ACI Worldwide Inc. Q1 2023 Earnings Call
[music].
Good morning, My name is Andre and I will be your conference operator today.
At this time I would like to welcome everyone to the ACI worldwide, Inc. First quarter 2023 financial results Conference call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one.
One on your telephone keypad, if you would like to withdraw your question Press Star one again.
At this time I would like to turn the conference over to John Kraft. Please go ahead.
Thank you and good morning, everyone.
On today's call, we will discuss the company's first quarter 2023 results and financial outlook for the rest of the year, we will take your questions at the yet.
The slides accompanying this call and webcast can be found at ACI worldwide Dot com under the Investor Relations tab and will remain available after the call.
Today's call is subject to safe Harbor and forward looking statements like all of our events.
Can find the full text of both statements on the first and final pages of our presentation deck, a copy of which is available on our website and with the SEC.
On this morning's call is Tom Warsaw, our interim president and CEO and Scott Behrens our CFO .
I'd like to turn the call over to Tom.
Thanks, John .
Good morning, and thank you all for joining our first quarter 2023 earnings Conference call I will start this morning with some brief comments on the quarter and then I'll hand, it over to Scott to discuss the detailed financials and our outlook for Q2 and the remainder of the year.
We'll then open the line for questions.
We delivered first quarter results that were consistent with our expectations and reflect our team's strong execution, despite an uncertain economic environment.
Total recurring revenue grew 9% driven by the growth in Biller is banks segments, while consolidated revenue was $290 million down 5% year over year and that was due mainly to the timing of license based renewals as we discussed last call.
Both growth rates are adjusted for foreign exchange impact and the corporate online banking business divestiture.
Total adjusted EBITDA was $25 million down 59% as you may recall these license renewals tend to be extremely high margin.
New <unk> bookings for the quarter were $11 million when.
At the new <unk> bookings on a trailing 12 months basis, which is how I like to look at it.
This removes some of the quarterly fluctuations trailing 12 month <unk> as of Q1 was $100 million.
Which is up 8% compared to the same metric for March 2022.
Turning to our segment results, we were pleased with our performance this quarter in our Biller segment, which saw an 11% revenue increase and adjusted EBITDA increase of 12%.
This growth was driven by customer onboarding and by the meaningful steps, we've taken to address the inflation driven interchange mainly impacting our utility sub sector.
We've now built an interchange improvement plan for all of our client accounts and we've made substantial progress in re contracting across our book of business. The results of these efforts is coming through the P&L and I expect continued progress throughout the year. As we told you last time. This is an effort that may stretch into next year before reaching full completion.
Our bank and merchant segment revenue declined versus last year, as we expected, which as I said is driven mainly by the timing of our license based renewal calendar with the significant majority of this year's renewal is expected to occur in the latter part of 2023, we remain confident in our full year guidance.
We're also continuing to make meaningful investments in our merchant segment, particularly in our go to market and new and innovative capabilities. We.
We expect these investments to accelerate growth in this segment over the long term.
Let me turn to some of our latest trends in some of our wins.
We expanded our SaaS business with the less traditional U S based fintech customer.
And that included several new product implementations on their behalf.
We had wins with payments orchestration with important new European E Commerce vendors.
We had renewals and expansions with several merchant clients, including a top U S based fast food chain and a top domestic grocery.
We had a new anti fraud, when with the Saudi Arabian national payments infrastructure.
Our new issuing and acquiring contract with one of the largest processors in Mexico.
And finally in real time payments, we signed expansions with several customers, including our middle Eastern real time payment system as well as financial institutions and acquirers in Asia.
In the U S. The official launch of the real time payment system dubbed Fed now is expected in July of this year.
ACI has been instrumental in the piloting and testing of that program and we just launched our ACI real time payments cloud. This is a unique offering in the industry and will include built in fraud protection with transaction, scoring all offered in the Microsoft Azure cloud based deployment.
Just last week I met with the Central Bank in Africa speaking of real time payments.
And I discussed with them the possibilities that real time payments creates including how their overall economy can benefit from the many use cases inherent with real time payments. It was only a first dialogue, but that conversation further cemented my position about the future potential for real time payments and the developing markets and.
Around the world.
Overall I am pleased with the progress we made in the quarter and our team's execution amid the challenging market environment. While we recognize there is more internal work to be done. We're confident we have the right overall strategy in place to capitalize on the significant opportunities before us.
Looking ahead, we're on track to achieve our full year 2023 guidance and our long term revenue growth target of 7% to 9% by 2024.
We're energized by the opportunities in the pipeline that will help us achieve that goal, particularly within real time payments and cloud based technologies.
Now I'll turn it over to Scott to discuss financials and our guidance Scott.
Thanks, Tom and good morning, everyone.
I first plan to review our financial results for Q1, and then provide our outlook for the rest of 2023.
And then open the line for questions.
Revenue in the quarter was $290 million and adjusted EBITDA was $25 million both in line with our expectations.
It is important to note here that we saw 9% growth in our recurring revenue compared to Q1 last year.
That growth is coming from a combination of customer go lives that happened late last year that will contribute a full year benefit this year.
As well as some of our pricing initiatives in our biller segment as well as annual CPI uplift in our bank segment.
So overall a number of contributing factors that are leading to the strength of our recurring revenue growth.
And as a reminder, from our last earnings call that are nonrecurring license fee revenue primarily comes from renewals will be more second half weighted this year and when those license fees come in they have very little incremental fulfillment costs. So have very high flow through to EBITDA.
Turning to our segment results Bank segment revenue was $88 million and adjusted EBITDA was $25 million.
<unk> segment is predominantly licensed software. So this will be the most impacted by this year's timing of the renewal license fees.
Merchant segment revenue was $35 million and adjusted EBITDA was $7 million.
We are in the final stages of the transition from the nonrecurring license fees to recurring SaaS revenues in this segment.
Which can clearly be seen in our results this quarter.
And our Biller segment revenue was 167 million, which represents 11% growth over Q1 last year and adjusted EBITDA increased 12% compared to Q1 last year.
The growth in both revenue and profitability in this segment is driven by customer go lives late last year that will contribute to our full year growth. This year and we have made notable progress with our interchange improvement program.
Cash flows from operations was up nearly 40% over Q1 last year, we ended the quarter with $142 million in cash on hand, a debt balance of just over $1 billion and our net debt leverage ratio of two nine times.
And we have $200 million remaining on our share repurchase authorization.
Turning next to our outlook with what we're seeing to start the year in particular, the strength of the recurring revenue growth. We are reiterating our full year guidance with revenue in the range of $1 $43 6 billion to $1 46 6 billion.
And we continue to expect adjusted EBITDA to be in the range of $380 million to 395 million with net adjusted EBITDA margin expansion.
For Q2, we expect revenue to be in the range of $300 million to $310 million and adjusted EBITDA to be in the range of 35% to $45 million.
Similar to what we saw here in Q1, Q2 will be impacted by lower license fee revenue when compared to Q2 last year as we expect to see the license fee come in the second half of the year.
So in summary, we are tracking on the year as expected and I think with the particular strength that we're seeing in our recurring revenue base of the business combined with additional go lives. We expect here in 2023 sets us up well for delivering our long term targets of 7% to 9% growth in 2024.
So with that I'll pass it back to Tom for some closing remarks.
Tom.
Thanks, Scott in summary, we delivered solid results in the first quarter, particularly against the difficult backdrop and I believe we're off to a strong start for the year. We know that ACI is mission critical to our customers in this quarter. We continued to see the value that we provide to leading financial institutions merchants and pillars worldwide.
We have a clear path ahead reaffirms my confidence in our team and our strategy and our ability to deliver on our revenue growth goals in 2023 and beyond.
Before I open it up for Q&A I'd like to briefly touch on our ongoing CEO search.
After reviewing and meeting with a number of promising candidates. The board is in the final stages of the selection process and expects to complete the search in the upcoming weeks, we look forward to his announcement soon.
With that thank you for joining us today, and we'll now open it up for Q&A.
Yeah.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We will take our first question from Peter Heckmann with D. A Davidson.
Hey, good morning, everyone. Thanks for taking the question. So it was good to see below revenue net of interchange up about 7% year over year.
Based on some of the new customer wins that you've talked about do you think that for the full year you can achieve that high single digit growth goal within pillar net of interchange.
Yes. This is Scott Yeah, no, we're really happy with it too I think from a number of reasons. One is we don't.
We're starting to see the benefit both gross revenue and net revenue and profitability in the biller business, we're seeing the benefits of the interchange program initiatives that we've put in place.
That combined with.
The go lives that we saw late from late last year, So youre going to get a full year benefit of those go lives this year.
So we're real happy with we believe builders really kind of turned the corner in terms of.
Both growth rates.
As well as all we're starting to see the interchange initiatives that we've put in place so should start to see sequential benefit.
As well as comparable benefit on the interchange as a percentage of the gross revenue there. So so definitely benefit both sides. Both from go lives as well as the interchange improvement initiatives have taken hold.
Just to add one thing.
We talked last time about the.
The new customer that we had signed our largest biller delever.
That actually went live two days ago three days ago.
And we phased it in we try to manage the risk. So it's in what we call the friends and family Phase right now, but it's going it's going well and we should see that ramp up over the next.
A few months and that will be even more helpful.
Good good that's good to hear and then just.
Just curious no repurchases in the quarter or is that something thinking more about working capital needs are.
Potentially you black blacked out of repurchase in the quarter.
Yes, generally yes, you're correct, we didn't have any in the quarter, we bought $200 million remaining on the authorization and no real change in that.
Ideas there on capital allocation.
Alright, thank you.
And we'll move next to Joseph <unk> at Canaccord Genuity.
Okay.
Hey, Good morning, guys will Johnson on for Joe. Thanks for taking my question I just wanted to ask about the fed's real time payment system.
Power IC is thinking about the primary opportunity there in any other recent developments there that you can highlight.
Sure. So fed now goes live in July and we are we've been involved with the fed is they've been plotting. This this.
This launch for for some time.
We're in the.
In the final stages of testing and we're in very good shape.
The go live for our customers.
And we've got a pretty good pipeline as well of new new opportunities driven by our position with with fed now.
So that's where we are we should obviously no volumes at this point because it has launched but.
We should we should start to see them.
Mediately after the launch and I think we're in very good shape and we've been we've been a leader in this process throughout.
Great to hear and then following the rate hike.
Yesterday I.
Kind of think about the macro environment through the rest of the year and is there any like trends of shifts in consumer behavior that we should be thinking about.
Thanks.
Yes, but generally if you look at.
Do you have to remember in our products that are generally non discretionary across all three segments.
The only place that we really see kind of consumer behavior impacts.
Directly we would probably be in the in the biller and merchant segments.
Again, a bill or even our biller verticals are non discretionary payment types.
And I would say at this point, we're not seeing any any change in on the merchant side, we're very heavily e-commerce, driven and so just the secular growth is stronger in e-commerce versus in store. So.
We're not seeing any any trends now as a matter of fact, if you look at our Q1 recurring revenue growth.
Which is which is a lot closer tied to in quarter transactions that was up 9% year over year.
It's actually a little bit stronger than we were expecting at this point. So so overall, we're not seeing anything in the recurring revenue growth year over year is a bit stronger than where we thought we'd be at this point of the year.
Yes.
We will take our next question from George Sutton at Craig Hallum.
Thank you Hey, guys. This is James on for George Thanks for taking my question.
Can you talk about sort of conversations youre, having with bank customers in the U S of outside now in real time payments like how quickly our banks expect interconnect given you've already seen a lot of these go lives across the world what are your expectations for when adoption hits critical mass in the U S.
And can you talk about the competitive landscape in the U S and what sort of gives you the right to win.
Sure so on the fed now point.
We expect.
We expect adoption to begin immediately I think the big question is how quickly will consumers.
Really ramp up their use of it I think it will take some time we've seen this in the other.
Other parts of the world.
Largely those will start to cannibalize cash transactions so.
Sure.
Obviously, I don't know exactly.
Quickly but.
It's a high value add.
Transaction type four for certain consumers and I think we will see that adoption ramp up I don't know exactly how fast, but we're ready for it and our customers will be ready for it in terms of connecting that that's sort of built into the implementation process, though they'll have the ability.
To use it as as soon as it's available.
And then you were talking about I think your other question was what gives us the right to win in our current environment I think it's.
The products, we have are a rock solid proven.
We just.
We continually invest in our products and we really understand we are very focused obviously on payments.
And that is becoming a more and more important part of our of our customers' business and I've probably talked about this last time I remember specifically, but.
One of the things I talked about a lot is that payments historically tended to be a cost center. So people thought about.
The costs are facilitating the movement of money well now, it's quite different and now consumers and commercial customers see.
The ability to facilitate payments the way they want it to be an absolute must have so they want flexibility. They want choice they want reliability and speed and ACI is perfectly positioned for that so when we go when I go and talk to customers and potential customers.
Theres never a question about whether ACI.
Is is a good choice for them, whether ACI can do it there is no doubt about that we are we are the usual suspects so to speak.
And what we do is we sit and talk to the customers about what we can do to expand their business. What we can do to help them meet their strategic objectives, which those are those are some great conversations I think I mentioned, a few minutes ago that I sat down with the central bank and even our central Bank.
As looking for ways to increase the value that they add to the consumers and they're in there in their country in their economy and that that type of conversation is fantastic and as I said.
There was no discussion about whether we would be a good partner. It was how can we help them and we're very good at helping those helping customers and prospective customers understand how we can add value.
Perfect.
And then can you talk about sort of real time payments and how that can impact the biller business.
So as I understand it bill pay is one of the first use cases.
But does your experience in real time connectivity and sort of managing the infrastructure translated into any advantage on the bill pay side could you gain some sort of competitive advantage because of real time payment adoption in delta.
I think so yes.
It is clearly.
That is clearly a good use case for real time payments I mean think about someone who's.
For whatever reason it needs to make an immediate payment to keep their electricity on restore their gas.
Gas or whatever it might be.
A day that that can be a little bit cumbersome and it can be quite expensive real time payments. It makes that easier quicker less expensive. So definitely a good use case.
<unk>, we have the ability and we build it in to our to our.
So our products to be able to connect to all types of payment rails.
I think it does give us an advantage and we do talk about that with our customers now it's not just us of course, we have to we have to help our customers be ready too.
To facilitate those kind of payments as well, which we are which we are doing we are working with them, but I think over the medium to long term absolutely I think that's an advantage for us I think we're very well positioned because of our presence around the world with real time payments.
Great.
Last one for me can you sort of address the weakness in merchant.
This quarter and what gives you confidence you can still get to low double digit growth in that segment like I get the one time recurring conversion, but the recurring segment was down as well so just any detail there would be helpful.
Yes, I think you hit it there is a lot of it is the decline is coming from the license fee.
And that's in that segment customer segment of ours, a lot of that business has shifted towards more of a SaaS or a recurring type payment. So most of that year over year decline is coming from that shift from from license to recurring but you should see that here starting in Q2.
Flip positive and then further positive in the second half of the year. So exited at a double digit rate of growth as we enter 2024.
Alright, thanks, guys.
Thank you.
We'll take our next question from IAG Tandon Needham <unk> company.
Hey, guys. This is actually Sam on for Mike today, Thanks for taking the questions.
Just wanted to first hit on the <unk> bookings, which were soft this quarter.
Following <unk> I think a record quarter for bookings.
Could you guys just talk a little bit more about what you guys are seeing.
In terms of new customer conversations and level of activity and then maybe parse out your expectations for the remainder of the year.
Thanks.
Yeah, and I wouldn't look at Q1 is Q1 is typically a pretty soft quarter for us from an overall bookings perspective, if you look at <unk>, we have introduced this quarter trailing four quarter.
Our bookings to kind of address some of that sequential volatility, but at the trailing four quarter air.
Bookings are up 8%.
Over the.
Our bank segments kind of volatility in the license fee, but.
But we are tracking as expected. So we were expecting that license fee to come in when those renewals happen here in the second half of the year I know this is obvious but just to say it.
When we have a renewal in the second half, we actually have a handful of deals that renew in the second half that are already signed.
But because of the way the accounting rules work, we don't recognize that until the second half so.
Got it alright, thanks, guys.
Thank you.
Okay well. Thank you we really appreciate your time today as I said, we're pleased with with the results in the first quarter. We are on track for the year lot of a lot of things going on in the world but.
We feel great about what we're doing and we look forward to continuing to have great dialogues with you and.
Thank you and enjoy the rest of your day thanks, everyone.
And that does conclude today's conference. Thank you for your participation you may now disconnect.
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