ACI Worldwide Inc (ACIW) 2014 Q1 法說會逐字稿

Good morning. My name is Tiffany and I be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide's first quarter earnings conference call. (Operator Instructions).

After the speakers' remarks, there will be a question and answer session. (Operator Instructions). John Kraft, you may begin your conference.

Thank you, Tiffany, and good morning, everybody. Today's call, like all of our events, is subject to both safe harbor and forward-looking statements. You can find the full text of both of these statement on the first and final pages of our presentation deck, a copy of which is available on our website as well as with the SEC.

On this morning's call is Phil Heasley, our CEO, and Scott Behrens, our CFO. Before we start, I did want to mention that ACI will be attending several investor conferences in May, including events hosted but [Susquehanna], May 6, Wedbush on May 13, and Craig-Hallum, May 28th. With that, I'd like to turn the call over to Phil Heasley. Phil?

Good morning. Thank you for joining our call. I would like to title today's comments as hard work well rewarded and would begin with a heart-female thanks to our people who have delivered us to this threshold. As you know, 2013 was a strategically important and transitional year for ACI and a year we believe that sets the stage for accelerated growth.

We spent a great deal of effort accomplishing several key initiatives, including the integration of acquired functionality and the build out and the launch of our universal payments offering. We did this to serve a highly stressed industry pressured by increased regulatory burdens, growing transactional volumes and emerging payment technologies.

It's a crucial point in payments and our end to end solutions arm our customers as they face these disruptive forces by providing them with control, flexibility and security in a highly differentiated, cost effective and realtime set of offerings. Our efforts are starting to pay off, and we're seeing validation in the market.

With that, I'm happy to report our Q1 results. In the quarter, our revenues grew 37%, of which 84% was recurring, setting a new record. Driving this increase is growth in our [SAAS] subscription and transaction revenue, which was 45% the total revenue in quarter 1, also a new high.

With an increasing number of customers opting to utilize ACI's hosting solutions, we expect our SAAS revenues to continue trending higher. Moving to sales bookings, we're very proud of our execution in the quarter, with Q1's net growth of 59% over last year's Q1.

Market interest in our [up] enabled payment solutions is very high across the globe and we have had early success with our recently launched universal payment solutions and our next generation up enabled BASE24-eps 2.0.

Integrating the universal payment's orchestration layer into our flagship based 24-eps retail payments engine increases interoperability with other payments systems, enhances usability and lowers our customer's cost. Furthering enabling our newest [baseline] for eps to utilize any form of accounts formatting, such as email address of phone number, rather than simply internal account numbers, provides important flexibilities as our customers roll out next generation services.

Let me elaborate on a few recent contract wins and goal (inaudible) that involve these technologies. In Europe, a leading Dutch bank signed a large contract expanding our BASE24-eps product across the bank's retail business.

Once implemented, the bank will see lower costs per transaction, improved time to market, reduced risk, and improved infrastructure for realtime payments. Also in Europe and subsequent to quarter [ends], we signed universal payments subcontract with one of the largest global banks. Already an ACI customer, this bank committed their future payment strategy to ACI.

Our up solution will allow the bank to consolidate multiple legacy payment systems at their own pace with increased opportunity and reduced risk. In the Americas we signed a large based 24-eps contract to a leading south American bank. This existing customer was seeking leading edge technology from a vendor with global presence and long-term track record.

And in Asia, a leading financial services provider, Malaysia, went live with realtime interface to the [G3] common payment gateway using the [up] technology. Clearly, we're starting to see our development efforts rewarded with significant sales bookings and net dollars as potential customers move from evaluation to decision phase.

Looking ahead, our world wide pipeline remains very strong across all regions. As we mentioned in our last call, we have a number of potential opportunities that could be amongst the largest we have ever signed. While the timing of these deals is difficult to predict, we're very excited about the opportunities before us.

As further evidence, we repurchased roughly 1.2 million shares of ACI stock in the quarter. In summary, ACI is uniquely well positioned to benefit from the changing landscape, growing volumes and increasing complexity in the electronics payments industry. I will hand the call over to Scott to discuss our financial results in further detail. Thank you.

Thanks, Phil, and good morning everyone. I first planned to go through our highlights of first quarter and then provide an update on our outlook for 2014. We'll then open the line for our questions at that time. I'll be starting my comments on slide six with key takeaways from the quarter.

As Phil has already mentioned, we started the year with strong sales bookings with our sales of term extensions up 59% on a consolidated basis and 51% excluding official payments. We're clearly seeing traction and market response to our universal payments strategy.

But since Phil has already mentioned a few of our large universal payments wins I won't spend too much time on those here. But I also wanted to highlight a few other large wins. We signed an online banking contract with a large U.S. bank.

This multiproduct sale also includes our mobile and fraud detection applications and the customer has asked us to host the system within our ACI on demand environment. Additionally, we signed another large online banking contract to a large global bank for use in their U.S. operations.

This customer will operate the technology on their [premise]. Both of these wins involved institutions that were replacing home built systems. Turning next to slide seven. The strong new sales bookings helped boost our backlog to new records. Our 12 month backlog increased $13 million to $883 million and our 60 month backlog increase $49 million to $3.91 billion.

We had a solid revenue quarter, growing 37% over the prior year quarter, driven by the acquisition of official payments in a full quarter of online resources. And, notably, our staff subscription and transaction revenue more than doubled in the quarter and represented 46% of our total revenue.

And excluding the impact of official payments and the incremental impact of online resources, we saw continued growth in our referring revenue streams offset by a decline in non recurring revenue streams. And, overall, recurring revenue grew to $186 million and represented 84% of total revenue in the quarter.

Non-GAAP operating income was up 78%, and adjusted EBITDA was up 46% over the prior year quarter. And excluding the impact of pass through interchange, net EBITDA margin was 16% in the quarter, up 200 basis points compared to the prior year quarter.

Moving to debt and liquidity, we ended the quarter with $59 million in cash, and $779 million in debt. And during the quarter we purchased 1.2 million our shares and have $138 million remaining on our current authorization. Turning next to slide eight. We are reiterating our full year guidance.

We continue to expect 2014 revenue to be in a range of $1.06 billion to $1.08 billion, and adjusted EBITDA between $290 million and $300 million. And looking ahead at Q2 we expect to generate non-GAAP revenue in the range of $240 million to $250 million.

And, just as a reminder, this guidance excludes -- this full year guidance excludes approximately $13 million to $15 million in one-time integration related expenses that we expect to occur in 2014, $2 million in deferred revenue adjustments related to the acquisition and represents our current estimates for [purchased] accounting adjustments.

So, in summary, we have a solid start to the year. And, in particular, with strong new sales bookings that will help us deliver on our full year guidance expectations. That concludes my prepared remarks. Operator, we are ready to open the line to questions at this time.

(Operator Instructions). Your first question comes from the line of Gil Luria with Wedbush Securities. Your line is open.

Yes. Thanks for taking my question. Talk about the new win. When we say it's up enabled, do we mean that the bank is committed to the up framework and is going to install it that way or is it that they're purchasing BASE24-eps, the version that could plug into up and facilitate the up transformation for that bank?

The former. Not the latter but there's a commitment to the (technical difficulty) [framework].

And then -- so what's the level of uplift when we sell a bank on the framework versus just BASE24-eps. Is there an immediate incremental revenue that we get from that? Is the value of the BASE24-eps itself higher? Do we get an uplift from them coming into the framework?

No, Gil. It's the opposite. We don't charge for -- we don't charge for ups. Up is the -- it's the vitamin. It's what ties everything -- it's what ties everything together. The only thing that we charge is for volume not our own that flows through UP.

So how is UP, then, going to help -- what's the model, then, for Up contributing to revenue growth going forward once a bank adapts that as their framework?

Well, we have banks that are looking at putting their entire volume stream, wholesale, retail, branch, online, call center. The way people are looking at UP is more broad than all realtime. The way people look at UP is the way UP was really designed, being the universal broker for the realtime -- for realtime transactions to flow.

Yes. And dont --

And being able to have a single fraud hub so that you're not trying to figure out whether you're getting defrauded on mobile one minute versus getting defrauded through your call center on another minute. So it really just changes the physics of how we deal with the customers. It makes it much more broad.

Yes. And the only thing I would add to that is, really, the revenue driver, as Phil said, is the transaction volume that they running through the -- essentially what [will] be the university payment hub.

So they're -- but it also allows for a more easy -- essentially a better cross sell opportunity for us to replace more of their existing homegrown systems and increase our footprint with the customer. So we get it both through cross sale of our existing products as well as the transaction volume that they're running through the system.

Your next question comes from the line of George Sutton with Craig-Hallum. Your line is open.

Thank you. Just looking back to Q4, you obviously had some impact in terms of potential deals in that quarter because of the breaches and the result and need for people to look at larger transactions and sort of broader things that they might do with you.

Can you give us a sense of much this SNET benefited in Q1 from those push outs? And how much further might we see from those push outs that you did see in Q4 and just the broader sales concept?

Well, let me paraphrase what you said. Did we capture -- did we recover the deals that didn't sign in quarter 4? Did we largely get them signed in quarter 1?

Yes.

The answer to that is yes. They virtually all signed in quarter 1. There's one or two that -- there's one or two that [didn't] -- on the renewal side, I think, more than the SNET side. But did not have -- [have] not signed, right. We're not -- we're not worried about them signing. And if you take them out it's still a -- it was still a very good quarter, George.

Got you. As I look at your messaging around direct connections I'm wondering what kind of feedback, push back you've been getting from others in the industry. Obviously, it's a big idea and curious at sort of the feedback you've gotten from that.

Separately, if I could ask, relative to Visa talking about challenging debit volumes that they saw post the breach but then a real pickup at Easter. And if you could just give us a sense of how that might have impacted some of your numbers, that'd be great.

Okay. I don't -- we sell transactions by minimum baskets. So volumes, dips [in] volumes don't impact us. So we're not going to hide behind -- we're not going to hide behind any of that or use that as a variance. We saw baskets of transactions with [minimums].

So that had no impact on us whatsoever. In terms of the direct connections question, there's massive interest in the direct connections. The top ten banks in the United States had 54% of the debit transactions and growing. And the category itself is growing.

Debits significantly larger than credit. A direct connection is not [durban] controlled. It's more like an [AMEX] transaction. It loses two to three touch points. It allows the bank to directly brand its transactions with whoever they are doing business with.

There are some very logical co-branding going on right now that is three or four party co-branding that doesn't have to be -- two party co-branding and -- So there's a tremendous amount of interest.

It doesn't show up in our numbers at this point and it doesn't show up in our volumes sold at this point but it's a -- it's a very, very logical next step in the industry. And the fact that we now have the technology for them to be able to do it, whether it's based on SMS or telephone number or account number or -- It's just a -- it's just an advantage that we have right now.

What's going to be the -- what's going to be the tipping point? The tipping point is when somebody lands up with an advantage by having first or second mover in terms of doing a big direct connection that changes the -- changes the -- Now, direct connections are not a credit card opportunity.

They're a debit card or a charge card opportunity. The Visa, MasterCard rules would not -- would not allow for direct connections on the credit card side. Where they are allowed is on the -- by structures on the debit and on the charge card side.

(Operator Instructions). Your next question comes from the line of [Brett Huff] with Stephens, Inc. Your line is open.

Hi. This is James Rutherford in for Brett. Thank you for taking the questions. The first is on -- congratulations on the new contract wins. I don't know how much detail you can give but I was hoping to get some color on when those might go live and what kind of revenue contribution those might have.

Well, yes. Generally, the larger projects can take anywhere up 18 to 24 months. But that's no different than our historical large project installation. So especially when we're looking at an upsell with multi products.

That's adding to the size of the -- it's adding to the size of the new sales booking and it's adding a bit to the complexity. I would still say on a lot of those we'll begin to see revenues starting in 2015.

Okay. Great. And then just thinking about full year revenue growth. It looks like organic revenue growth this quarter was maybe down a couple percent or so. So I am just kind of curious, what is going to accelerate revenues through the year to get us the sort of the mid-single digit range?

Yes. If you look at the underlying composition of that revenue change, we actually have about a 4% organic recurring revenue growth offset by the nonrecurring decline. And, as you know, the license fee -- the nonrecurring license fees and services can be lumpy.

So underlining that is a healthy composition and growth in the organic side. And the nonrecurring, as is typical, will have its seasonality. But, obviously, to start the year, with as strong a sales bookings as we have, that allows some portion of those sales bookings to begin to drive revenue starting as early as Q2.

So it's a great position to be in to start the year with such strong sales bookings.

Okay.

We told you guys last year at the analyst meeting that the first half of the year you're going to see stress on ILF and service revenues as we have more and more hosted customers. You're not going to see the ILF -- you're not going to see the signing ILF revenues.

And you're not going to see the service revenues because they don't come with the [hosted], right. And then on the second half -- so the first half of the year is the answer to your question.

Great. Thank you so much.

Your next question comes from the line of Wayne Johnson with Raymond James. Your line is open.

Hi. Yes, good morning. A couple questions. Given the early success of UPP, do you think that product is going to stimulate conversions of legacy BASE24 classic users?

Great, great, great question. I actually think that it's going to create a whole different mentality around classic. Think that UP is going to end up bridging both classic and eps. So whereas we were talking about -- in the past, we were talking about converting classic users to eps, we now think that a lot of the new business will go on eps.

The only business that will be moved off of classic will be the business that needs the open systems of eps to do it, and that UP will allow it to operate both systems concurrently against the common customer base.

Got it. Got it. That's helpful. And then on the -- regarding, I should say, the online banking wins -- so this is early success of online resources, if I'm reading that correctly? Upselling to larger customers? Is that it?

No. Most of it is universal online. It's almost all universal online banker.

Okay.

Yes. This is our corporate banking cash management product.

Okay.

These are big deals.

Alright. Terrific. Thank you.

There are no further questions in queue at this time. I turn the conference back over to our presenters.

Well, thanks, everybody for joining us. We look forward to catching up in the coming days.

This concludes today's conference call. You may now disconnect.