Q2 2021 ACI Worldwide Inc Earnings Call
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Welcome to the ACI worldwide, Inc. Second quarter 2021 financial results Conference call. My name is Sylvia and I'll be your operator for today's call.
At this time all participants in on listen only mode.
Later, we will conduct a question and answer session.
During the question he just asked and you'd be happy a question. Please press Star then 1 on your Touchtone phone I will now turn the call over to John Kraft you.
You may begin.
It was $250 million and Q2, an increase of 7% ear over a year with positive recurring revenue growth and all 3 segments.
I am pleased to report increase the strength and our global sales organization.
And a quarter record the key wins and all 3 segments.
This means included an impressive list of non logos.
Let me share some highlights.
And our bank and segment, we expanded our relationship with a major Canadian back.
We will consolidate their global wire processing and 2 ACI real time payment solutions and the cloud, creating a single functionally rich ecosystem.
We also contracted with a well known U S. Based on financial technology is raptor with plans to move their issuing business to the cloud.
In addition, we secured the realtime payments when with the Central Bank of Indonesia.
This comes after nearly 2 years of work and is an important win for a ci that cement our growing lead in the real time market in Asia.
And our merchant segment with security important wins, including a deal with a lid and few and travel operator to upgrade their point of sale operations to Aci's Omni Commerce software.
Finally, and hour Biller segment, we signed several very large contracts, including 1 significant competitive when.
Discuss them and plans to use our alternative payment channels and benefit from our solutions ability to offer lists cost Rotten.
Moving to another topic I'm excited to announce that ACI expanded our collaboration with Microsoft for me on a global alliance to deliver best in class payment solutions in the cloud.
The agreement to expand and accelerate Aci's cloud offerings, and we allow both companies to capitalize on growing global demand from financial institutions driving towards digital modernization.
The alliance of strength is how ACI and Microsoft corporate and key areas, including go to market and customer on boarding it also creates pathways to power innovation.
Outgrowing pipeline combined with and improving brother economy providers with increasing confidence that we are well positioned to drive growth and delivered strong and accelerating performance and the second half of true 21 and beyond.
We remain laser focus on continuing to build a robust pipeline that will support our long term growth objectives. Importantly, we expect to achieve the rule 40, and 12.21 for the first year ever.
And we remain actively engaged in the review of our business portfolio and there are many opportunities to ensure we are and maximizing short and long term value creation to our shareholders.
And with that I'll turn it over to Scott to discuss the financial Scott.
Thanks, social on and good morning, everyone. I first plan to go through our financial results for Q2, and then provide some additional commentary regarding our outlook for the rest of the year.
We will then on the line for questions.
And is always you'll on mentioned with delivered results at the higher end of our expectations.
A recurring revenue grew 7% to $250 million and Q2 and was 83% of our total revenue up from 78% and Q2 last year.
And importantly, recurring revenue was up and all 3 of our segments compared to Q2 last year.
Total revenue was $302 million and a quarter, which was up 1% over last year.
Adjusted EBITDA and a quarter of $60 million was down from 78 million and Q2 last year.
1 thing to point out here more of our license fee revenue from and year renewals will come and the second half of this year compared to 2020, and that's just based on the timing of the contract explorations for those contracts that renew this year and as a reminder, those license fees come with very high flow through EBITDA as well.
So looking at our 3 segments and our banking segment, which has been the most impacted by COVID-19 related purchasing delays, we saw recurring revenue growth of 2%.
With recurring revenue, representing 56 percentage of its segment revenue compared to 50% for Q2 last year.
Adjusted EBITDA and our banking segment was down and Q2 due to the decline and non-recurring license correct.
And again that will pick up here and the second half.
And our merchant segment, and we saw recurring revenue growth of 5% with recurring revenue representing 95% of its segment revenue compared to 91% and Q2 last year.
Adjusted EBITDA on our merchants segment and proved 2% compared to see 2 last year.
And finally, and our Biller segment, which is entirely recurring revenue. We saw recurring revenue increased 9% from Q2 last year and adjusted EBITDA increased 1% compared to Q2 last year.
As we've been discussing this year, we introduced a new bookings metric annual recurring revenue from new contract signed and the quarter or.
Or this quarter, new a R. R was 18 million down from $22 million and Q2 last year we.
We actually saw new Ah rebounded and North America, and Q2, delivering 6% growth over Q2 last year offset by declines and our international markets.
And a social and mentioned as we begin to see the international Covid related headwinds dissipate and we see the overall improving business environment, we're confident that new a R. R and revenue growth will accelerate and the second half of this year.
ACI and of the quarter with 146 million and cash on hand, and $474 million available on our credit facility after paying down $25 million and debt and a quarter.
We ended the quarter with 1.1 billion of debt, representing and net debt leverage ratio of 2.8 times.
And I will just say here, we are very pleased with the pace, we've been able to delever. Following the speed pay acquisition and expect to be back at or below are targeted to 5 times leverage exiting 2021.
And also of note here, we've repurchased 1 million shares of our stock during the court.
And finally as we look ahead to the outlook for the rest of 2021, and we are increasingly confident that we'll see new a R. R and revenue growth accelerate and the second half of the year with particular strong results and queue for as we and the year. So with that we are introducing revenue guidance for the full year 2021 with expectations to general.
Right full year revenue and a range of 1.33521345 billion.
We are reiterating our adjusted EBITDA expectations of a range of $375 million to 385 million and for Q3, we expect revenue to be and a range of $310 million to 320 million and EBITDA to be and a range of 70 to $80.
With that I will now pass it back over to Hojo on for some closing comments.
Thanks Scott.
I like to rate the rate that give too was another strong quarter with the results coming in at the high end of our expectations.
We expect considerable growth acceleration and the second half and especially in queue for this year.
We are extremely happy with the prospect of delivering their rule 44, the first year ever and 2 or 21.
And closing we would like to leave you with 3 takeaways.
Number 1.
With the implementation of on 2 strategic dealers fit for growth and focus on growth. We are starting to generate and will continue to generate healthy and predictable organic profitable growth.
Number 2.
With our third pillar transformational growth to M&A, we remain actively engaged in the review of our business portfolio and there are many opportunities.
Number 3.
Our ultimate objective remains quite clear.
ACI worldwide will create transformational short and long term value to its shareholders.
We are now open the call for questions operator.
Thank you and we will not be kind of question and and chest session.
You have a question please pass star Ben line, and you're a touchtone phone.
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Once again, if you have a question. Please pass start then 1 on your Touchtone phone.
And the first question comes from Peter Heckman from D, 88%.
Hey, good morning, everyone and thanks for taking my question.
I was wondering and could you go through some of the things that maybe me and not be evident and the press release that you've talked about increasing your confidence and revenue acceleration and the back half.
Yeah.
Really see it and like our bookings number.
So can you talk about maybe some contracts these sites and the quarter closed or or some larger software deals that that.
Have either closed or you think are a minute that are that are giving you that confidence.
Yeah I think thank you. Thank you further question fees.
I'd like to start, saying, what they've been talking to the sales of banks around the globe Dara dose on.
That are just getting.
Getting back to the table finally, and I am seeing those knee logos.
Lots of deals that we have been discussing for a good period of time that will definitely come to closure.
Thank you. Thank you for more on queue for then Q3 I would say that's what I was shooting for so that's 1 part of the cost is I have and the second part is we have a big backlog of renewals and queue for very considerable.
So you put those 2 together.
And I feel very confident about care for.
Let me, let me give us on many sites and digit the fourth quarter that we deliver what we said we will deliver and that's part of the culture here. So.
We have like <unk> for the numbers that has seen Q3 and Q for so very very confident about those.
Yes, I think pizza and thank you all.
Only thing I would add to that is if you recall and our Investor Day last November we said that we were we had we had.
Taken some structural cost reductions, but we were reinvesting pretty heavily into the go to market and particularly the sales organization. So restarted that ramp up late last year early part of this year spent the first half really not only hiring but really building out that pipeline and if you actually look a little kind of appeal.
Back on the queue to our growth, we actually started C and a pickup and North America, and North America was actually up 6% and queue to offset by declines and the international markets more impact still buy COVID-19, but started to see that spending pick up and Q2.
And a new logo win and the quarter and the U S. At a major wires track.
Transformation projects sold to 1 of our customers and Canada. So the spending certainly picked up and North America.
But based on our pipeline.
Comfortable that what we're seeing in the second half of this year is AOR growth.
And that should come in and the high single digits growth over the second half of 2020.
And that combined with the social on set the renewal book that that we have and again and those are just those are contracts that renewable.
This year pretty heavily some of them are already signed.
It's just that you have to wait until the the new term period begins to recognize it.
That's going to.
That's why we were comfortable putting out the revenue range for the year and that if you do the implied growth there second half.
Revenue growth over the second half of 2020 is projected to be somewhere between 6 and 8%. So I think it goes back really to the investments, we're making and go to market that's driving the pipeline that started to drive.
Bookings from the second quarter, and and we're comfortable with what we're seeing here and the second half from both that pipeline that's been developed as well as the the renewal book and the second half to get to that 6.8% second half growth.
Okay, that's helpful and and just maybe a housekeeping question, but it looked like interchange pick.
Pick a big jump and the quarter year over year.
Yeah, I think it's related to the.
Anniversarying of this week I deal, just just curious how that or why that happened.
No actually it was the movement and the the tax.
Filing deadline from Q3 to Q too and.
So that's.
The federal and state taxes that moved into the second quarter.
Most of the day, that's generally a pretty.
Hi interchange.
Business for Us I would say at the net revenue level and at the EBITDA level.
That tax businesses essentially breakeven so it brings and gross revenue of brings and interchange, but doesn't really impact as much the net revenue or or EBITDA level.
Got it alright, thank you.
Our next question comes from George sudden from correct ma'am.
I guess get Carter. Thanks for taking my questions. This is James on for George.
So obviously the renewal activities sounds like you have a lot of confidence and sort of the stronger Q4 compared to what you normally see.
I'm just kind of curious on your thoughts on some of the other segments as well and how those might contribute to strengthen the back half.
Well, yeah, and I would say I wouldn't look at and necessarily Q forest renewal.
I think it's I think if you look back on our history, a lot of its citizens and the fourth quarter on.
On the license side of the business and and select drives.
License fee and that comes and it pretty high pretty high margin and there's not a whole lot of incremental fulfillment cost that comes with that that license fee on a renewal.
On the rest of the business again, and it's in terms of the the the pipeline health that we're seeing as we hit the midpoint of the year and.
So I would say, it's on the confidence and the full year revenue and.
And and in particular, the fourth quarter is the combination of that size of that renewal book as well as the progress on the pipeline.
Got it.
And then on the expansion of your relationship with Microsoft I guess could you go into some detail there.
What does that allow you to do that she couldn't have done before what's what's changed there.
Sure George.
Good to talk to you so.
I think I could start about the the fundamentals of all are offering.
And the clout.
Today, I would say to you that through a cloud enabled so we have a very competitive servicing the cloud which.
Which has been with a highway and rates and as you can see for the examples that we we gave around the globe but.
But I think we can do much better I think this is evolving very fast technology's and both very fast. So this this this conversation and this agreement with Microsoft first of all is about innovation.
It's about bringing to the market what the market doesn't have and that's why I shy. So successful that's why we did with based on for a long period of time ago, and we had lots of other software and we want to continue that treasure Atari I mean, we are not here just to.
You will feel the legacy needs of our clients. We are here too and I know it and really bring to the table things that are not there. So I think that's number 1 number 1 it's a hub of innovation, it's about above of creating offerings that don't exist and the market. Today. So that's number 1 and number 2 is go to market.
It's a very strong and go to market and like dark and 2 plans together and really selling together should and most important and banks and facilitating those bags I have been talking to the seal on big banks around the globe and everybody would talk about digital transformation, everybody talks about and moving to the cloud, but I'm not saying they are lost but I will.
Date and need help they need direction and I think.
<unk> and Microsoft is better than a sale on.
And I think that's the the second part of it and the third part is we are co investing and all of this so we are currently investing and the market where coin investing on the development of those software is and so forth. So I think those are the 3 pillars.
And we are very very enthusiastic of all of that I think this is 1 of the most important alliances.
That you're going to hear from us.
In the next few years and I can think of that because the future is cloud.
And I think and Microsoft to be a wonderful partner.
Got it and then just 1 more if I could so and that press release, and you talked about and win with a leading digital bank banking as a service player and Latin Latin America. He sort of just go into I guess, what pain points, you are helping them solve where these competitive deals and I guess any feedback that you've gotten.
From them, so far around why ACI.
Yes, I think number 1 because they know we know how true scale.
So you'll talk for example, too.
Those low confidence those start to us I mean, they're very hot they're very fast there and.
And they are very nimble.
But the question is can you scale to a big contract with I'll give you the name like we're helping.
A global back and we have a lunch like 2 or 3 countries already going to the fourth country and all the in the cloud.
In Latin America, and and we keep doing that and they are not concerned about our possibly it's upscale.
And so I think that's what we bring to the table number 1 and solid brand hour, we know how to do how to move big big amount of transactions big amount of money and.
And our clients no. That's I think that's not number 1 I think number 2 is also our presence.
Let me give any sightseer wham.
And why I'm, so confident about our sales force.
We brought the head of the international markets, New head of the international market and the beginning of the year and we have a whole new team and Latin America for example to head on lithium and the head of Brazil. The head of other countries also so it's not only about the structure and increasing sales. We are now qualifying sales were bringing the best is <unk> of the <unk>.
And.
And we're starting to see the result of this so I think you've put all of those things together and that's why I was so positive about the cyclical effort.
Perfect. Thanks, guys.
Sure.
Our next question comes from maintained and from Needham and company.
Hey, good morning, guys. This actually cow Peterson on from my own. Thanks for taking my questions. So I just wanted to touch let me ask G&A leverage it's been really impressive scared and you guys have been able to.
Keep driving those higher and get more kind of lean and mean and.
Is there any more room or efficiencies left to extract or is this like a run range that you guys think you need really to drive like new product growth and and stronger like are are moving forward.
Well I think if you look at across the.
The various cost line items, we'd be you'll see the selling and marketing expense in particular is up over the last year and then a lot of the other areas.
And we as a part of the classroom and exercise we did last year and those are areas, where we where we took cost out and we reinvested pretty heavily and selling and marketing area. So I would say that yeah I think this.
We have invested heavily and starting this year.
And we'll probably get I would say, we probably get a little bit higher run right on selling and marketing expense going forward, but.
But I think what you're seeing in terms of the R&D.
Selling and marketing and G&A is is a pretty good from the rate of cost structure.
Okay and that today, if you look at it year over year, you're seeing the dynamics of where we zero based on cost structure and we're we're reinvesting in.
And sales and growth.
Thank God, Scott would be fair to say that we last year, we improved margin by 6 on the basis points and now we are saying is that we're going to continue to increase margin, but it's going to be more like 50 basis points and you're right I mean, something.
More and more of a function at this point really of layering on net incremental revenue on top of that cost base. So I think we've got a pretty good pretty good cost structure that we can scale.
Okay. That's a good color and then maybe if you could just remind us on some of the priorities around capital allocation and I know it seems like you guys and nibbled and the buyback and pay down some debt, but like how would you guys kind of rank order and whether it's buybacks M&A or.
Like reducing leverage like how do you guys think about kind of those different priorities here.
Yeah, I don't know if I'd rank order then per se, obviously and a quarter.
We got in and bought 1 million shares.
Think and historically been we've been pretty disciplined with.
And a a third of our our cash flow on on debt service third on sure sure buybacks and a third on tuck and type acquisitions.
Obviously as we exit this year and and we have several on time or targeted Leverages 2.5 times, a week midyear, where 2.8.
Exit the year somewhere around 2324, so obviously.
Deploying net cash is going to those those were getting more flexible in terms of the deployment of that cash obviously over the last 18 months was really focused on on Delevering, but.
We're certainly getting more flexible in terms of how we deploy that cash going forward, but obviously and the quarter, we were in a partner and chairs.
Okay. That's helpful. Thanks, guys.
Okay.
Our next question comes from Mike they'll call us up and come back.
Good morning, and thanks for taking my question.
Most have been asked and answered but.
I wanted to ask a higher level 1 on on your third pillar owed on and Ah.
Yep change value creation through on the day.
Can you provide any progress on on this pillar, specifically and then I guess you talk about accretive M&A.
What are some of the criteria and specifically when you talk about accretion are you talking to EPS or 2 revenue growth or EBITDA.
Yes, just a refresh there would be helpful.
Sure sure.
I think the third pillar is about.
Sure.
It's about our communication to investors, how friendly and we are about value creation and and outbreak times vetted creation to our investors. So we are very open again and I'm talking about 7 and I'm talking about vials.
Parts of our portfolio and we are actively looking to that I don't have anything to announce today, but I can tell you that I do have lots of things on my table and I and have them. It's part of my day to day.
And I can think of that we are going to be very active and this.
And this third pillar going forward.
And we have not been able to announce anything yet, but there was a lot of work.
And I want to communicate that's very clear to our investors. So there are no surprises right.
When that happens, but why do you can't expect is.
I don't believe in and buy and promise I believe and buy and buy and it's showing.
So why are you going to see is if we buy when we buy if we sell when we sell it would be highly aperture.
To our shareholders and the first moment and that's what we are working for.
Okay. Thanks, and then when you say accretive I guess, just do you mean to growth or what are some of the specific items. You are looking at when you need to find accretion I would say value creation. So it could be to die right away could be top line top line growth.
But should should should should should create value right away.
Okay understood. Thank you.
Thank you Mike.
Our next question and cut them until Sept, Bopping from Kenacort Genuity.
Hey, guys good morning, and nice results.
Just.
I guess, a real time update on real time payments and the U S and then globally and.
And then secondly with intrigue.
And 3 with the kentuck win and.
Clearly historically ACI has done a lot of work with established businesses and Ah you see the broader and type of opportunities for the company moving forward and growth driver. Thanks.
Oh. Thank you so much for the question really give me.
Give me the line here to talk to you about the big change that we're seeing.
We are not we I would say that and <unk> is if you look backwards we were position in the past we have this very solid offering like face and for these ACI issuing enquiry very solid offering to our current customers big banks around the globe and so forth.
And what we have been changing and Microsoft to accelerate that is now big big time, where position on ourselves for this new generation of fee and tax and I can talk about you about the banks and Brazil, just the banks and Brazil electric 4 years old and.
Talk to you about other feedbacks debt or just society and skating like Crazy and real time payments and we're being very competitive I know we knew rates is pretty good on on on those offers in the clouds.
And those who work so.
I think that growth going forward.
If you think about I think about our cash flow, our cash flow and continue to be with a big banks and so.
We don't have a lot of attrition and they will continue with us but growth will come from the syntax go will come from the modernization of their backs and in that case, we need to offer the products of the future not the process of the best and that's why the Microsoft Alliance is so important and and that's why do you side.
To see now the Microsoft Alliance went 1 step further now like we went to the I would say and game with our alliance and now we are very much together, but we have been working with Microsoft for the last 2 or 3 years and you are seeing the result of it now with this fintech, whether the realtime payments and Indonesia and so.
For a threat so.
I'd like to repeat that Joe it's all about cloud.
And it's all about.
I know positioning itself.
And on the future instead that and the future instead of and the best right. So it was Scott.
I think the only thing I would add to that and she I think Q2 as an example, the key win and.
And the central infrastructure, and Indonesia, and I look at that 1 is very similar to.
The Malaysia, where we power the central infrastructure, there and also the bank connectivity I mean, those are not those or not.
Big revenue producers and the quarter, but really it's critical to be a part of that infrastructure as it is being implemented in these markets and then once it's implemented it's really it's really waiting for the transaction volume growth, but it's it's it's absolutely critical and that's why we highlighted that when being.
Being a part of both the central infrastructure as well as the connectivity and the banks is it's really laying the the infrastructure for that future growth and real time I think Q2 is a prime example, and the highlight of.
The central bank of it and Asia as a key windforce.
That's great. Thanks, guys.
Thank you Joe Thanks, Joe.
And we have no further questions at this time I went out to and a call back over to Democratic closing remark.
Thanks, everybody for joining us we look forward to catching up with folks and the coming weeks and at the upcoming conferences are a good day.
Thank you ladies and gentlemen. This concludes today's campaigns. Thank you for participating and give me now disconnect.
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