Q1 2024 ACI Worldwide Inc Earnings Call
Thank you for standing by my name is Eric and I'll be a conference operator today.
At this time I would like to welcome everyone to the ACI worldwide incorporated first quarter 2024 financial results Conference call.
Eric: All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
Like to ask a question during this time simply press star followed by the number one omni telephone keypad if.
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Thank you.
I would now like to turn the call over to John Kraft.
Please go ahead.
John Kraft: Thank you and good morning, everyone.
On today's call, we will discuss the company's first quarter 2024, our results and financial outlook for the rest of the year. We will then take your questions at the end.
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.
You can find the full text of both statements in our presentation deck and earnings release, both of which are available on our website and with the SEC.
On this morning's call is Tom Warsaw, our president and CEO and Scott Behrens, our CFO with that I'll turn the call over to Tom.
Thomas Woodrow Warsop: Thanks, John and good morning, everyone. I appreciate you joining our first quarter 2020 core earnings conference call as usual I'll start this morning, with some comments on the quarter and then I'll hand, it over to Scott to discuss the detailed financials and the outlook for the remainder of 2024 and then we'll open the line for questions.
Q1 results were ahead of our expectations total revenue was $316 million that was up 9% year over year.
We were able to sign some expected contract a little earlier than we forecast and some ramp ups in our biller business tracked slightly better than we expected I would characterize these contracts as expansionary project specific deals with existing customers and then we also had opportunities that were in the pipeline and expected to find a little bit later this year.
We've also signed over $20 million in high margin license contracts that will show up on our income statement later in the year as.
As we've discussed U S. GAAP requires that we recognize revenue for contract renewals on the first day of the renewal term regardless of when we sign.
All of these items that I mentioned help derisk, our full year forecast and it's allowing us to raise the upper end of our guidance range for both revenue and adjusted EBITDA.
Moving onto our segments, we signed some notable deals in the bank segment, including a renewal for a large U S regional bank and new and expansion deals with customers around the world as we discussed at our recent analyst day. The Bank segment is a key area of focus for ACI going forward.
Segment revenue for banking grew 20% in the quarter and as I indicated the strength was broad.
As you May recall, we have three main solutions sets, we sell into the segment.
Issuing and acquiring that includes our retail payments and based 20 core solutions that part of the business grew 17% in the quarter.
Broad management, which grew 23% and real time payment products, which grew 28%.
<unk> segment adjusted EBITDA grew 69% versus Q1, 2023 and that reflects the very high fall through from revenue to EBITDA for our software businesses.
As we discussed in depth at our recent analyst day, we've continued to invest in modernizing our solutions and making public cloud delivery options available.
We're seeing accelerating SaaS demand not only with some of our traditional and long term customers, but also with new banking customers. Some of these may be somewhat smaller than our historic focused areas, which has historically been mega banks or tier one banks.
Thomas Woodrow Warsop: These institutions are slightly smaller ones are seeking the highest levels of scalability and reliability that ATI is so well known for and there are often more interested in taking advantage of SaaS delivery models. This.
This is an incremental market for us and it's an exciting opportunity we continue to allocate resources to.
Merchant segment revenue grew 3% and EBITDA grew 63%.
We continue to expect growth to improve throughout the year and the confidence we have is coming from in progress and scheduled implementation and of.
Thomas Woodrow Warsop: Of course, our new sales pipeline.
Moving on to pillar revenue grew 5% and segment EBITDA grew 4% in Q1 2024.
We continue to see the ramp ups of prior sales and the positive impact of our interchange in peripheral plants, we're particularly pleased with the onboarding of our largest customers as volumes are coming in above expectations.
Thomas Woodrow Warsop: Furthermore, we've been able to successfully remove interchange risk from most of those large contracts.
They can have a little bit lower margin in some cases those contracts avoid downside risks are.
Thomas Woodrow Warsop: Our biller retention rates are improving and our qualified new bookings pipeline has grown.
The work on our payments hub, which we discussed at length at Analyst day is progressing well, we continue to see substantial productivity improvements driven by the application of AI powered tools and methodologies. We're also starting to apply these enhancements across the company.
Well I'll make one more point on AI, which we also touched on at analyst day, our fraud detection and prevention businesses continued to gain traction as.
As I've mentioned previously these solutions are all AI powered and we believe best in class.
We've pulled all of our fraud businesses together on a very capable leader and we're receiving positive feedback from all of our stakeholder groups.
We'll talk more about this as we get further into the year.
Overall, we're executing well we're delivering on our promises to the investment community and I remain confident in the team and our ability to achieve our goals.
Now I'm going to turn it over to Scott to discuss financials and our guidance.
Thanks, Tom and good morning, everyone.
I first wanted to review our financial results for Q1, and then provide our outlook for the rest of 2024, we'll then open the line for questions.
In the quarter was $316 million up 9% compared to Q1 2023 and <unk>.
Adjusted EBITDA was 48 million nearly double Q1 2023.
As Tom mentioned, we saw particular strength in the banking segment with revenue of $105 million up 20% compared to Q1 last year.
Adjusted EBITDA of $42 million up nearly 70% compared to Q1 last year.
Our issuing and acquiring solutions grew 17%.
Our anti fraud solutions grew 23% and our real time payment solution for 28%, so a pretty solid quarter in the banking segment across the board.
Our merchant segment revenue was 36 million up 3% compared to Q1 last year and adjusted EBITDA was $11 million up 63% compared to Q1 last year.
And our Biller segment revenue was $175 million up 5% compared to Q1 last year and adjusted EBITDA was $31 million up 4% compared to Q1 last year.
Thomas Woodrow Warsop: Cash flow from operations was 123 million an increase of roughly three <unk> compared to Q1 last year.
Thomas Woodrow Warsop: We ended the quarter with $183 million of cash on hand, which is up $19 million in the quarter.
Our debt balance of $1 billion.
34 million in the quarter and our net debt leverage ratio of two times is down from two three times. When we started the year and represents our lowest leverage and more than 10 years.
And finally, we repurchased approximately 2 million shares in Q1 for $63 million in capital and ended the quarter with $110 million remaining on our share repurchase authorization.
And so far here in April we have repurchased an additional 1 million shares to date in Q2.
Thomas Woodrow Warsop: Turning next to our outlook for the rest of 2024 with our strong start to the year. We are raising the high end of our guidance range for revenue and adjusted EBITDA. We now expect revenue to be in a range of $154 7 billion to 151 billion.
Thomas Woodrow Warsop: From a range of $154 7 billion to $1 576 billion.
We now expect adjusted EBITDA to be in a range of 418 to 433 billion up from a range of $418 million to $428 million.
And as we look here into Q2 2024, we expect revenue to be in a range of 345 million $355 million.
Justice EBITDA of 60 million to $70 million.
So overall, a strong start to the year and we see that strength continuing here in Q2.
So with that I'll pass it back to Tom for some closing remarks.
Tom: Thanks Scott.
We are pleased to continue delivering results in line or above expectations.
Looking forward our pipeline is strong and we're focused and optimistic regarding both our growth and our ability to deliver significant shareholder value.
One last comment.
You may have seen the announcement of our recently released primetime for real time report.
And that gives some great insight into the global real time payments ecosystem trends and expectations for the future I recommend giving it right. There's some really interesting stuff.
I look forward to following up with you in the very near future about a quarter about our expectations for the future.
Very excited about what's going on here at ACS operator, we can now take questions.
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.
Tom: Participants will be allowed one question and one follow up question.
Your first question comes from the line of Peter Heckmann with D. A Davidson. Please go ahead.
Hey, good morning, Thanks for taking the question on the payments hub.
Peter James Heckmann: Can you talk a little bit about.
It had been a bit better idea of when you'll be able to start marketing it and when you will feel like you have.
Solid.
Got it for general availability.
The ability do you think that could be still later this calendar year.
Yes.
Yes.
So we do expect to have something that we are actively marketing by the end of the year I wanted to be very.
I guess that would be very conservative about the answer to this question because.
It's very important to me that we that we show our customers and prospective customers something they can really touch and feel and understand what the benefits are so we are having conversations with customers today and we're showing that.
The right customers with the right.
We have the right relationship they have they have a clear understanding that we are.
Letting them participate as we as we Polish.
The overall plan. So we're having those conversations now I would expect some of those customers to be early buyers but.
I think you're really asking what about super active marketing and that'll be that'll be probably late this year would be my expectation.
Okay, Great. That's helpful and then in terms of thinking about.
Peter James Heckmann: <unk> merchant.
Assume it just.
Revenue mix, but.
Yeah, just such significant EBITDA on a year over year growth there I can't remember if there was an easy comparison or was that just mix to the software license.
Yes.
And the EBITDA growth just coming from Midland scale, it's just driving the higher revenue.
Peter James Heckmann: Growth through that relatively fixed cost base.
And then also.
Some some cost initiatives, but it's primarily in scale.
Dropping down the profit.
Speaker Change: Okay that makes sense I'll get back in the queue.
Thanks Pete.
Your next question comes from the line of Jeff Cantwell with Seaport Research partners.
Please go ahead.
Hey, thanks very much.
Could you could drill down in the banking segment can you talk about the growth you're seeing right now in real time payments. It was 28% which markets are you seeing the most demand maybe tell us a bit more about that and then how sustainable do you think growth in real time payments could be for you guys. Let's say about 20% just wanted to get a feel for sustainability of that strong growth that you're looking at.
Speaker Change: Thanks.
Maybe to add to it.
Real time payments in the bank segment has been.
One of our fastest growing for four years.
Most of that growth is really coming from outside the U S and again, that's where we have.
Regulatory mandates.
Required the implementation of real time system. So that's a situation where breakthrough regulation actually helps us.
But I would expect that that level of growth to be sustained then again predominantly driven by.
Outside the U S. We do have to spend now live in the U S. But it then we're not really at this point projecting when we're going to see.
Real critical mass on the us side, so again double digit growth.
Speaker Change: <unk> and.
The international markets and Jeff I'll just add.
I mentioned the prime time for real time report, we had a press release go out this morning.
So you can get access to that easily.
Just a couple of.
Speaker Change: Couple of numbers from there.
Lead us to believe this is a highly sustainable in fact.
The headlines from the press releases that the growth rate.
David is sustainable.
The headline.
Speaker Change: And if you look at what happened.
2003, there were 266 billion real time payment transactions around the globe and our forecast is that by 2028 there'll be 575 billion. So that's a compound annual growth rate of about 16, 7% and that's.
With pretty conservative estimates of what happens in the U S. Because we're just that's pretty unclear how quickly that's going to happen. So there is a lot of growth to pick up in real time payments around the world.
Speaker Change: Okay, Great and then.
Speaker Change: Our guidance for the full year guidance can you walk us through bad at the race is it fair to say that the increase.
Yeah.
I would say.
Speaker Change: The higher expectations are coming apart from banks, but we're also seeing pretty strong growth in our.
Sure.
And our biller.
And so we look at the outperformance in Q1.
Speaker Change: A little bit came from new license sales in the quarter.
Services, which are predominantly banks, but part of that can be.
It can be a timing in the year.
Where we really where we really.
Really outperformed our own expectations was in our SaaS transaction based part of the business and that really is what gives us comfort that as a part of that recurring base of revenue.
It's carried into Q2.
Some of the license and service can be tightened in the SaaS transaction base is where we saw the higher growth in Q1 and expect that to continue here in Q2 and so.
Come again.
The high end of our guidance for the quarter really I think are raised as kind of an acknowledgment that we are starting the year better than we expected both topline and bottom line and that's why we're comfortable raising the guidance at this point.
Okay, great thanks, very much and congrats.
Thanks, Jeff.
Speaker Change: Your next question comes from the line of Jordan, George Sutton with Craig Hallum Capital.
Speaker Change: Please go ahead.
Thank you I thought the particularly gaudy high gross number came from issuing and acquiring this quarter and I just wanted to make sure I understood.
Speaker Change: That is more driven that growth is more driven this quarter by some of the licenses just to be clear and we're not certainly that's a more mature segment for you and to see that kind of growth was very impressive. So just wanted to understand the sustainability of that.
Yes.
Jordan on the license side is dependent upon that.
Timing of renewals year over year, but that's where I think even over and above that we did over achieve on the bank license side, we over and Thats what would have been on new sales.
Over achieved on the services side and again both of those can be a bit of timing.
But a lot of the over achievement in terms of.
Speaker Change: Where we ended up the quarter versus where we thought we were going to be in where we thought we'd be at this point in the year is really coming from that.
Transaction based side of the business.
And so that's both I would say that as both banks and builders.
So Tom you, obviously pointed out the strength in the.
Smaller to mid market sized banks.
Speaker Change: And that's on the SaaS side of the business. That's also effectively your target customer for the payment hub I'm. Just curious if you can kind of walk through how you're you're delivering the SaaS side of this while also.
Just kind of showing them the potential of the payment hub.
I'm intrigued to sort of understand that.
That movement.
Yes sure so.
That's exactly what's happening so we are seeing SaaS.
As Scott just mentioned, we saw over performance from our expectations on us on the SaaS side across the board really.
Obviously in banking as well and that's actually creating a pretty nice environment for these conversations about the payment hub because.
The customers are.
They're taking advantage of the services that we're providing.
And we're doing a good job for them and so thats, creating a real probably even stronger willingness than than I was expecting to talk about what's coming in the future because as theyre growing theyre.
They are looking to make sure that they can take advantage of the scalability and reliability that we've provided there.
Speaker Change: Thanks for a very long time so.
They're kind of feeding each other in a way this growth that we're seeing.
Speaker Change: Underlining the need to think about the future and even more scalability and thats, creating a real receptivity to talk about where we're headed with the payments up.
Understand great results guys.
Thanks George.
Your next question comes from the line of Trevor Williams with Jefferies.
Please go ahead.
Great. Thanks, a lot good morning, guys.
Trevor Ellis Williams: I wanted to ask on banking and the recurring revenue piece there was a T cell. This quarter. After you had a big step up in Q4, I'm just curious what if any callouts. There clearly you guys still feel good about the full year with where the outlooks moving up to just wondering kind of what the moving pieces were on that recurring line. Thanks.
Yes, 123 was a pretty big year generally speaking have a lot of.
CPI uplift in that so I wouldn't read anything into that in terms of the quarter returned the expectations around the demand for the full year, obviously the bank delivered are.
Our highest growth in the quarter.
And likely will both contribute to the highest highest of the three segments. This year. So I wouldn't read anything into the recurring revenue for <unk> for the quarter.
Okay, Great and then.
Just on the move further down market within the banking segment, it that being more of a SaaS delivery.
Well over time, I mean, how do you guys see that potentially playing out in terms of changing the mix of revenue type. If you think it could significantly alter the mix of.
Nonrecurring versus recurring revenue, obviously, the big banks, mostly on the licensing model. Just curious if you guys see a potential kind of revenue model evolution playing out over time.
I think in the mid market yes.
Obviously.
Trevor Ellis Williams: And how quickly we can get traction there, but the likelihood is that come into the SaaS.
If you look at Q1, we were.
Mid <unk> in terms of percent of our total revenue that was SaaS, but we.
We would expect that the mid market.
To be predominantly SaaS revenue and so the more success, we have there to obviously the higher percentage of our overall total revenue was shifted.
Yes.
Trevor on the on the <unk>.
Banking in particular.
We will continue to see a shift to more SaaS.
The thing that we look at it as such a large percentage of our bank revenue is license, it's going to take a while.
I don't I don't know exactly but it's not it's not going to be a quick transition to the bulk of the revenue being SaaS, but we will continue to see an increasing percentage.
Right. Okay. Thanks, guys.
Thanks Kurt.
As a reminder, if you'd like to ask a question. Please press star followed by the one on your telephone keypad.
The next question comes from the line of Charles Nabhan with Stephens.
Please go ahead.
Good morning, and thank you for taking my question I wanted to drill into the Biller segment a little bit.
One of the topics at the analyst day was the consolidation of some of your legacy platform. So I wanted to get an update on that and then secondly, I apologize if I missed this earlier, but you had mentioned that biller was tracking a little ahead of expectations in the first quarter. So I wanted to get a little more color around that in terms of.
What drove that strength from maybe a segment standpoint or any color you can provide.
Speaker Change: Sure So oh.
Scott feel free to jump in too so on the consolidation point, we're making we're continuing to make a very very strong progress on the consolidation of the platforms. We did not expect and do not expect that to be complete.
Speaker Change: For a few months now but.
We do expect later in the year that all new customers will go onto the consolidated platform. So that's.
That's what we expected when we talked about it at analyst day, that's still what we expect then we still still think we're on track for that so.
That's really that's really good for several reasons, but.
Speaker Change: Predominantly there is a speed of implementation benefit that we get by having one.
Speaker Change: One platform and then obviously over time there'll be a cost benefit to that to not having to maintain several platform. So that's why it's so important to us we continue to.
Speaker Change: See ourselves on track as we discussed at Analyst Day, and then your second question.
Speaker Change: <unk> was about.
Speaker Change: The over performance of our expectations in Q1.
Speaker Change: And I think.
Speaker Change: I think it was it was relatively broad based.
Speaker Change: I think it was I think the biggest driver.
Speaker Change: There's a couple of our large customers that we signed over the last year or two and we saw the ramp up to go a little faster than we expected.
Speaker Change: And Thats, Great news, because as Scott has said a couple of different ways. This morning.
Speaker Change: Recurring revenue in that acceleration, that's going to be the gift that keeps on giving.
Speaker Change: Yes, Chuck the only thing I'd add to that is just if we look at Q1, where it is.
Speaker Change: Tom just broad based people within the biller business, we're seeing that across vertical. So Q1, we saw higher transactions higher revenue in our consumer finance and utilities vertical than we were expecting and then so far here in Q2.
Speaker Change: Being one of the largest providers of the.
Speaker Change: Both higher risks.
Speaker Change: Taxes were seeing higher transaction volume in the government vertical here in April.
Speaker Change: We were anticipating so I think even across even within bill or we're seeing it across.
Speaker Change: Across verticals.
Speaker Change: Got it okay, and just as a quick follow up and again I apologize if I missed this earlier you had mentioned $20 million in high margin license contracts that are going to show up in the income statement later in the year.
Speaker Change: My question is is that in line was that expected from a magnitude in a timing standpoint.
Speaker Change: I'd say, it's a little bit better than we expected.
Speaker Change: It's not unusual that we signed some of some of the contracts a bit earlier, so a month or so.
Speaker Change: <unk> signed one deal I can think of right sitting here right now.
Speaker Change: It doesn't renew until the end of the third quarter and we've already signed it so.
Speaker Change: We started at good terms so.
Speaker Change: I'll be a little bit ahead, but it is not unusual for us to sign deals early.
Speaker Change: Got it okay, great. Thanks again for all the color on a great quarter guys. Thanks.
Speaker Change: I will now turn the call back over to John craft for closing remarks. Please go ahead.
John Kraft: Well, thanks, everybody for joining the call. This morning, we look forward to catching up in the coming days and weeks.
Speaker Change: Great. Thanks, very much guys.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.
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