ACIW ACI Worldwide Inc

HIGHLIGHTS

• ACI On Demand segment revenue grew 5%
• ACI On Demand net adjusted EBITDA margin improved 600 bps
• Completion of Speedpay acquisition
• Updating full year 2019 and 2020 guidance

ACI Worldwide (NASDAQ: ACIW), a leading global provider of real-time electronic payment and banking solutions, today announced financial results for the quarter ended March 31, 2019.

“We are pleased to announce that the acquisition of Speedpay will close today and we are updating our full year 2019 outlook,” commented Phil Heasley, President and CEO, ACI Worldwide. “The addition of Speedpay is strategically compelling and is expected to provide notable financial benefits, including increases in recurring revenue and net adjusted EBITDA margin in our On Demand business. We welcome the talented Speedpay employees and valuable customers. Looking to the rest of 2019 and beyond, with a strong new bookings pipeline, our improving AOD operations, and the addition of Speedpay, ACI is poised to capitalize even more quickly on the growing global payment transaction opportunity.”

Q1 2019 FINANCIAL SUMMARY

In Q1 2019, new bookings were $70 million, which was down when compared to our record bookings quarter in Q1 last year.

In Q1 2019, revenue was $206 million, versus $209 million in Q1 2018. Net loss in the quarter was $26 million, versus a net loss of $19 million last year. Adjusted EBITDA was $8 million, versus $19 million in Q1 2018.

In Q1 2019, revenue from ACI’s On Demand segment was $110 million, up 5% from $104 million last year. On Demand segment net adjusted EBITDA margin improved 600 basis points from last year. On Demand segment net adjusted EBITDA margins are adjusted for pass through interchange revenue of $45 million and $40 million, for Q1 2019 and Q1 2018, respectively. ACI’s On Premise segment revenue was $96 million, versus $105 million last year due to timing of nonrecurring license fees. On Premise segment adjusted EBITDA margin was 29% in Q1 2019 versus 37% in Q1 2018.

ACI ended Q1 2019 with a 12-month backlog of $813 million and a 60-month backlog of $4.2 billion. After adjusting for foreign currency fluctuations, our 12-month backlog increased $3 million and our 60-month backlog decreased $22 million from Q4 2018.

Cash flows from operating activities in Q1 2019 were $42 million, versus $45 million in Q1 2018. Adjusted operating free cash flow in Q1 2019 was $35 million, versus $36 million in Q1 2018. ACI ended Q1 2019 with $176 million in cash on hand, up from $149 million in Q4 2018, and a debt balance of $679 million. The company has $176 million remaining on its share repurchase authorization.

GUIDANCE

We are updating our outlook for the full year 2019 and 2020 given the contribution from Speedpay. We expect Speedpay to contribute between $215 million and $220 million in revenue and between $50 million and $55 million in adjusted EBITDA to the remainder of 2019. We expect Speedpay to contribute $90 million to $95 million in adjusted EBITDA in 2020. We now expect 2019 total revenue to be between $1.315 billion and $1.345 billion and adjusted EBITDA to be in a range of $360 million to $380 million, which excludes between $30 million and $35 million in significant transaction related expenses. This is up from our prior guidance of $1.1 billion to $1.125 billion and $310 million to $325 million for revenue and adjusted EBITDA, respectively. We expect Q2 2019 revenue to be between $280 and $290 million. We continue to expect full year 2019 new bookings growth to be in the upper single digits to low double digits.

We now expect our 2020 adjusted EBITDA to be in a range of $425 million to $445 million, up from the prior outlook of $335 million to $350 million.

CONFERENCE CALL TO DISCUSS FINANCIAL RESULTS AND OUTLOOK

Management will host a conference call at 8:30 am ET today to discuss these results, the Speedpay acquisition, as well as 2019 and 2020 guidance. Interested persons may access a real-time audio broadcast of the teleconference at http://investor.aciworldwide.com/ or use the following numbers for dial-in participation: US/Canada: (866) 914-7436, international: +1 (817) 385-9117. Please provide your name, the conference name ACI Worldwide, Inc. and conference code 1270429. There will be a replay of the call available for two weeks on (855) 859-2056 for US/Canada callers and +1 (404) 537-3406 for international participants.

About ACI WorldwideACI Worldwide, the Universal Payments (UP) company, powers electronic payments for more than 5,100 organizations around the world. More than 1,000 of the largest financial institutions and intermediaries, as well as thousands of global merchants, rely on ACI to execute $14 trillion each day in payments and securities. In addition, myriad organizations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software solutions delivered on customers’ premises or through ACI’s private cloud, we provide real-time, immediate payments capabilities and enable the industry’s most complete omni-channel payments experience. To learn more about ACI, please visit www.aciworldwide.com. You can also find us on Twitter @ACI_Worldwide.

© Copyright ACI Worldwide, Inc. 2019.

ACI, ACI Worldwide, ACI Payment Systems, the ACI logo and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.

To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the tables, which exclude significant transaction-related expenses, as well as other significant non-cash expenses such as depreciation, amortization and stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. The presentation of these non-GAAP financial measures should be considered in addition to our GAAP results and are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management generally compensates for limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. Certain non-GAAP measures include:

• Adjusted EBITDA: net income plus income tax expense (benefit), net interest income (expense), net other income (expense), depreciation, amortization and stock-based compensation, as well as significant transaction-related expenses. Adjusted EBITDA should be considered in addition to, rather than as a substitute for, net income.
• Net Adjusted EBITDA Margin: Adjusted EBITDA divided by revenue net of pass through interchange revenue. Net Adjusted EBITDA Margin should be considered in addition to, rather than as a substitute for, net income.

ACI is also presenting adjusted operating free cash flow, which is defined as net cash provided by operating activities and net after-tax payments associated with significant transaction-related expenses, less capital expenditures. Adjusted operating free cash flow is considered a non-GAAP financial measure as defined by SEC Regulation G. We utilize this non-GAAP financial measure, and believe it is useful to investors, as an indicator of cash flow available for debt repayment and other investing activities, such as capital investments and acquisitions. We utilize adjusted operating free cash flow as a further indicator of operating performance and for planning investment activities. Adjusted operating free cash flow should be considered in addition to, rather than as a substitute for, net cash provided by operating activities. A limitation of adjusted operating free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. This measure also does not exclude mandatory debt service obligations and, therefore, does not represent the residual cash flow available for discretionary expenditures. We believe that adjusted operating free cash flow is useful to investors to provide disclosures of our operating results on the same basis as that used by our management.

ACI backlog includes estimates for SaaS and PaaS, license, maintenance, and services specified in executed contracts but excluded from contracted revenue that will be recognized in future periods, as well as revenue from assumed contract renewals to the extent that we believe recognition of the related revenue will occur within the corresponding backlog period. We have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates.

Backlog is considered a non-GAAP financial measure as defined by SEC Regulation G. Our 60-month backlog estimates are derived using the following key assumptions:

• License arrangements are assumed to renew at the end of their committed term or under the renewal option stated in the contract at a rate consistent with historical experience. If the license arrangement includes extended payment terms, the renewal estimate is adjusted for the effects of a significant financing component.
• Maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term.
• SaaS and PaaS arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences.
• Foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts stated in currencies other than the U.S. dollar.
• Our pricing policies and practices are assumed to remain constant over the 60-month backlog period.

Estimates of future financial results are inherently unreliable. Our backlog estimates require substantial judgment and are based on a number of assumptions as described above. These assumptions may turn out to be inaccurate or wrong, including, but not limited to, reasons outside of management’s control. For example, our customers may attempt to renegotiate or terminate their contracts for a number of reasons, including mergers, changes in their financial condition, or general changes in economic conditions in the customer’s industry or geographic location, or we may experience delays in the development or delivery of products or services specified in customer contracts which may cause the actual renewal rates and amounts to differ from historical experiences. Changes in foreign currency exchange rates may also impact the amount of revenue actually recognized in future periods. Accordingly, there can be no assurance that contracts included in backlog estimates will actually generate the specified revenue or that the actual revenue will be generated within the corresponding 60-month period.

Backlog estimates should be considered in addition to, rather than as a substitute for, reported revenue and contracted but not recognized revenue (including deferred revenue).

Forward-Looking Statements

This press release contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and may include words or phrases such as “believes,” “will,” “expects,” “anticipates,” “intends,” and words and phrases of similar impact. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements in this press release include, but are not limited to, statements regarding: (i) expectations that the addition of Speedpay is strategically compelling and is expected to provide notable financial benefits, including increases in recurring revenue and net adjusted EBITDA margin in our On Demand business; (ii) expectations regarding a strong new bookings pipeline, improving AOD operations, the addition of Speedpay and the positioning to capitalize even more quickly on the growing global payment transaction opportunity; (iii) expectations regarding revenue, adjusted EBITDA, and new bookings growth in 2019; (iv) expectations regarding revenue in Q2 2019; (v) and expectations regarding our 2020 EBITDA target.

All of the foregoing forward-looking statements are expressly qualified by the risk factors discussed in our filings with the Securities and Exchange Commission. Such factors include, but are not limited to, increased competition, the success of our Universal Payments strategy, demand for our products, restrictions and other financial covenants in our debt agreements, consolidations and failures in the financial services industry, customer reluctance to switch to a new vendor, the accuracy of management’s backlog estimates, the maturity of certain products, failure to obtain renewals of customer contracts or to obtain such renewals on favorable terms, delay or cancellation of customer projects or inaccurate project completion estimates, volatility and disruption of the capital and credit markets and adverse changes in the global economy, our existing levels of debt, impairment of our goodwill or intangible assets, litigation, future acquisitions, strategic partnerships and investments, the complexity of our products and services and the risk that they may contain hidden defects or be subjected to security breaches or viruses, compliance of our products with applicable legislation, governmental regulations and industry standards, our ability to protect customer information from security breaches or attacks, our compliance with privacy regulations, our ability to adequately defend our intellectual property, exposure to credit or operating risks arising from certain payment funding methods, the cyclical nature of our revenue and earnings and the accuracy of forecasts due to the concentration of revenue-generating activity during the final weeks of each quarter, business interruptions or failure of our information technology and communication systems, our offshore software development activities, risks from operating internationally, including fluctuations in currency exchange rates, exposure to unknown tax liabilities, volatility in our stock price, and potential claims associated with our sale and transition of our CFS assets and liabilities. For a detailed discussion of these risk factors, parties that are relying on the forward-looking statements should review our filings with the Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

 

ACI WORLDWIDE, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(unaudited and in thousands, except share and per share amounts)

           

March 31,

December 31,

2019

2018

ASSETS Current assets Cash and cash equivalents $ 176,173 $ 148,502 Receivables, net of allowances 265,750 348,182 Prepaid expenses 31,464 23,277 Other current assets   40,830     46,516   Total current assets   514,217     566,477     Noncurrent assets Accrued receivables, net 177,407 189,010 Property and equipment, net 70,909 72,729 Operating lease right-of-use assets 60,978 - Software, net 130,812 137,228 Goodwill 909,691 909,691 Intangible assets, net 162,845 168,127 Deferred income taxes, net 38,408 27,048 Other noncurrent assets   48,875     52,145   TOTAL ASSETS $ 2,114,142   $ 2,122,455     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 28,046 $ 39,602 Employee compensation 29,570 38,115 Current portion of long-term debt 20,788 20,767 Deferred revenue 91,369 104,843 Other current liabilities   90,604     93,293   Total current liabilities   260,377     296,620     Noncurrent liabilities Deferred revenue 60,853 51,292 Long-term debt 645,784 650,989 Deferred income taxes, net 24,705 31,715 Operating lease liabilities 50,636 - Other noncurrent liabilities   39,203     43,608   Total liabilities   1,081,558     1,074,224     Commitments and contingencies   Stockholders' equity Preferred stock - - Common stock 702 702 Additional paid-in capital 636,960 632,235 Retained earnings 837,805 863,768 Treasury stock (351,587 ) (355,857 ) Accumulated other comprehensive loss   (91,296 )   (92,617 ) Total stockholders' equity   1,032,584     1,048,231   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,114,142   $ 2,122,455    

ACI WORLDWIDE, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited and in thousands, except per share amounts)

        For the Three Months Ended

March 31,

2019     2018 Revenues Software as a service and platform as a service $ 108,557 $ 104,280 License 21,078 28,046 Maintenance 55,111 56,659 Services   21,109     20,325   Total revenues   205,855     209,310     Operating expenses Cost of revenue (1) 114,941 107,336 Research and development 36,194 36,791 Selling and marketing 29,430 31,893 General and administrative 31,517 28,649 Depreciation and amortization   21,866     21,345   Total operating expenses   233,948     226,014     Operating loss   (28,093 )   (16,704 )   Other income (expense) Interest expense (11,614 ) (9,365 ) Interest income 3,033 2,744 Other, net   (1,912 )   (55 ) Total other income (expense)   (10,493 )   (6,676 )   Loss before income taxes (38,586 ) (23,380 ) Income tax benefit   (12,623 )   (3,952 ) Net loss $ (25,963 ) $ (19,428 )   Loss per common share Basic $ (0.22 ) $ (0.17 ) Diluted $ (0.22 ) $ (0.17 )   Weighted average common shares outstanding Basic 116,090 115,642 Diluted 116,090 115,642 (1) The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.        

ACI WORLDWIDE, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited and in thousands)

 

For the Three Months EndedMarch 31,

2019     2018 Cash flows from operating activities: Net loss $ (25,963 ) $ (19,428 ) Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 5,901 5,926 Amortization 18,951 19,067 Amortization of operating lease right-of-use assets 3,383 - Amortization of deferred debt issuance costs 753 699 Deferred income taxes (17,414 ) (4,827 ) Stock-based compensation expense 6,585 6,362 Other 574 (663 ) Changes in operating assets and liabilities: Receivables 94,549 68,741 Accounts payable (10,297 ) (2,611 ) Accrued employee compensation (8,598 ) (14,743 ) Current income taxes (1,041 ) (3,569 ) Deferred revenue (4,127 ) 11,326 Other current and noncurrent assets and liabilities   (20,829 )   (21,144 ) Net cash flows from operating activities   42,427     45,136     Cash flows from investing activities: Purchases of property and equipment (5,250 ) (5,937 ) Purchases of software and distribution rights   (4,578 )   (6,652 ) Net cash flows from investing activities   (9,828 )   (12,589 )   Cash flows from financing activities: Proceeds from issuance of common stock 831 753 Proceeds from exercises of stock options 4,857 9,118 Repurchase of restricted share awards and restricted stock units for tax withholdings (2,624 ) (914 ) Repurchases of common stock (631 ) (31,113 ) Proceeds from revolving credit facility - 48,000 Repayments of revolving credit facility - (50,000 ) Repayment of term portion of credit agreement (5,937 ) (5,187 ) Payments on other debt   (1,857 )   (352 ) Net cash flows from financing activities   (5,361 )   (29,695 )   Effect of exchange rate fluctuations on cash   433     1,719   Net increase in cash and cash equivalents 27,671 4,571 Cash and cash equivalents, beginning of period   148,502     69,710   Cash and cash equivalents, end of period $ 176,173   $ 74,281  

 

ACI Worldwide, Inc.Reconciliation of Selected GAAP Measures to Non-GAAP Measures(unaudited and in millions, except per share data)

                  Adjusted EBITDA (millions)         Quarter Ended March 31, 2019     2018 Net Loss $ (26.0 )     $ (19.4 ) Plus: Income tax benefit (12.6 ) (4.0 ) Net interest expense 8.6 6.6 Net other expense 1.9 0.1 Depreciation expense 5.9 5.9 Amortization expense 19.0 19.1 Non-cash compensation expense   6.6         6.4   Adjusted EBITDA before significant transaction-related expenses $ 3.4 $ 14.7 Significant transaction-related expenses   4.7         4.3   Adjusted EBITDA $ 8.1       $ 19.0                                       Segment Information (millions) Quarter Ended March 31, 2019   2018 Revenue ACI On Premise $ 96.0 $ 105.0 ACI On Demand   109.9         104.3   Total $ 205.9       $ 209.3     Segment Adjusted EBITDA ACI On Premise $ 28.3 $ 38.9 ACI On Demand (0.3 ) (4.2 )                                         Reconciliation of Adjusted Operating Free Cash Flow (millions)     Quarter Ended March 31, 2019     2018 Net cash flows from operating activities $ 42.4     $ 45.1 Net after-tax payments associated with significant transaction-related expenses 2.8 3.6 Less: capital expenditures   (9.8 )       (12.6 ) Adjusted Operating Free Cash Flow $ 35.4       $ 36.1                

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John Kraft, Vice President, Investor Relations & Strategic AnalysisACI Worldwide239-403-4627john.kraft@aciworldwide.com