Q1 2021 ACI Worldwide Inc Earnings Call

Excuse me. This is the operator today's conference is scheduled to begin momentarily until that time your loans will again be please stay home just thank you for your patience.

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The answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that the day conference is being recorded if you require any further assistance. Please press star zero. Thank you I would now like to have the confidence over it to your speaker today, Mr. John Craft. Please go ahead Sir.

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 a presentation deck today, a copy of which is available on our website as well as with the S. E C.

On this morning's call is O Jalan Almeida, our president and CEO and Scott Baron's are CFO.

With that I'd like to turn the call over to O Jalan.

Thank you John Hello, everyone and thank you for joining our first one or 221 on news conference call.

When we last spoke of February we just gonna sit there is true in queue for results and that hour trip pillars, tri-city was progressing and already making the difference.

Today I'm happy to report on mother's true quarter with results coming in above our expectations.

Let me start by providing some color when our financial results as expected and then like you. One left ear you want this year was impacted by COVID-19 related headwinds.

Despite of this headwinds we were very pleased with our results and is a kitchen against our three Peter strategic plan on.

Q on revenue of 285 made it was down slightly versus previous view, but gaming on both our from cast at the guidance Ranch importantly, a recurring revenue grew one per cent.

<unk> beat it in the quarter was 45 minutes, 19%, which was also above the high end of our guidance.

Our net that just debated a margin was 23%, which despite the revenue reduction was up 400 bids points from last year as we remain focus on cost management and profitability.

For the full year, we're reaffirming our guidance and there's previously discussed we expect to reach the rule 40. This year for the first time ever.

We had some exciting new wins in the quarter across all segments of note. We are pleased to sign a new speed pay deal with the Cascade financial Ah home law on Finance company, which will allow cascades customers to benefit from more ways to pay their mortgage including via mobile wallet using our <unk>.

Wallet wrong application.

On our outlook for the rest of 2021.

We will then open the line for questions.

As we discuss at our analysts day last November we are introducing a new bookings metric that we hope will be easier for investors to interpret and be more helpful. On allowing you all to compare our results on on apples to apples basis and model the financial impact going forward.

The metric also more closely lines us with industry standards and pier practices and importantly, the metric better aligns with our focus on throwing recurring revenue.

As you know driving recurring revenues one of our strategic priorities.

The bookings metrics called annual recurring revenue or a R. R from new sales and it's defined as the annual revenue expected to be generated from new bookings in the court.

So new accounts, new applications and add on sale contract signed in the corner.

In Q1, 2021, a R was $10 million, which is down compared to Q1 last year is last year's air bookings were unaffected by COVID-19.

The COVID-19 related headwinds really started hitting us in queue to last year. So while Q1 was a tough comparison this year comparisons should ease up going forward.

Recurring revenue was up one per cent to 246 million well total revenue came in at 285 million, which was down 2% from Q1 and 2020 again due to the tougher COVID-19 related comparisons.

We saw strong growth and adjusted EBITDA on the quarter, which increased 19% 45 million compared to $38 million in Q1 2020.

Our net adjusted EBITDA margin increased to 23 per cent in the quarter compared to 19% in Q1 2020 as you see the year over year benefits of our cost reduction initiatives as we continue to focus on profitability and drive towards achieving a rule of 40.

Also new going forward will be the reporting of our operating segments, which we believe provides increased transparency to our analysts and investors.

We are going to report revenue and adjusted EBITDA separately for each of our three target markets emergence fillers and makes.

This'll lines us closer to how we manage our operations and differs from the previous delivery based reporting segments of on premise and on demand in Q1 on merchant segment revenue grew 22% to 39 million and merchants segment adjusted EBITDA more than doubled increasing 129%.

And our Biller segment revenue declined two per cent 251 million, while biller segment adjusted EBITDA actually increased 13%.

Our bank segment, which continues to be hardest hit by the COVID-19 pandemic.

Revenue decreased 9% to 96 million.

While bank segment adjusted EBITDA decreased 12%.

We also saw strong cash flow from operations, which were up 22% to 70 million.

I ended the quarter with $185 million in cash on hand, and 459 million available on a credit facility.

We paid down $25 million in debt and a quarter and we ended the quarter with 1.1 billion of debt representing a net debt leverage ratio of 2.6 times.

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

For the full year 2021 that we continue to expect adjusted EBITDA being a range of 375 million to 385 million.

I will add here that we are comfortable with where full year street consensus for revenue and EBITDAR lining up.

And finally for queue to expect revenue to be in the range of 295 to 305 million and adjusted EBITDA on a range of 50 to 60 million.

With that I will now pass it over to Osha along for some closing comments on <unk>.

Scott in closing, we're pleased with the company's performance in the first quarter as ACI sparkles on as a kitchen continues to pay off.

We look forward to accelerate email momentum doing the second half on tool to anyone as we continue ramping orange strategy and is the economic ultimately improves this.

This will enable us to achieve the rule 44, the first ear ever.

We remain confident that will deliver transformational longterm value to our shareholders with that operator, we are ready to open the line from classes.

Thank you and as a reminder to ask a question you don't need to fast Taiwan on your telephone and can make sure definitely accommodate all participants asking questions Nathan didn't yourself to one question and one follow up again to ask a question if passed Taiwan I'm Gonna tell us.

Alrighty, we will pause for a moment to come to other cute any roster.

In many markets throughout the world.

Just to complement that we have a strong pipeline.

Our lifestyle our agreement with.

With Mastercard to continue to evolve after the win in Peru.

So we're very positive about real time payments.

Got it that's helpful. And then I guess, just if you could guys could provide an update.

You guys have been looking at potential M&A opportunities or kind.

Kind of evaluating whether there is any businesses that might make sense to kind of prune off.

To kind of better position you guys for long term growth.

Is there any update on either of those initiatives right now.

It's a continuous exercise Congress as part of our third pillar right step change value creation through M&A and it includes the divestitures and investments. So we are always considering those in and module country day here.

Alright, great. Thanks, guys.

Your next question comes from the line of Peter Heckmann from Davidson. Your line is open.

Good morning, everyone I had a few questions number one just on the new reporting.

Reporting methodology.

For the three vertical industry segments.

Do you anticipate reporting those on both.

Kind of a license.

Subscription basis.

On to help your analysis or is it just going to be one number that includes everything.

Yeah, well, we'll disclose it on a book.

A fee type.

Okay, Okay, great and and and.

You anticipate putting out an 8-K or something with the historical numbers for these new breakdowns.

Oh, yes, we will be.

Okay, Great and then just you know and biller.

You know looking at it you know X interchange it looks like revenue was down about 3% year over year.

Wanted to see if there were some other factors.

Potentially maybe tougher comps with the pandemic.

But you know what what's your best guess in terms of when we can see bill or start to move into the positive mid single digit growth range.

On pipe might be it on.

I'm very positive on both pillars.

What happened is we saw no <unk>.

Volume on upside by the end of day quarter.

With that the stimulus checks.

And that continues.

So I'm very positive about that and soon enough I think we're going to see a beta is going to the positive.

But to the positive side there.

Okay, great Yeah, Okay, maybe yes, maybe I'd just add to that I think that's where if we look at our Q1 over achievement versus what we were expecting when we went out with the Q1 guidance, that's really where we saw.

The uptick.

Pleasantly surprised with the uptick in transaction volumes that came in the builder segment.

Late in late March.

And so that.

And that builder business is all U S base, so not sure if that uptick was from.

From stimulus if it was from just the increase in economic activity.

But obviously kind of that the results for Q1, and the and what and what that means for the rest of the year I think the day ultimately gives us more certainty and more confidence about the recovery and about our outlook for the year.

Got it got it okay I'll get back in the queue for now thanks.

Again, if he would like to ask questions. Please press star one on your telephone. Your next question comes from the line of George Sutton from Craig Hallum. Your line is open.

Hey, guys. This is James on for George Thanks for taking my questions can you give any incremental color on the progress you've made in converting license customers to more of a subscription model or just sort of how those conversations are progressing.

Yeah again this also be the first year that we introduce.

That new construct and so far we haven't had any of those conversions most of the renewal business and that's really where it's targeting the renewal book is in the second half of the year and we will also target net new customers.

Debt, we are in conversations with.

Deals that we expect to close even as early as Q2 so.

So right now we're in conversation with both existing and new customers, but a lot of the renewal business sits out in the second half of the year I think on.

If you look at the pipeline again, we see more deals no debt that prefer subscription than than one time license. So that is a trend that we're seeing and we are managing in some way that we can.

Keeping our guidance and keep growing this company why we make that conversion on that is our commitment.

That's great day here and then in terms of some of the international growth markets, you've mentioned sort of trying to put more boots on the ground there.

Are you at a level, where you think you need to be at in terms of.

Adding reps in those those markets or from what are you seeing in terms of productivity of those reps so far.

James Thats a great question.

I just had a meeting last week and we are talking about that the way the teams the place that I'm not going to save money as boots on the ground, so I'm going to find them hunting in the company in any place that we can so if I need to continue doubling the sales force I will without impacting the bottom.

Bottom line I see tremendous opportunity to further increase the sales force in Asia Pacific for example, and in Latin America, and I think the debt the efficiency of those increases will be will be will be we will be very high end and will pay back very fast. So we continue to invest we will continue to invest without affecting the.

The bottom line.

Great one more from me if I could then I'll hop back in the queue. It's good to see the 22% growth on the merchant segment.

Do you think that's a sustainable growth rate going forward and is there anything you're doing strategically that could pause, possibly caused that to accelerate.

Well, yeah, we've got a number of initiatives, we're working to accelerate I would say.

That's obviously been the bright spot going back into the into the pandemic. Obviously its continued here in Q1, and we don't see it slowing down but yes, there's a number of initiatives going back to <unk>.

Last year, when we did our zero based planning process to really.

Take dollars from lower growth parts of our portfolio and reinvest.

This was the <unk>.

E Commerce merchant E Commerce was an area that we're reinvesting in so.

We expect that to pay dividends.

I think theyre, just retro debt that wouldnt be fair to say Scott that.

Also we have some more savings planned for next theory, Greg Oh, Yes, Im looking back at just the savings that goes back to the growth in EBITDA year over year the growth in cash flow year over year really a lot of the work we did last year in terms of restructuring the cost base.

It really sets us up well as we exit the pandemic and we can layer on that incremental revenue on top of that cost base, but we said going into this year, we had about $60 million of cost savings those.

Actions were affected early in the year.

There is an incremental there's certain initiatives that will roll off this year, and we will get an incremental full year run rate benefit next year of an additional $15 million. So we'll either redeploy that and investing in areas such as e-commerce or.

And to the sales force in emerging markets or that will drop the profitability.

But those initiatives are all still still on track.

Great. Thanks, guys.

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

Hey, just a couple of follow up so on the new R. R metric debt.

That won't include renewals.

But do you anticipate providing a more regular update like on retention.

Give us a feel for kind of net net new business.

Yes, we can if there is any <unk>.

Significant changes in retention rates.

But I will say on that metric, it's really a sub component of what was previously our new bookings.

But it's just focused on the recurring revenue and so if you look out and say when with this annual recurring revenue expect to when would we expect it to start to show up on the P&L. Our products can go from anywhere to six month implementation two on <unk>.

18 months, depending on whether it's cloud deployed on premise. So you could probably look at on average start to see a run rate of that into our recurring revenue and probably 12 months or so depending again on the mix.

Got it got it Okay, and then any thoughts on the ongoing process of the federal reserve here in the U S.

<unk> to build their own platform.

Fed now for real time payments.

Can you talk a little bit about how ACI is working with the debt on that.

Yes, no we are very well. Thank you for the question. We're very involved were very followed all around the globe in every and each real time payment initiative and do it on.

This is no different as you know United States is lagging behind the.

The rest of the other markets around the globe are the main markets like Kingdom, Malaysia U K I, even Brazil now so, but we are very positive about that.

Looking very close to the fed about add on defending our initiative we have even on people from our company is sitting on the board of the initiative today.

And we are very very part of it. So we our plan is to be very very engaged.

Okay, Great. We'll look forward to two additional commentary there I mean is that something that it appears that it's on realm.

Relative track for late 2023 early 2024 type rollout.

It is it is I think.

Look real time payments easier irreversible right I mean this is Dave.

Is it something that that's where that's the railroad that's going to be growing and we would like more than 45% next year. So you can expect the real time payments growing around the globe 40, plus for the next few years and again when I say it is no different the United States understand that you have a red initiatives like cell, but I think more.

This is taking more time as I said that the rest of the countries, but on when it comes it will come really strong. So I'm very positive about that I think we're going to see a revolution in real time payments in the next five years.

Got it got it alright, thanks, so much.

Sure.

And again, if you have any questions. Please press Taiwan's on your telephone.

There are no further questions at this time speakers you.

You May proceed.

Well, thank you everybody for dialing in and being interested in ACI, we look forward to catching up in the coming weeks have a good day.

Okay.

This concludes today's conference call. Thank you all for participating you may now disconnect.

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