Q3 2019 Earnings Call
Ladies and gentlemen, thank you first timing by and welcome to the AC <unk> worldwide Q3 earnings Conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be question and answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please.
Press Star Zero. Thank you I would now like to have the conference over to your speaker today Mr. Jon Graf. Please go ahead Sir.
Thank you Patricia and good morning, everybody today's call like all of our events is subject to both safe Harbor and forward looking statements you can find the full text of both statements on our website as well as with the FCC.
On this morning's call a C is our CEO fill easily.
Our CFO Scott Barents, and we also have Craig Sox our COO.
Before we begin I'd like to let everybody know that AC I will be attending cities 2019 financial Technology Conference in New York next Tuesday, and Wednesday November Twelveth and 13th we will also be attending Stevens 2019, Nashville investment conference in Nashville next Thursday November 14th.
In addition, we will be hosting our own Sci analyst days, both in New York.
And in London on Tuesday November 19th and Thursday November 21, with that I'd like to turn over to Phil.
Yeah. Thank you John and thank you everyone for joining today's call.
Please to report the quarter three was a strong quarter for a CR as a digital transformational payments accelerate so around the globe.
AC guides vision any payment every possibility continues to resonate with the market, we're growing our business organically across our two p. and else.
The acquisition of speed pay which closed in May further propelled our results, bringing notable improvement in profitability and scale tore a CIO and demand a platform. In addition, one of our delayed contracts from 2018 close in quarter, three with a major renewal and expansion validating a sea ice important role.
In the new payments ecosystem, whose burley, we fully expect Oh, another one of these deals to close from fourth quarter.
Also notable in the quarter, we have partnered with Microsoft and current two significant acquirer clients running retail payment solution in the cloud on the Zohr following successful proof of concepts.
One client and go like next week and the other will follow shortly.
In addition, our developer sandbox Zohr is also gaining traction as a way for our customers to build and testing solutions via our a PR.
As John mentioned Craig Sachs.
Hey, guys Chief operating officer is also with US today and I'm going to have him spend the next few minutes, providing additional commentary on the quarter and sharing a sampling of Q3 wins, which demonstrates a sea ice momentum within or bank intermediary merchant and corporate customer segments. Craig will then turn over.
The call to Scott to cover the details of our two three financials.
Craig.
Thank you very much full and good morning, everyone.
So I'll start with ice YOD them on business as Phil mentioned, we continue to grow organically and then led on the speed pack acquisition, which has bought improved Scotland profitability to our platform.
In Q3 2019 revenue for they see a undermine piano was $193 million up 85% from last year and on net adjusted EBITDA margin improved to 20% from 5% in Q3 of last year.
We also pleased to report that must be pay integration. If it's a nice soundtrack to bring together the industry's leading U.S. bowl pay portfolios into a single unified both play both pay platform capable of supporting billions of transactions.
We also broadening the reach of HCR speed paid mobiles mobile wallet technology, which just received top honors from the I take group in its digital wallet Innovation Awards program.
A solid bold pay foundation is fueling investment in higher growth opportunities, where a platform which include secure E Commerce and machine learning based payments intelligent solutions.
In addition, we are developing real time and recurring digital subscription payment capabilities to meet the converging needs of merchants corporate symbolism.
A brief sampling of a few ace YOD them on Q3 wins would include.
The peer group of insurance companies, a leading U.S. home and auto insurance, you select HCR speed pay to expand gold pay options, which commercial portfolio.
For you I write Blue Cross Blue Shield of New Jersey has expanded its use of Asias full payment solutions and Ida housing and Finance Association, a leading regional milk mortgage servicer has selected Iseatz bull payments to enhance its self service channels.
The merchant side of our portfolio limelight CRM, a subscription management platform homeowners companies selected I've mentioned payments to support the online payments needs of its growing customer base.
And the leading video game developed Penn East boats tournament organizer, because I've mentioned payments as it expands its digital wallets and retail operations.
Shifting now to 80 on premise. This piano also reported strong quarterly results in the year over year comparison revenues increased 15% and net adjusted EBITDA margin improved to 62% from 55%.
This growth was fueled by a significant customer contract with a leading global bank technology and payment processor.
This contract, which had been delayed due to industry M&A activity in Q4, 2018 represents both a renewal and an expansion of HDR technology I.
I see I will equip this newly combined organization for aggressive payments digital transformation and transaction growth rates use of a up retail payments solution, a up real time payments solution I payments risk management solution and also our back office solutions.
This organization selection or they see our solutions validates a trend we have been seeing for the last several quarters banks merchants and intermediaries continue to recommit to our foundational up retail payment solution to power they call it payments infrastructure, while adding up real time payments to manage growth in the immediate payments world as well as a payments intelligence to managing.
Leasing they sophisticated payment fraud risks.
Finally, as we noted each quarter real time payments continue to be at the heart. So the innovation agenda for the majority of banks worldwide and I see us very much at the forefront of immediately the payments deployments around the world.
Last quarter, you may recall, we announced a strategic investment with mom gets solutions in India. In Q3, we advanced our Bulldog how about joined payment solution that will combine <unk> proven universal payments processing software with mine gates excellent portfolio of digital overlay services will you PR transactions in India.
I'm very pleased with the way our teams are working together nicely on mine gate with feature that's co presenters that money 2020, just last week in Las Vegas.
I see on premise wins and major milestones for Q3 would include some other following.
State Bank from India, The largest bank in India signed a renewal to use up retail payments and I payments risk management to meet its caught and non caught based transaction processing and fraud monitoring requirements protecting hundreds of millions of accounts.
Leading global financial services firm has expanded its use about payments risk management for fraud prevention and detection for its debit cards business.
In Europe Rabobank achieved its final milestone in scaling up for instant payments as part of the Dutch <unk> instant payments launch. This provides immediate payment processing of mobile and online payments CMS, enabling consumers to pay and receive money instantly at any time of the day 365 days it yeah.
And our Pacific region, Australia's leading provider of integrated financial services elected up real time payments to simplify its current platform address new and future business requirements and reduce time to market.
Latin America Bank had a lot Republika the largest back in Uruguay expanded its use of up real time payments and up retail payments to off its customers innovative products and they get better connect to a growing fintech environment.
And finally I'm proud to mentioned that HDR technology continues to be recognized for industry Awards a payments intelligence solution recently won the 29 team Global banking and Finance Award we were on it as the based enterprise fraud prevention Provida Europe for our multi layered approach to fraud detection and machine learning capabilities.
We've also recognizes the based real time payments solution provider at the Pope and at the owes them payments Innovation Awards.
Finally, before I hand over to Scott's I want to reiterate that we had a strong quarter across both our <unk> on demand and I see our on premise panels. We are pleased to have closed a significant re commitment and strategic expansion contract with one about the light contracts from Q4 2018.
This contract validates asias important role in the new payments ecosystem, and we look forward to ongoing growth at this custom it.
In addition, we are in the final stages of negotiation and expect to close another significant contract that has been delayed from 2018 due to the industry M&A activity.
And with that I'll now turn over to Scott to provide additional commentary. Thank you.
Great.
Thanks, Craig and good morning, everyone.
First plan to go through the highlights the third quarter, and then provide our outlook for the fourth quarter and full year.
I will then hand, it back to fill for some final comments before we open the line for questions.
We'll be starting my comments on slide six with key takeaways from the quarter overall, we had a strong quarter with new bookings up 12% from last year.
Importantly, it's filling Craig it both mentioned one of our contracts that was delayed due to a customer M&A activity in late 2018 closed in Q3 with a major renewal and expansion validating a sea ice important role in the new payment ecosystem.
We ended the quarter with 12 month backlog and 60 month backlog of 1.1 billion in 5.7 billion respectfully.
Q3 revenue grew 45% over last year in came in above our expectations and at the high end of our guidance range, excluding the impact to speed pay revenue was up a strong 9% organically.
Recurring revenue increased to 69% of total revenue up from 65% of total revenue in Q3 last year.
Our solid revenue growth contributed to strong EBITDA growth, which was up 66 person.
For last year.
Turning next to our two operating segments. Our on demand segment grew revenue, 85% driven primarily from the speed pay contribution and continues to deliver solid margin improvement with our net adjusted EBITDA margin sitting 20% in Q3, this year compared to 5% last year.
We've been saying for sometime now the margin improvement come with time and what scale as we grow the and is we grow the revenue into the infrastructure that we built out over the last few years.
Our on premise segment grew revenue, 15% and delivered adjusted EBITDA margins of 61% versus 55% last.
Cash flow from operating activities was 32 million versus 29 million in Q3 last year.
We ended Q3 was 122 million in cash and 1.4 billion in debt.
During the quarter, we spent 35 million repurchasing 1.2 million shares and we have a 141 million remaining on our share repurchase authorization.
Turning next to slide seven with our outlook. We continue to expect full year 2019 revenue to be in a range of 1.315 to 1.345 billion.
And adjusted EBITDA to be in a range of 360 to 380 million, which excludes between 30, and 35 million and onetime transaction and integration related expenses.
And with seven weeks left in the year I'd say, we're comfortable with where consensus consensus estimates are lining up with our full year revenue and EBITDA expectations.
So on a constant currency basis, or we saw a mid teens new bookings growth here in Q3 contributing to double digit organic revenue growth and expect Q4, new bookings growth inorganic revenue growth to be even stronger double digit growth as we exit the year.
So clearly exiting 2019 strong and we expect that momentum to continue into 2020.
With that we're comfortable reiterating our 2020 EBITDA outlook, which is expected to be in a range of 425 to 445 million and we plan to give more details regarding our 2020 outlook on our Q4 earnings call.
With that I will hand, the call back over to fill for some final comments. Thanks Scott.
Thanks, a lot of before we turn to Q and a portion of today's call I have a closing comment this morning, I announced that after an incredibly fulfilling 15 years, what they see I.
I have been informed the board that I plan to retire year end as president CEO and member of the Board. The board has been conducting a thorough search for my successor.
I will serve as a consultant capacity for three months following my retirement to help provide for an orderly succession.
Given our strong and experienced management team and the depth of our bench of talent and they see I I'm very confident that this will be a seamless process.
Look back on the last 15 years with great Pride satisfaction, we have developed a position as an innovative leader in the complex and involving digital marketplace. We've secured our operating model and we've gained traction among key customer segments, serving as a C.I. CEO has been a great.
[noise] has been a great privilege for me.
And I look forward to seeing AC I continue to achieve as well as prevail well into the future.
With that operator, we're ready to open the line and answer both questions.
Thank you and as a reminder to ask a question you will need to press star one on your telephone please limit your questions to one and one follow up please standby well be compiled the kidney roster.
[noise].
[laughter].
Yes, good question [laughter] from the line off.
Sure happy from D.A. Davidson Your line is open.
Good morning, gentlemen, this is elecsys on for Keith So sorry to hear that you'll be leaving us, but congratulations on your retirement.
So thank you.
Yeah, so with the on premise deal that closed could you detail how to contract was expanded.
Pardon.
Yes, a few things first of all they expanded in terms of the timeframe that they committed there was an increase in volume that was committed and we actually cross sold an additional set of applications. So they have an end to end solution for expansion in some new markets.
Okay, Great and then switching over to the on demand.
Panic growth in the quarter and then any areas you can put your outside of the pay that are contributing relatively more to growth within the segment.
Yes.
On demand grew low single digits in the quarter I think importantly, so a lot of the growth year over year came from speed pay but the key driver. There is the continued expansion in profitability.
Last year with 5% EBITDA margins this year with 20% EBITDA margins. So that's really showing the power of the in the scalability of the infrastructure that we put in place.
And the new digital products, you're growing sorry.
Correct.
Great. Okay, I'll, just squeeze one more and if that's all right. So in the first you know five or six months about wanting to be pay.
Update us on on integration efforts. So some of the focus areas for investment and also if you've seen any uptick in any attrition from the feed pay faith. Thanks.
Actually we were very very proud of the pay integration. It was you know, it's a carve out which gives it a little bit different a flavor, but the.
We brought on a wonderful management team that had a long and dedicated.
View of the business.
Dave.
I wouldn't say that they were happier, but they were very happy that they joined the company that was so payments payments focused they brought with them a.
I think they run their customer Centricity of that group I think is a positive and oh. They brought some leadership as it relates to that we have not seen we have not seen attrition. The accounts are renewing very nicely.
And we're going through it and they Oh the relationships are actually in go to <unk> and in very good order I mean, Oh. The speed pay is say acquisition that has brought great intrinsic value to us and we feel very good about I don't know if you want.
I need to things I'd add great signs of good engagement from the customer base, all that I'm seeing good cross sell traction between both sides of the portfolio in fact, which is not <unk>. For example, the mobiles application that I mentioned early on.
Is shaping up really want to market and then a number of those renewals that full mention to actually coming up for renewal this quarter and our customers are signing up for longer terms in some cases, which I would take as a positive f. a national day, they confidence in what you're doing it.
That's great. Thank you for taking my question.
And your next question comes from the line of George Sutton from Craig Hallum. Your line is open.
Thank you Phil I've been around for the whole 15 years, and it's been a wild ride, but a great ride just.
History purposes on a split adjusted basis I think when you joined it was a $6 stock so.
It's obviously been lucrative for long term shareholders.
You has a history buff are I know very focused on your legacy and and you have always talked about sort of leaving ace <unk> at the right time and place I wondered if you could just address that in terms of what was the thought process in terms of the timing.
Well.
I don't think Theres any I don't think I've ever tried to bid tend to be anything, but a transformational manager you know I'm. One of these guys that are it's kind of interested in most world supposed to look like five or 10 or in this case 15 years out in the future.
We started this with a bunch of assets that were you know machine or think about this company began a 100% dependent on the eight or the H.P. nonstop computer.
And you look at the companies that we were in there with most of them have lost 40% to 60% to their value over the last 10 years, we've made 20 acquisitions and we spent R&D money.
We've taken.
Our investors and I. Thank all the investors many of you've been with us.
For this whole period, so I want to thank you for my for my piece of it we've taken on a roller coaster ride were probably our greatest skill set is not making quarters that at times and being more value oriented than 90 days, it's actually not a 90 day business. It's a crew.
We will way of managing or measuring this business, but we believed 15 years ago.
In the digital commerce marketplace and.
Immediate payments and that we're gonna go from being hardware driven to software driven.
And most people thought we were not.
And I am now, leaving the company in which there is no debate in the marketplace about you know.
What the world's Gonna look like going going forward and we're right in the middle of the of the current I think the expression I've used with you George was unlike Moses I wanted to make it to they promised land you know I wanted to make it from Egypt, Israel and.
We have made it to Egypt, Israel, but not being being a transformational manager.
The company really deserves.
So now pursue scale in go to market, because we have all the tools and whatnot and it's great that we.
Great that we announce those two resort deals and it shows that we are cloud relevant and we're going to become much much more cloud growth less relevant and whatnot transformation is not.
The next chapter I mean, we'll always be transforming but I forces company to look inward to work on acquisitions to be a little bit less customer centric at times, because we force customers to move along with us in terms of technology changes.
Not they may be able thank me in the second life for that but they haven't always thank me at the at the time.
But I think we've done something that's significant and but I think that we only have a fraction of the potential value and that value is gonna come from having scale on a go to market thing and that's not my that's not my Forte ER and it is the right time for me to.
Oh.
<unk>, we had a brief conversation in the middle of the year and would try carnival I didn't say, but at least I was thinking about.
This this point in time and I do believe it's the right point.
And time I only have one constant in my life than that so my very very very very long term marriage in my kids. All these other things are event based and I think this is the right event and and I'm very happy.
And I'm very confident of the team's ability to keep going what weve developed.
That's a long answer but.
Well you have a good spent 15 years, it's hard to believe I'm still my Thirtys, but I had one other.
Question you are in a rapidly consolidating industry. This company has been on the top of software banker lists.
Of attractive M&A candidates for a long time.
Obviously, when you see a change like this that creates a incrementalist interest hard question, but you know <unk> I think it's a relevant question and probably want a lot of people on the call are curious about so I thought it S.
Yes, but that's about as appropriators kissing your secretary so.
So I can't China.
I'm not going to answer that charge right.
Alright, thanks, guys.
Your next question comes from the line of Smart polymer from BT <unk>. Your line is open.
Yes. Thank you good morning.
Well just wanted to get a little bit more perspective, particularly of the.
Signing of the delayed contract.
At the same time to company did not a raise guidance a financial guidance for fiscal 19 or fiscal 20, just want to get a sense of is that a just a question of getting clarity around the upside associated with that contract.
Or is a timing thing in terms of when it would kick in.
Yeah, No we had it we had contemplated these deals if you recall back at the beginning of the year. We had contemplated these as a part of our guidance. So our expectation was when we came out of 2018. These two.
And and we actually increased our our EBITDA guidance at the beginning of this year in reflection of these are these deals carrying over from 2018.
Are we didnt increase the guidance they've been contemplated in our full year guidance. We actually made we actually had a learning I won't say, we had a mistake.
When these four deals.
No one the four mergers referral announced and it represented eight customers of ours. We knew we have to figure out how to deal with it we thought that delays and whatnot would be a function of announcement and it's very clear that that was you know that was wishful thinking there are a function of the closing.
So as these deals closed its been very predictable in terms of how do you know.
How to rectify and as they've turned out to be opportunities and they're going to continue to turn out to be opportunities, having known having known that simple little facts that I. Just said, we would not have raised our EBITDA guidance at the beginning of the year when it first happened because we thought it was just as brief hiatus, we would've weighted to now.
Now to rate you know to raise it and we and we Didnt. It's a learning I promise you were not going to do that well, they're not going to do that are going forward.
Okay. Thank you and a one more question just with regard to.
The timetable with regard to succession, you know what.
What is the thinking in terms of when a new CEO could be named.
And yeah I had long has the search using.
Hey, and executive recruiter going on and what is the thinking about internal versus external candidates and without talking about Q.
Yeah. Okay. Thanks, Thank you, but I can answer part I can answer part of that I'm not going to answer all right.
The board has done a rigorous job of thinking through succession, and it's been it's been a major topic for over two years at the at the company and a day and been working with these folks Russell rentals.
Excellent team or at least you know this is in the second year in which this whole process has been going on that deliberation that said the decisions and whatnot is the per view of the board the responsibility board.
And I'm not going to trust path in terms of that and I'm not going to I'm not trying to try to handicap, what their decisions are and whatnot, that's something that they will do but I can tell you that are.
They've been working diligently on this for Ah.
<unk> been a major topic for a couple of years.
Thank you.
Again.
Good question, you will need to press star one telephone please limit your questions to one and one follow up.
Your next question comes from the line of Brett Huff from Stephens incorporated your line is open.
Good morning, guys and Phil I'll add my congratulations are said to see you go but hope the next or the next steps a good one.
Thank you.
My question, what my questions is about bookings or Scott I think if I'm remembering right I think net new bookings were up 12% for the quarter.
And you said for Fourq, you kind of stronger than that is that the the right message.
Yeah on an FX adjusted basis Q3 was up 15%.
We expect to exit the year strong Q4 should be.
Even stronger than that and so obviously exiting the year strong.
And you Didnt reiterate your net new bookings annual guidance high single to low double.
Is that still in force or is that where are we moving away from that.
I would say moving away a bit you know we were we were off quite a bit in the first half, but that's why I think it's important to to kind of look at the momentum and how were how we delivered in Q3, we'll finish the year strong we think that momentum will carry us into next year I think a lot of that you know obviously didn't impact.
The revenue and EBITDA guidance, where where that's going to be important as building backlog for future years. Okay threat, we get a lot of push back from advisers, and then forward Memphis and whatnot and they say.
Software companies don't give.
Bookings guidance and that it's not really you know, it's a confusing category versus being a and.
When you kind of paint us in the same light as merchant acquirers and processors and whatnot.
Really looking at our bookings is is a little bit I, suppose apples and apples and oranges and what not because we don't have the model doesn't.
The models just on flow that way in the more we become consumption based.
If it makes it even more difficult and whatnot and I think that's a valid you know it's about set of questions and I think what Scott is trying to say the slope going forward is much more important than taking a retro a retro backwards or whatnot, but probably even more important than that.
We have to figure out where they have to figure out a way of Oh thinking about how revenue rose.
Right and forecasting how revenue grows in a different way of dealing with bookings just lots of cases, the when something is booked.
There is as little as nine months or six you know some cases little less than nine months as much as two years before bookings become revenue with it's very different than the processing and it's very different than the acquiring businesses as it relates to that and it's you know it's something that we have to do better, but we have to think about a better metro.
And then then bookings going going forward.
Craig.
Craig and Scott and I have had that a debate a little bit in terms it, especially on the consumption side of the business because it's certainly not apples to apples between consumption and on promise. So we have to do we have to take that as a to do.
In terms of.
You know, giving you know because we try to be very transparent and and I think we land up giving falls false positives false negatives.
In terms of how we Oh, we do that so I don't know if that's helpful or not yeah that is helpful. Thanks, Hi question is on Phil I think you mentioned that there were I think.
<unk> customers in four mergers that we're kind of in this capital markets bubble that we had last year and earlier this year.
I understood that there were two deals that were delayed how does the how does the four number kind of figure into this yeah. There were no and I want to make sure. We keep the same dialog going there's always been for deals of which there were two there were two delays.
Other to our on you know there you know we we've kept them forecast as scheduled right you guys. All know with afford you know.
I don't think I have to tell this group of before deals were right I mean, they're pretty they're pretty they're pretty straightforward or two with the you know a.
Two sets of two so half of them, we thought as scheduled the other half we thought now you know this is the difference between bookings you know this again, where bookings as a little bit a full Scott Oh, one, though one of the four hasn't closed yet and we every every bit expected to close right, but if it doesn't close.
That may impact a booking right and it may even for a quarter impact.
Revenue, but we know that.
The subsequent we're very confident with the subsequent deal that comes from but.
Like I said, yes, I was saying before this is not a 90 you know trying to make this a nice a neat 90 day businesses.
You know.
You know you don't do business five years, and a clip and be able to explain that 90 days at a time.
Other than thinking you're on a roller coaster.
That's helpful. And then I further confused you were doing that's great and then last more qualitative as these big mergers happen and these banks for me are these banks prices are making big decisions to use your technology for another many many many years right, maybe a decade or more.
What is the anyhow writing.
Driver and that drives them to E. W is it the industrial strength is that the openness is the future proofing like that's a strategic decision by them can you just give us a quick highlight of <unk>.
Well, let me, let me reiterate something and of course, the cloud will reinforce.
This is a big way far new technology, what we've been working all these years on.
Right.
If you had a sea ice technology 10 years ago, 80% or the cost would have been hardware and middleware and we would've been 20%.
Of the costs. So that if you were paying us. It you know if you were paying US 50 million over a period of time you can consider that 200 million was being paid for hardware and middleware and I'm not talking about premises and all that other kinds of stuff just hardware and middleware, our new software.
Where makes that 200 million 50 million.
Okay. So you save a 150 of the 200 million, yes, we still charge at the 50 million and we absolutely deserve it we observe more than that right or because we've saved through the other 150 million. So if I was going forward 10 years, and saying Gee I got something that's costing me today 250 million in total the AC I guys are 50 million.
Jim.
But now I have a future and it's somewhat up to me how wide.
If you're an existing customer you have a task in front of you to transition it but you've got a 200 million dollar a five year save in terms of that that's pretty neat. What we're now beginning to see is there's a lot of new guys coming into the market as the digital worlds changing what are you going to do go by some old school.
Thing, that's a that's gonna be 80% hardware, and ER, and middleware, and 20 or 20% or you're going to go with us and go on the cloud or you're going to go with us and go to Lennox.
The that's why this effort needs to be more about marketing and go to market than you know then then my buying and fixing companies you know to get US here because the opportunity is not minor its massive right in terms of Ah the productivity that this this is the typical.
But he that we're going to see throughout the digital economy, whereas you know 250 million dollar a capital investments are going to be replaced with hundred million dollar capital investments and and that's what real.
That's what that that's what Oh, that's what this whole transformation is is about.
The only thing that's holding us back.
Is a well I think regulation has held the banks back for a long time, and but you know I certainly think that visa Mastercard are beginning to get it JP morgans doing a fabulous job of Pacific.
Yeah.
The don't have a new you're right. There's no reason the world they wouldn't commit for a long time and there's no reason that [laughter] in the world They wouldn't accrue those kinds of efficiencies.
And by the way this new environment than due to three times the volume that the other other one other one did which is both good for us and good for them.
That's helpful that a good answer that's great things sort of color appreciate Phil.
And there's no more further questions at this time.
Speakers you May proceed.
Well, thanks, everybody for dialing in we look forward to catching up in person and over the phone over the coming weeks have a good day everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.