Q3 2021 ACI Worldwide Inc Earnings Call
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Good day, and thank you for standing by welcome to the a C. I Carter's three earnings announcements.
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I would now like to Henna conference overdue speaker today, John Crap. Thank you and please go ahead.
Thank you and good morning, everyone like all of our events today's call 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 copy of which is available on our website as well as with the S. C C.
On this morning's call is Oh July no mater, our President C E O and Scott Baron's R. C. S O.
Before I handed over I want to remind everybody that we are hosting an analyst day on November 17, and look forward to see you in New York City. Please register your attendance via our Investor Relations website.
With that I'd like to turn the call over to which one.
Thank you John Hello, everyone and thank you for joining our third one or two O 21 on East Conference call.
I will summarize by saying that you're pleased with our progress to date the results for your C and confident and deliver your food your financial comedians.
We now expect we're getting revenue growth of 5% any beaches outgrowth of 6% to 7% until 21.
These organic revenue growth as well with both the past dreams.
As a result, we are raising our 12 21 guidance.
And importantly.
We are on track to deliver the rule 40 D C for the first time.
I would like to share more details on how we have b movie, our three pillars strategy from design and implementation to the library of the results.
<unk> with the of course biller fifth for growth.
<unk>, we launched the new throughout the day to transform the ACI organization we.
We called it fit for growth.
That's worth was all about rethinking how we approach over business screaming lining all the structure sharpening our go to market strategy and getting us ready to take the next steps in our evolution.
You know what environment of pressures from the Kobe and dammit, we focus on cost disciplined and profitability.
Bye you're into a 20, we implemented a new line of two minds that organizational structure to streamline internal processes, making the company leaner and more efficient.
In doing so we achieved $60 million and then we'll see.
These actions helped us rule, but just as the <unk> by 17% and increasing our NASA just to beat it up marching by more than 450 basis points 220.
We're encouraged by this grill thing two twin this growth has a cute in a challenging ear, where most of our customers were contending with a coffee at the front desk.
But for growth is also both of our customers. We have work to ensure customers remain at the center of what we do with a C. I a.
We streamlined organization to enable those closest to the action to make decisions, which was the goal, although a new structure customers that Italians our efforts to simplify have sped up decision making in.
And establish a new commercial function.
With significantly please our sales force fifth on the streets brothers did.
This group represents most of our customer facing roles and diesel registered a ratings success.
For example, roughly one third of our Bill payment segment pipeline originates from recently hire salespeople.
Howard robust and energize Salesforce now has more urgency to deepen relationships and Bill Clinton with you with customers.
With a more empowered workforce that can work more directly with customers. The result is a process time to market white whale evading our customer experience.
We increase our Susan Martin investments <unk>.
Along with this investments we also implemented the discipline and analytical approach to deploy how it kept those strategically it means or <unk> Ah lines with high within hours.
As we near the end of 221. These efforts are showing results Andrey increasingly optimistic about our future growth perspective.
Moving to or second pillar focused on growth. We have continued investing in our customers digital transformation has a modernized your payment systems.
Our purchase such as cloud real time and left mild technologists I also prioritize all of our customers.
We also conversed, our merchant platforms, allowing customers to leverage that combination of e-commerce and point of sale.
Are integrated solutions brings together online gateway fraud manager and I'm gonna be commerce capabilities into an integrated solution.
The highest level, our three focus on growth initiatives are <unk>.
Realtime payments covering both low and high bed in real time as well as investments in the last mile.
So if you could get the global motions with focus on utilization in Albany and E Commerce.
Emerging growth markets, specifically across Latin America, the Middle East Africa, Asia, and South Pacific.
When does take all these efforts together you begin to see what we were doing differently.
We have a target the strategy and we also have the organizational structure and culture alignment two way we.
We are fine and also lenders and are now seeing the results are sales airports producing consolidated net new a our bookings 50% from the third quarter of two twin as.
As I mentioned last quarter hope it the pressures dissipate it earlier in the North American market in third quarter, a R E. The Americas nearly double from us.
We're seeing improvements in international markets I'll bold this areas or is too soft.
R Q3 revenue and <unk> were both once again, we need the ranch we provide.
Today until 21, we have signed 96% of our expected revenue for the fourth quarter or 99% of the guy that revenue for the four year. This progress today is considered reliable previous years.
We are confident in our expectation for accelerated organic and recurring revenue growth this year.
And to repeat we expect to achieve the room or 40 for the first time in 12 21.
I want to highlight some of our critical wins in the third quarter, a testament to the strength of our global sales organization that I was so crazy calls me.
Many of these wins are from established global regional and national organizations across the spectrum from corporations to central governments. We also see increasing demand for services from feet that companies, including crypto currency and buy now pay later firms.
We record that wins across all three business segments. He North America Asia, Middle East Hero Africa, and let him out.
He North America, we renewed and district of new deal with a long time, it's yard customer.
<unk> utilized ACI enterprise payments platform to create a grill and modernization pet.
Pop you West Bank selected ACI for domestic and international wires and pave the path to converge more payment types on the same platform.
We made the significance lean back with a major bank one of the top 15 banks in the west utilizing ACI high value realtime payments to address both the west and nobody wants payments needs for the critical Izle mandate, we're partnering with a major information technology firm to provide support.
North and services to a leading bank in Canada to implement their payments with organization strumpet.
In Asia C. I M B back the heart a large Malaysian base is back with a footprint to spending the region will utilize ACI high bag of realtime payments.
This one was a competitive takeaway C.
T I M B and all the wins, we organize our ongoing focus on high bed realtime payments modernization.
We have two important winter named it with one of the country's largest banks and the leading wiped label ATM service provided both sign on to use a C. I issue me in a court.
This means with established <unk> customers are built on our ability to provide global solutions as customer Sparklers on this critical area of each week on the card.
J C D. A major global payments Kim has selected ACI as its next generation digital payment Park.
Turning to the Middle East one of our key focus on growth geographers.
We had the renewal and the new deal with two major financial institutions in Saudi Arabia.
They will utilize the Asa enterprise payment platform with platform extensibility and the best to modernize as part of Saudi Arabias Vision 2030 program in Europe, Ah lifting britches payments service provider renewed H E screen you an accord.
<unk> America, one of the largest processes and requires we leverage H I, usually and according to replace several in-house platforms. They use for charge backs.
In Africa Ah lived in Zimbabwe based payment service provider that enables banks to provide their customers. We didn't know that's even a giant technology platforms renewed the agreement for a <unk>.
You know emotions segment recycling Chinas progress you know grocery vertical why are we also cementing several new deals.
Albertson's, one of the worst top 10 supermarket.
Selected ACI omni comments to help seems to fights payments process and manage its service in our cloud supporting our multi acquiring offer.
One of the Uk's largest grocers renewed an extended their estore payments E Commerce, and <unk> solutions relationship with a C I.
This <unk> out of our continued focus on the grocery segment around the world and the ability to have our famous <unk> castration technology in cloud services to meet the digital confirmation needs of these customers.
I also want to mention that new deal with a root beer merchant that will facilitate the access to new acquire then provide new services with hei security e-commerce and fraud manager.
Some of our when it seemed the biller segment include the new deal with a leaking high education ERP system is definitely for his partner does deal we replace payment processing for 150 pleasant institutions and universities currently utilizing pay Paul payments pill.
This one grew out of a C. I spoke with somebody higher education segment, and all continued innovation, including arris likes to the sport though.
A new deal with <unk> pop U S Regional credit Union, which you upgrade their current systems to ACI Speedpay.
Road runner account services are leading finance company for recreational vehicles, that's chosen a sky speedpay to modernize its payment systems and offer more bills technology to customers.
Lifting global industry research firms also reorganize they say solutions to leadership, we achieved the best in class ranking it too Oh, 21, I T matrix, leading U S guest management vendors landscape report.
We are name and that'll leave their incorporate digital banking platforms by seventh which highlighted our solid customer base and support you.
We won several awards from Jennifer including payments innovation of the ear for ACI secure E. Commerce. Additionally, we received poop at that approval for our incremental learning technology.
<unk> industry first approach to machine learning.
Before handing the call over to Scott.
I want to say that time incredibly proud of D. C I, Tim and what we have achieved for our customers and our business so far.
I am enthusiastic.
About what the future will bring.
With that I was turn it over to Scott to discuss financials Scott.
Thanks, Social one and good morning, everyone.
My first play to go for our financial results for Q3, and then provide some additional commentary regarding our increased outlook for the rest of the year.
Okay, I hope the lie for questions.
We have a solid third quarter and once again delivered results within our guidance Ranch, we have now deliver to shrink quarterly financial results in line with or a ballpark guidance.
Recurring revenue in Q3 reached $245 million, representing 70% of our total revenue for the quarter it up 1% compared to Q3 last year.
It's always wanted mentioned, we also made significant progress in advancing are full your bookings pipeline and have now signed contracts representing more than 99% of our full year 2021 revenue outlook.
Our pipeline momentum is notably higher than we typically recorded vital Deborah which allows us to raise our forecast for the year and reinforces our confidence and delivering on this increased full year guidance.
Total revenue for the quarter was 317 million up slightly for Q3 last year.
Just that EBITA in the quarter was 74 million down for Q3 last year, primarily due to the timing and mix of higher marching license contract.
Turning two or three business segments that are banking segment recurring revenue increased 2% in total revenue increased 5% as financial institutions started to revisit projects previously the late by cope it.
In our merchant segment recurring revenue increased 11% as we continue to see double digit transaction growth and R. E Commerce solution.
And finally at our Biller segment recurring revenue in total revenue declined 2% versus Q3 last year.
Call last year are biller segment had significant tax payment related volumes at the tax deadline for federal and state tax filings was pushed into Q3 last year.
We ended the quarter with $141 million in cash on hand, and nearly $500 million available on our credit facility after paying down $35 million in debt in the corner.
We ended the quarter with 1.1 billion of debt, representing a net debt leverage ratio of 2.8 times and expect to be at or below our target at 2.5 times net leverage ratio as we exit 2021.
Looking ahead, we are increasing our revenue guidance and now expect full year 2021 of revenue to be in the range of 1.355 to 1.36 billion.
Up from previous expectations of 1.335212345 billion.
We now expect adjusted EBITDA to come in at the Hyatt are range. So we are now expecting EBITDA to be in the range of 380 to 385 million.
And it is worth repeating that we have 99% of the Earth's top line revenue already signed it under contract and are simply waiting on the calendar to recognize the revenue.
This traction is notably higher than in past years, which gives us a high confidence in our increased guidance targets.
And the higher revenue growth as we exit 2021 combined with the strength of <unk> bookings, we're seeing here in the second half of the year are setting us up well for accelerated growth as we enter 2022.
With that I will pass it back to Hojo on for some closing comments.
Sure.
Scott.
I want to say again, how pleased we are with is a kitchen of our strategy underperforming some results we will see.
I want to thank <unk> team for their hard work and our customers for trusting us with their most critical software needs.
As the world's premier provider of payment software, we are in a prime position to modernize the world's payments ecosystem. We are the first choice for large commercial central government and you're just globally, including fintechs to modernize and build their digital payment platforms Holistically.
Until 20, we launch with a new strategy and delivered on our first peeler Pittsburgh, though.
This year, we are delivering hold our second pillar of tacos on growth and we remain laser focused on continuing to build a robust pipeline that will support the long term growth objectives.
I want to reinforce that our efforts are nowhere third and important strategic biller step change value creation to emanate continue.
We continue to review our business portfolio and lemonade opportunities to ensure you maximize short and long term value creation for our shareholders.
We have delivered on our financial promises and are raising our financial guidance for the year.
A television organic growth and accomplish their rule 40 is evidence that there is stress identification our work. Thank you.
We will now open to cope requests.
Thank you at this time, you would like to take any questions you might have first today and to ask a question simply past five one on your telephone keypad and please note that thank you suppose I'd like to one question and one follow up question only.
You said that will be compiled to kidding. This this should only take a few moments.
We have our first question comes from July enough Pilau save me from Canaccord. Kennedy. Your line is open. Please go ahead.
Thanks, Good morning, everyone. Thanks for taking my question.
Oh July you're clearly getting some some good results from your recent stance hires how do you feel about your go to market infrastructure. Now is there is a more to be done here are all the pieces are in place from from your perspective, and how do you feel about your pipeline uhm going into 2022.
And I have to follow up.
Yeah.
Thank you Paula Thanks for the question there are still a lot to be done.
Are there, but we have done a lot already so we have changed the leadership, we have brought new leadership to the company also for example to have they'll think of national markets. We have a very high pollen is active called Mandy also that is now managing the western Canada, we have changed that.
The whole team in Latin America.
Some leaders across the globe and that continues I think that the refinement of continuous.
What I can tell you is that I'm very such as five with the results. So far we have never had this amount of pipeline.
And for example in Bill payment seemed like 30% of our pipeline, which is a record.
Oh <unk> coming from the new hires shows that that that is working so I'm very happy to what I see now, but there is two I'll attribute that.
Got it thank you uhm and congratulations on your on your partnership with a firm.
Can you give some additional color on on this partnership.
Maybe the timing of interpretation adventure, we expect to see some contribution from this from this deal. Thank you.
Sure Pelops, So you thought you referring to the.
Educational vertical right.
Okay.
Okay Alrighty.
Project.
With a firm I believe.
Buy now pay later.
Oh by not going to say yeah.
Yeah, No I think we are very happy about this just partnership I think that the.
If the if they put us in the middle of the Revolution right off of I'll forget now and pay later and and basically we were going to be the software, enabling their payment system and.
And that shows and that's in.
And thank you again for the question that shows that we are the solution. Yes for those are very important that that'd be banks around the globe, but we are also the solution for this new <unk> in new payment system is coming around the globe. So we're very link it today novation.
Overall I think that.
That's why we are mentioning this deal right.
Great. Thank you.
Our next question comes from the line of Man Canton for me gambling Company Atlantis Open. Please go ahead.
Hey, guys. Good morning. This is actually Sam sell the salt from my ex today, Thanks for taking my questions.
So my first question is cause serious if you guys could provide a little bit more color on having 99%.
21, Guy did rather new signed you know is everything signed and committed to be delivered before year end or are there any deals that could potentially slipped through the first few weeks of January.
Okay.
Morning, This is Scott.
I think the answer to that is reasonably put out the confidence Sam is because most of that is under contract.
It's it's going to be license fee Q.
Q4 is traditionally a very large quarter for us in terms of sales and renewables.
But what we really saw I'd say in the in the third quarter is set us up well for fourth quarter revenue and I say that because if you look back at Q2, we started to see the.
Sales really pick up in North America hadn't seen it yet and the rest rest of the world sales picked up in North America, particularly North American banks.
In Q3, we saw a much broader.
Growth strikes in our in our sales North America continue to be strong doubled over the last year, but much broader and banks marches fillers.
But also saw a doubling of sales and army answer region. So I would say that success in sales in the queue and Q3 is really set us up here early in the fourth quarter to deliver that to deliver that revenue.
I would say, we're pretty comfortable at that 96% for Q4, 99% on the year.
What's left there's a number of paths in terms of whether it's renewals and or new business, a number of paths to get to that so not.
Not particularly concerned about deals slippage. That's that's why we put up a high percentage of really to demonstrate our confidence in deliberating.
Just just to add to try it that Scott is saying I heard that comment from a sales leader that's really gives us gives us.
A lot of color trip.
They say it was either came to me and said this is the first time in my career Faci that we start to work in the next year doing Q4 of the year.
And that shows you know the change and how different this company is right.
Got it that's super helpful and it's great to hear.
And then just a quick follow up I was wondering if you could just get.
And update on both within real time payments and were there any notable witness isn't that segment this quarter.
Yeah, we did it we actually had a.
We actually had a call to win back it's an existing customer but had moved.
Some of their modernization upgrades to a competitor.
And brought brought them back on a win back here. This quarter that was wanted that ozal unmentioned. So we.
We saw pretty good stress.
Strength in real time revenue in the quarter and a lot of that is is comes from the license fee uhm. So you'll see that will disclose on our 10-Q here later today that you'll see real time revenues up pretty strong over the last year.
Great. Thanks, guys. Congrats all the results.
<unk>.
Our next question comes from the lineup charge Hatton from Craig how Atlanta. So can you. Please go ahead.
Thank you O as you want and that was a very Larry Ellison like list of wins in the corner. So congratulations on that I wondered if you could talk about a couple of things you said in a prepared comments you mentioned that you're seeing a speeding up of decision making from customers that of course was one of the big.
Questions. When you said you were gonna if meaningfully expand the salesforce. So I just wondered if you could identify that's that's sped up process a little bit and then also relative to your this disciplined approach to deploy capital can you just talk about the product roadmap. The R&D process sort of what what has changed there is.
Just a more focused process are you developing products and upgrading product differently just wanted to get clarity on that and that's it for me. Thank you.
Thank you George as we I think we spent that.
With the amount of time thinking about deal said I'm very proud of it.
I love to do that so uhm to your to your.
To our first question about speed up into decision, making I think I can give you. An example, I was talking to a C E O of.
Pop for back in U S and I was spending to this yelled at before this change I had like five levels between myself and the account to representative.
Now I have only two levels.
And that's how change happens so I'm involved and I know it.
My position what is happening with the most important clients, which it never happened also before.
And that's expedite that decision.
Because when you have much much much fewer layers.
Did they layers you know different players to get much more empowered.
And the clients have been telling us that they are like we are coming with new conversations like long term value like we want to be together for the next 10 years is not about the revenue this quarter and all of that conversation. These happening today and I think I have a good reason an important reason.
Cause it is happening is because we don't have that amount of layers anymore.
So I think that's for the first question is Scott you're Gonna get the second Yeah. I think it was kind of I think kind of two parts on that George one was our R&D and the others on our capital deployment on R&D.
Last year when the focus on growth initiatives that we went through we really zero based or R&D spend and so we didn't we aren't spending less or more per se, but were redeploying that to.
To where we can get the most optimized return on that R&D over the next one to three years. So I'd say that was a different approach.
The focus on the R&D Israeli modernization.
And that's one thing we're going to be talking about here in a couple of weeks or analyst day to provide what those those modernization strategies are by each of our segments.
And then the second of all in the capital deployment I don't know if that's the same as the R&D question, but R capital deployment.
It really hasn't changed it's consistent with what we've we've done in the past, but again.
We'll have some further updates on that here in a couple of weeks at around the state.
That's perfect. Thanks, guys I appreciate it.
George like a drug.
Once again I would like to remind everyone. If you wish to ask a question. Please press star one on your telephone keypad.
Thanks again to ask a question please specify one and.
Our next question comes from the line of Mark.
From B T I G. A line it's open.
Yes. Thank you.
Had a question on you're kind of like the car too.
The step change in value creation via M&A Uhm.
Uhm.
And the fact that you're reviewing your portfolio.
Can you give a little bit more color along those lines and would that involve selling parts of the portfolio buying parts of the portfolio are both on the table.
Yeah No no. Thank you Mark for the question.
Yeah, I'd like to start to say that that value creation to M&A is not that makes twins took part of our strategy is not something that happens by the site that this tree.
Three six part of our strategy is our third pillar. So we're doing that all the time.
I being a Spanish significant amongst helping by time.
Looking at the possibility resolve divesture and Investor we are talking about anything that builds and maximize shareholder value in the short and long term. So we are open to anything that you know when it will domestic heather maximize shareholder value can be sale can be by can be part of the poor.
<unk> <unk> bye part of the portfolio, Andrea and analyzing death, all the time right.
Thanks very much.
Mark.
And there are no further questions at this time Johnny Please continue.
Well, thanks, everybody for joining us today, we look forward to talking to you again on the 17th at our analysts.
Have a good day.
This concludes today's conference call. Thank you all for participating you may now disconnect have a great day.
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