, with AI-driven anti-money laundering and agentic fraud capabilities in development. Internally, AI has improved engineering throughput by 1.5x-2x, reduced defects by 30%, cut manual tickets by 70%, and reduced triage time by nearly 75%.

Revised Guidance

FIS reduced its full-year adjusted revenue growth outlook to 4.5%-5% from 5.1%-5.7%, entirely due to the Capital Markets reduction. The company reiterated its Banking growth outlook. Adjusted EBITDA margin expansion is now expected at 85-105 basis points, slightly below the prior 95-110 basis points, and adjusted EPS growth is forecast at 7%-8.5%.

Full-Year 2026 Guidance	Previous	Updated
Adjusted revenue growth	5.1%-5.7%	4.5%-5%
Capital Markets growth	5.5%	3%-3.5%
EBITDA margin expansion	95-110 bps	85-105 bps
Adjusted EPS growth	—	7%-8.5%
Free cash flow	~$2.05-$2.15B	$2.15-$2.25B

For the third quarter, FIS expects pro forma revenue growth of 2.9%-3.7%, with Banking growing 3%-4% (losing about 100 basis points of M&A contribution versus Q2) and Capital Markets growing 2.5%-3%. Adjusted EPS growth is projected at 4.6%-7.3%.

Management said Capital Markets recurring revenue should exit 2026 in the mid-single digits with modest acceleration in 2027, helped by lapping UBS/Credit Suisse attrition. Kehoe noted, however, that no lending rebound is assumed in the outlook.

Strategic Review and Analyst Pushback

Ferris announced that FIS is evaluating strategic alternatives for "select products" within Capital Markets that do not fit the company's strategic profile. She stressed this is not a segment sale.

"Within the Capital Markets portfolio, there are products, not businesses, that don't strategically fit with our business," Ferris said. "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."

Analysts pressed on the parameters and timing, but Ferris gave no specifics: "I don't have a number for you. We'll come back to you as soon as we have something."

Kehoe acknowledged the difficulty of divesting integrated products, noting "every time you take it out, you don't see a proportionate reduction in the fixed cost." The decision will ultimately hinge on "creating the right portfolio to drive back quickly to sustainable mid-single-digit growth."

In Q&A, analysts sought to understand whether Capital Markets weakness was market-driven or company-specific. Ferris maintained it was execution, not demand. On professional services, she said, "We don't expect our non-recurring professional services items to be growth on a go-forward basis."

Analysts also challenged the sustainability of payments growth of roughly 6%. Kehoe said payments, now FIS's largest business, should continue at mid-single-digit levels, with TSYS performing well within the portfolio. On Banking demand, Ferris said she sees no evidence of deferred decisions: "We don't see banks putting decisions on hold, not in the areas that we're working on."

Outlook

FIS reiterated its path to more than $3 billion of free cash flow by 2028, underpinned by EBITDA growth and disciplined reductions in one-time expenses. The company captured $13 million of TSYS cost synergies year-to-date and reiterated its target of over $150 million in EBITDA benefit by 2028. Banking demand remains robust across payments, fraud, data, lending, and modernization, with management expressing confidence in the durability of the model despite the Capital Markets reset.