Q4 2020 ACI Worldwide Inc Earnings Call

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Thank you and good morning, everyone.

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 the first and final pages of our presentation deck today, a copy of which is available on our website as well as with the SEC.

On this morning's call is O Juliana Almeida, our president and CEO and Scott Behrens our CFO.

That I would like to turn the call over the old Sheila.

Thank you John Hello, everyone and thank you for joining our call.

Why do we just because of the preliminary plenty plenty of results in January I shared my excitement for us.

Strong performance reinforces my confidence in the significance of value creation potential in all of Asia. So day, we will provide you with a more detailed update on the 20th plenty of results plenty of 'twenty, one outlook and growth initiatives let.

Let me start by providing some additional color on our financial results for blended one hour.

Our laser focus on rationalizing costs and maximizing profitability has driven significant.

Over the year EBITDA growth of net margin improvements even against the backdrop of COVID-19.

We're also pleased to be reaffirming the outlook, we provided previously including the rule of 40 for the first time ever plenty of 'twenty one 'twenty.

'twenty, our revenue grew 3% in the business environment highly affected by the pandemic.

Our adjusted EBITDA grew 17% and our net adjusted EBITDA margin grew more than 450 basis points, which shows all of our focus on shareholder value creation.

Further our consolidate the new bookings grew 36% and in particular on the Eve Aristarchus management, our demand segment bookings more than doubled.

This results of position the company extremely well to achieve our organic growth goals in the coming years.

Turning to our strategic initiatives, we have made excellent headway advancing the fit for growth focus on growth and the step change of value creation initiatives, we announced at the November.

On January one we launched with our fit for growth of organizational plan to become a more nimble in the giant comp.

We have successfully flattened our organizational structure and centralized sales.

We're excited about the benefits of this new structure and we are already seen positive results, including faster decision, making and increase at the responsiveness to our customers.

We look forward to continuing to drive efficiency on the activity and customer responsiveness to the flatter leaner model.

As part of our focus on growth initiatives, we have been targeting our investments span of high growth product areas, such as real time payments e-commerce with large sophisticated global motions and fast growing margin markets.

We are on track to meet our goal of increasing sales and marketing investment by 25 per cent and increasing the number of sales associates by 35% in 'twenty and 'twenty one.

And we are already delivering proved the results demonstrated by our recent bookings wins across the globe with both new customers and contract renewals from existing customers.

Notable Q4 deals for our issuing and acquiring solutions include the path UK retail bank and the leading Japanese international payments brand in the.

Immersion and ecommerce we expanded our relationship with the leading European retailer and pharmacy chain and one of the largest global funded share conglomerates and the bill of space, We signed many new customers, including a large U S financial services and insurance company and a leading U S Auto finance Collin.

The America. We also have an important real time payments wind as the result of our new partnership with Martha It was our first one to all most of the cause of alliance and the happen in Peru.

Finally under our third pillar of the strategic plan, we continue to sharpen our hawk was by evaluating and pursuing opportunities for accretive transactions and we will undertake a complete review of our business portfolio to maximize ACI most of the fire and deliver transformational long term value to our shareholders.

I am incredibly proud of the work we are doing it and I'm confident that the new foundation, we have built for ACI will empower us to deliver continuous profitable organic growth and the step change value creation through M&A.

With our strong fourth quarter performance and our continued the momentum I am confident the 'twenty 'twenty, one will be an important milestone year for ACI.

In summary, we expect to achieve for the first time ever the rule of 40 in 'twenty 'twenty, one and in parallel we are actively looking into investments and divestitures to maximize our growth profile and deliver transformational value to our shareholders before I turn the call over to.

The Scott to discuss the financials I'd like to briefly touch on an announcement, we made for them.

Pursuant to an agreement we reached with one of our shareholders cyber with value our nominating and corporate governance Committee, we will work with starboard to identify two new independent directors to be appointed to the ACI Board the March 'twenty and 'twenty one.

Does the announcement builds on our boards track record of refreshment following the appointment of two additional independent directors over the past two years.

We are pleased to have Richard is the agreement and expect these new directors, we all for fresh and then perspectives as we continue our efforts to maximize profitability and create significant shareholder value.

With that I'll turn it over to Scott to discuss the financials Scott.

Thanks, Social Juan and good morning, everyone I first plan to go through our financial results for 2020, and then provide some additional commentary regarding our outlook for 2021.

We will then open the line for questions.

For the full year 2020, total bookings were up 21%, while new bookings were up 36% compared to 2019.

New bookings in our on demand business more than doubled over last year, while new bookings in our on premise license software business declined primarily due to COVID-19 related delays in purchasing decisions by our bank customers, which impacted significantly our license fee revenues.

2020 revenue was 1.2 dollars 9 billion of 3% from 2019, largely due to having a full year's speed pay results offset by declines in non recurring license fee revenue.

Recurring revenue grew 10% significantly above the total company revenue growth and now represents 76% of total revenue in 2020.

Up from 71% in 2019.

Revenue from our on premise business was down 9% in 2020 due to lower non recurring license revenue for new sales, primarily resulting from COVID-19 related purchasing delays.

As you know our products for mission critical so it did impact our existing customer renewals, meaning you're not losing customers, but it did impact license revenue from new sales in particular from our bank customers.

Revenue from our on demand business was up 13% of 2020, primarily due to the contribution from the speed.

In addition on an organic basis, we saw higher ecommerce volumes and omni channel merchant payments, helping offset COVID-19 related slowing certain protocols in our biller solutions.

Obviously in 2020, we had little control over the macro related headwinds impacting the purchasing behaviors of our bank customers and transaction volumes Biller business, but we were laser focused on the areas, we could control including profitability for liquidity.

Our efforts to improve our operational discipline helped generate significant profitability growth for 2020 with adjusted EBITDA of $359 million up 17% from 2019.

Consolidated net adjusted EBITDA margin expanded to 37% up from 33% in 2019.

And it's important to note that this growth is not just the result of the incremental speed pay contribution as EBITDA also grew organic basis.

We saw significant profitability improvement in our on demand business from 19% in 2019% to 34% of 2020, we are very pleased with our profitability improvements around the business.

And even with the revenue decline in our on premise business our cost control efforts, we're able to maintain our 55% margins of 2020, which were in line with 2019.

Our EBITDA growth contributed the strong cash flow growth in 2020 with cash flow from operating activities of $336 million up more than doubled from 2019.

And we ended the year with significant liquidity, including the $165 million of cash and $444 million available on our revolver.

During the year, we paid down $223 million of debt and repurchase 1 million shares of our stock for 2019.

We ended the year with $1 2 billion of debt, representing a net debt leverage ratio of two eight times.

Finally, turning to our outlook for 2021, while we currently expect of COVID-19 related headwinds to persist through the first half of 2021, we expect growth to accelerate to the mid single digits in the second half of the year for.

For the full year 2021, we expect adjusted EBITDA to be in a range of $375 million to $385 million.

Which assumes net adjusted EBITDA margin expansion.

This excludes one time costs related to cost reduction initiatives, we discussed at our analyst day.

For Q1, 2021, we expect revenue to be in the range of $270 million to $280 million and adjusted EBITDA to be in a range of 25% to 35.

So with that I will now pass it back over to <unk> for some closing comments.

Thanks Scott.

In closing.

We are pleased with the Companys performance and plenty of 'twenty.

And look for to continuing our momentum in 'twenty and 'twenty one.

We are well positioned to advance our three pillar strategy and we are confident that we will continue to excel with Inc. Our new organization of structure and increases the focus on our higher growing areas.

Carla we are actively looking into investments and divestitures to maximize our growth profile and deliver transformational long term value to our shareholders.

I look for top of day to you one of our progress.

We are now happy to take your questions. Thank you.

And as a reminder to ask the question you will need to press the star one on your telephone again that is star and the number one task of question and it will allow one question and one follow up on the during the Q&A and please stand by while we compile the Q&A roster. Thank you.

We have of our first question from the line of Mr. Brett Huff from Stephens incorporated.

Your line is now open.

Good morning, guys how are you.

Good morning, Brett.

Just a couple of questions number one congrats on the the Mastercard joint win I think it was Peru or somewhere in Latin America can you just give us unpack that a little bit of how did the sales process go.

Was it competitive kind of what got you guys over the finish line.

From a from a decision point of view.

Yeah, well to answer any of it yet.

In Peru.

We had announced last summer.

For enhanced.

Partnership.

With Mastercard and in particular really targeting a specific list of countries to go to market on a joint effort.

That's really a product of that debt partnership that we announced last summer. So it's obviously getting early traction.

And we're really confident in the.

The breadth is basically the national suite and the Mastercard is going to operate and we're going to be the software. So that's the summary of it.

And so this is where you guys are doing most of the bank on ramped stuff, whereas Mastercard is due on the central hub is that kind of the the division of labor.

Correct correct, Okay. That's helpful.

The question is just on the guidance.

I think you guys said accelerating to mid single digits in the back half you had mentioned sort of mid single digits I think over the next three years at the analyst day.

Is that a little bit of a shift or we just feeling a little bit longer COVID-19 negative impact in the first half debt whats going on or am I misreading that that communication.

Yes, I know Brad we don't believe it's the shift we continue to have the same guidance of before we continue under COVID-19 as of just set. So there is impact of COVID-19 in the first ship in the first quarter. No question of all that I mean, nothing changed versus the Q4 quarter. So we continue to see all of our banks.

The lane decisions on license revenue basically so thats the only affect the receipt. We also see some effects on the volume of Bill payment that is also consistent with Q4.

And so so the effects of COVID-19 continues.

We don't know of how long they will be we don't expect them to continue during the second half of it that's why we're saying mid digit by second half.

Okay. That's helpful and then last one.

On the strategic review.

Any per view on that I think you mentioned reviewing the portfolio, but kind of how broad or narrow is that just give us the.

How much you can say I know there was an 8-K, probably coming out soon but just what are the kind of parameters of that if you could give us any qualitative thoughts on it.

It's very broad I mean, we are we and that's what the third pillar is about right. So there is no news here I mean, we see at the beginning of the sad that the third pillar is to provide step change value creation to our shareholders through M&A that could be true divesture of no.

Strategic assets or of buying some assets also.

Equity of weight and we continue to the debt. So it's very broad and continues to be a very broad so.

Okay, great that's what I needed I appreciate the time guys.

Sure. Thanks Brent.

And over the next question is from the line of the Peter Heckmann from Davidson. Your line is now open.

Good morning, gentlemen, nice nice results in the fourth quarter I wanted to see how youre thinking about both the renewal pipeline for 2021 as well as new business.

If you can talk about where you might be seeing some RF.

RFP activity on that.

On a country basis, or a large financial institution basis debt.

We should be keeping in mind.

Yes, I'd say somewhere for some of the comments I made in my prepared remarks, even with 2020 of it wasn't really the renewal book that was the issue.

We have of solid renewal book in 2021.

I would say really where we are where we're seeing the growth opportunity is really going to come as those those banks pick up spending in the second half of the year and what I'm, referring to there is more of the net new <unk>.

Sales versus versus existing renewals of.

That was really where we fell short in 2020.

Not in renewals, but in net new spend whether new logos or.

Cross sell of the new applications, that's where we see in our pipeline this year that picking up and that's going to allow us here in the second half.

Of the year or two to get to deliver our long term targets of mid single digit yes, it'd be the have been I mean calls with the CEO of bank sphere of United States in Singapore.

I was in meetings in Brazil also with some sales of some banks and what I can tell you with debt I start to see.

Lighting the total for the second half of this year.

So they started to talk about the projects that they were not talk anymore about the modernization about going to the cloud.

So.

I'm positive I'm optimistic about the second half of the year I think things will.

Get more to a new.

<unk> state of business wise by the second half of this year.

That's great. That's great and then can you just talk about the interplay and maybe in some of the countries that they already have real time payments of the interplay between.

Kind of more traditional biller direct bill pay and then real time payments.

Maybe how much of.

The payment volume has shifted over to a direct account to account payment versus the card based payments.

I can tell you for example.

Let me give an example of becomes more real I guess, the Brazil, the fixed in Brazil, right. I mean that has just been launched and is already like making.

Like 5 million accounts already like a few months. So when it starts the starts very fast so they're basically three rayos around the globe for payments right. Then all of the others are variances of the three raise you can have physical cash you can have cards or you can have real time payments and why do we expect going forward is that cash will continue to be stable.

And going down a little bit.

And the cards is not going to be growing as much as they have been growing the best right at 20% plus it's going to it's kind of slow down a little bit and but the bulk of the growth is really be real time payments and thats. What we are saying, it's a much more effective efficient rail and Thats why everybody is looking for that and that's why it's the the center of our strategy.

Great.

Got it thank you.

And the over the next question is from the line of Mr. George Sutton from Craig Hallum. Your line is now open.

Thank you and for.

Mike Congratulations on your being responsive to the shareholders with the upcoming board ads I think that's going to be well received.

I wanted to ask and maybe it's worth sort of thing but.

Also in your script and in the press release, you talked about long term shareholder.

Appreciation and as you may know given the history long term has always been kind of morph as kind of an item.

And I wanted to look at that up against total on your quote weekly Sprint's debt you run in the business just to understand the sense of timing that everybody has in this whole process.

Yes, no and thank you George for the question because you just the.

I think there was a flaw in the script, because we communicated I think that the wrong thing.

We are here for the short term for the medium term it from the long term. So it's value creation now it's the value creation and also in the long term and the.

I think the most important proof of it is we are going to achieve the rule of 40 for the first time this year. So after.

Nine months.

Now its one year almost debt they've been the company. This is going to be the first year ever that the company will achieve the rule of 40, so and that creates value for shareholders right. I mean immediate revenue for shareholders. So yeah. So great catch George So it is about short medium and long term.

Alright, I really appreciate that clarification relative to your divestiture of you're talking about the slower growing areas as you're increasing your investment in the faster growing areas I'm. Just curious how are you thinking of the investment of those areas that Mayer.

It may or may not the targeted for a potential sale.

Yes, so basically you have areas of high growth.

Areas that are important for us like dealers and issuing and acquiring debt theyre not going to be growing by double digits, but we will be growing by might be digital by close to mid digit and we call protect and growth and we have other divestiture arris debt. We are looking for now.

Assets that are not the strategic so it is a fine balance on the one on protecting the core areas, but but but releasing funds to invest heavily on the high areas of just to give you more color about that George last you through Bay. We went through the first I would say zero base of Exar.

Size of the company here and the reason is zero base that was on top of it Scott was very much growth to it and with zero base of the investments of the company and became from from debt from that point to see okay. What do we really need and that's why by that time, we were able to find $60 million this year and 75.

$5 million next year that we were able to reinvest in the business part of it and part of it.

Give it to bottom line so.

Perfect.

Appreciate the thoughts.

Thanks, George Thanks, George.

And again as a reminder, thoughtful question you will need the press star one on your telephone.

Start on the number one to ask a question. Thank you.

There are no questions at this time, Sir you May now proceed. Thank you.

Well, thanks, everybody for joining us we look forward to catching up with everybody in the coming weeks have a good good day.

And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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