ACI Worldwide Inc (ACIW) 2015 Q1 法說會逐字稿

Good morning. My name is Shaun and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Reports First Quarter Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to Mr. John Kraft. Mr. Kraft, please go ahead.

Thanks, Shaun; 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 statements on the first and final pages of our presentation deck today, 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. With that, I'll turn it over to Phil.

Thanks, John. Good morning and thank you for joining our call. We are very happy to report our quarter one results. We've gotten off to a strong start in 2015 and believe we are well positioned to achieve our full-year goals.

Interest in our new Universal Payments offering continues to grow and we're particularly excited not only with the breadth of potential uses for this versatile and powerful framework, but also its application in many different market segments. We've worked hard to bring this longtime vision to reality and early market interest truly validates our strategy.

Today, I'm pleased to announce the signing of a large new customer and prominent brand in the transportation industry. While we cannot yet name the company, ACI [Software Assume Power], their new omni-channel payment infrastructure or from our secure and fully compliant data centers with the promise of reducing operational expenses, minimizing corporate branding risks as well as preventing payments fraud. ACI's platform will provide this company's customers with the seamless omni-channel experience across all channels such as mobile, web and brick-and-mortar.

Having this well-known brand as a reference, the transportation industry will become an expanding and promising vertical for ACI. While we're excited about this new opportunity to deliver our Universal Payments to new merchant verticals such as transportation and hospitality, we are not taking our eyes off the ball regarding our long-term leadership in the financial institution segment. This market is asking for lower cost, more efficient, cross-silo platforms. Universal Payments is a perfect fit and interest in ACI and UP is becoming more prevalent every day.

As Scott will discuss in further detail, we delivered solid financial results, in light of foreign currency headwinds that have increased since we spoke to you last quarter. We saw strong growth in adjusted EBITDA, which grew 16% over last year; operating income, which grew 45% over last year; and free cash flow which grew 159% over last year. Overall, I'm very happy with this strong start to 2015.

I will now hand the call over to Scott, who will discuss our financial results and 2015 guidance in much more detail. Thank you. Scott?

Thanks, Phil; and good morning, everyone. I first plan to go through the highlights of the first quarter and then will provide our outlook for the full-year 2015; will then open the line for questions. I'll be starting my comments on Slide 6 with key takeaways from the quarter. As I Phil stated, the year is off to a strong start with total sales bookings including term extensions up 23% over last year and higher term extension sales were partially offset by lower new sales bookings, down 9% from last year's Q1, but as you recall, in Q1 2014, we saw particularly strong SNET growth, which grew 59%, representing an obviously tough comparison. For the full year, we remain on track to achieve SNET growth in the high single digits.

Moving to backlog, we ended the quarter with 60-month backlog of $4.1 billion, up $30 million for the last quarter after adjusting for foreign currency fluctuations and 12-month backlog of $889 million were essentially flat from Q4 after adjusting for foreign currency fluctuations.

We saw non-GAAP revenue of $233 million in Q1, up 5% from Q1 last year or up 8% on a constant currency basis. This was at the higher end of our expectations, despite foreign currency headwinds that have increased since we spoke to you last. Excluding incremental revenue from the Retail Decisions acquisition, our organic revenue grew 3% on a constant currency basis after adjusting for a $6 million year over year foreign currency impact. And overall, we continue to see our revenue shift towards more reliable, stable and predictable recurring revenue, representing $109 million of total revenue or 81% of the total.

And specifically, our SaaS subscription and transaction revenues continue to grow, up 10% from Q1 last year. We saw strong growth in both adjusted EBITDA and operating income, up 16% and 45% respectively compared to Q1 last year. We also saw strong growth in operating free cash flow, which grew 159% to $39 million. And lastly, on this slide, we ended the quarter with $68 million in cash; and after paying down $42 million in debt during the quarter, a total debt balance of $850 million.

Turning next to slide 7, we are reaffirming our full-year guidance, adjusting the topline revenue slightly for foreign currency fluctuations during the quarter. As we've discussed before, foreign currency is generally a topline revenue and expense phenomenon for us based on the basket of currencies in which we do business. So we are essentially hedged at the margin level. Consequently, we are updating our revenue range for foreign currency and reiterating our EBITDA guidance.

So for 2015, we expect non-GAAP revenue to be in a range of $1.04 billion to $1.07 billion, which represents organic growth of approximately 3% to 6% on a constant currency basis over 2014. We continue to expect 2015 non-GAAP EBITDA to be in a range of $280 million to $290 million. And as I said earlier, we continue to expect our sales, net of term extensions, to be in the high single digits for the year.

Looking ahead to Q2, we expect revenue to be in a range of $240 million to $250 million. And lastly, this guidance excludes approximately $10 million in expected one-time integration-related expenses for our continued data center and facilities consolidations and platform consolidation.

That concludes my prepared remarks. Operator, so we are ready to open the line to questions at this time.

(Operator Instructions) George Sutton, Craig-Hallum.

Thank you. I wondered if you could go into some more detail on the versatility of uses comment you made relative to the UP platform. And, obviously, in particular, the Transportation vertical, can you give us a sense of the types of opportunities you see there?

Yes. I guess I could. What's very important to all retailers, not just transportation, so I'll start with all retailers, is the fact that multiple channels for payments or multiple channels for commerce were kind of built in tiers. There was the through the door, there was mail order, there was phone, there was the online and each one tended to be built as a channel and two things happened, which made a retailer's life difficult and an opportunity.

One was that the fraudsters saw that as a wonderful way of playing the channels against each other because the fraudsters could have a common database and the retailers didn't. So that was one. The other one was that the customers didn't view these as separate channels, they viewed it as a common brand and they may want to buy something in one channel and pick it up at another or they want to use multiple channels in dealing with the customer and very frustrated that the merchant wasn't able to respond in kind. And then, of course, the merchant who is always margin-conscious because of competition, was carrying redundant cost to do payments and customer service and several different things along different channels.

So the notion of an omni-channel, the ability to have the customers, the denominator of what was going on in terms of their different channels. And therefore how they did business or they had a common denominator, one loyalty system against -- a lot of them actually had multiple loyalty systems by channels. So it allowed them to have a single customer view versus have a channel view of how they were doing business.

If you look at the transportation industry, they've got a little bit more of a wrinkle because they somewhat invented, we'd like to think financial institutions invented payment rewards, but transportation industry as much invented payment rewards as did the financials themselves. And with the fraud implications and with the Durbin implications of lowering interchange and whatnot, the opportunity for rewards become more equal, let's put it that way, if not a little bit more biased towards the merchants whose cost of goods are paying for it.

It gives the transportation industry even more incentive to have an omni-channel that sits underneath their payment system and somewhat to be in the driver's seat as it relates to managing the rewards portion. And their fundamental business is not operating data centers and whatnot, they're not operators the way the financial institutions are, they tend to run transportation as their core business. So they don't have the reluctance or the margin structure that a financial would in terms of needing to run their own data centers and whatnot. And they are more than happy to have an infrastructure that is more SaaS oriented, buying it by the drink. Does that answer your question?

It does. I think it's exciting, because it suggests, there's a much larger market opportunity for the UP platform than I think we may have previously believed. My second question gets to the -- remember in Q4, you had a couple of large deals that had pushed out, you had expected to be signed at some point in 2015. I'm curious if you could just give us some qualitative updates on some of these larger opportunities?

Well, one of the ones that was pushed out was a large transportation deal.

[You got our name dry], so that's been signed and where we had two or three deals that were progressing very well before the UP that were largely in the financial. We probably have seven or eight of those deals right now, but they are transformational and they're big and complex and we're still confident that one or more of them are going to sign this year. It not only requires us to do a lot of work, it requires the people who are doing business with that do a lot of work and it virtually requires them to kind of change the way they're structured somewhat, because they are now going to a more real-time -- they are structuring themselves to be a more real-time institution, more omni-channel themselves, so that they have a -- so that you imagine actually doing business with the bank that who has the same date and timestamp on all the data that they deal with you. They're online, they are mobile, they are in branch, the whole experiences, they had the same timestamp. That would actually be as revolutionary, if not more revolutionary for a bank than it is for retail. So it's taking a lot of change on both sides, but we're more confident than we are. I am more confident, I just met with one of America's largest banks this week and I'm more confident than ever about our role in this, but I'm also sober in terms of the amount of pre-work that's required for us to realize it.

Perfect. Thanks.

Brett Huff, Stephens Inc.

Hey, thanks for taking the questions. This is actually James Rutherford in for Brett. Congrats on the quarter. A couple of questions, first on Universal Payments, can you give a sense of the size of the transportation deal that you just signed and then the timing of when that may turn into revenue? Thanks.

I don't know how to really -- no, I think if I gave the size, I would be like cheating on giving the names. So, I'm not going to do that. And this is going to probably be 12 to -- not 12, it's probably 15 months to 18 months if we do everything right. I mean, this is going to take every form of payment that there is and it's integrated with fraud. This is going to be a full-house deal. So 15 months to 18 months is -- we will be very proud of ourselves if we're up and running in 15 months to 18 months.

Okay, thanks.

And just to add to that, and when they do come online, this is a success that we're continuing to see in our hosted business by the omni-channel sale, so we've sold our payment switching, fraud detection, and part of that includes a cloud-based offering. So when it does come in, it will layer on incremental recurring revenues once it does go live.

Now, one thing I will say about it is that this will be a very replicable deal so that to the term that a various other similar transportation companies to this will not take as long as the first one would take if it's on demand, right. But to say that the first one is going to come live before that timeframe would be overly ambitious.

Okay. Great. And then, on Fundtech, it was recently acquired, do you expect the competition with them to change it on now that they're owned by D&H and also I guess that do you guys have any interest in that asset?

We don't compete. A lot of what Fundtech does, we do have our CFS business and we compete a little bit in the community banking side with them; and yes, we are one of four or five part of US -- our US commercial banks use the competitive product on the wholesale banking side. But no, we don't consider them a major competitor in terms of what we're -- what we're doing with UP and what Fundtech's doing, we don't believe them to be face-to-face competitors. We show up in the hallways with them the way we do with a lot of other companies, but no. I think it's very good company [at Boston], we think it's a great deal. We think it's nice; we were not involved in the transaction, that's (inaudible).

Okay, great. Thank you.

Wayne Johnson, Raymond James.

Hi, yes, good morning. Regarding the transportation deal, and my apologies if you've mentioned this, I switched on late, is there any functionality that you're going to be providing to that transportation company through UP that includes like accounts receivable or accounts payable?

No, accounts receivable, no, we would not be doing account -- we are providing them access to those people that would do accounts receivable and accounts payable. But no, we ourselves are not going to be carrying balances on either side of the ledger.

Right, right. Okay. That's helpful. And then, also, can you talk a little bit about the dynamics, just here at home in the US in particular, about interest in UP from the traditional FI constituency?

I can honestly tell you that we are in dialog with, if you [would say] share of electronic payment accounts. We're probably in dialogue with people to control somewhere between 80% and 90% of the transactions. We are in active dialogue with them right now, both at the primary level and then secondary level.

And just kind of best is if I can just run with that for a second, just kind of best-case scenario, how would that all play out to ACI's favor?

Well, think of it this way, think of it more globally than even that. ACI provides through BASE24 and Postilion. We supply 19 of the 20 largest payment banks in the world, we supply 19 of the 20 largest banks in the world today. We're now potentially providing them a road map that allows them to go from being point-to-point electronic, still payers and mostly dual message-format point-to-point payments to -- we can give them any-to-any capability in single-message format. And not have to abandon their installed technology in the process of doing it. That's a pretty compelling dialogue.

It also requires them to kind of re-organize from a point-to-point mentality to more of a customer doing any-to-any kind of transactions in order to do it. So it's a transformational kind of change. So it's a very different way of thinking about what the future is but so is real-time commerce that's a very different way of thinking about how you do commerce. So, it matches payments, it matches real time, it just gives a facility for real-time payments to match real-time commerce, simplest way I can explain it.

Peter Heckmann, Avondale.

Good morning, Gentlemen. Nice quarter. I just wanted to follow up on the, I think perhaps on interchange in the EU, can you talk about the timeframe that -- I guess my understanding is that that is a final recommendation that would be put into place over the next year. And can you talk about how that might catalyze the decision-making among large FIs in Europe?

As far as we know, it is finalized. And as far as I know it is finalized. And just my personal belief that you will see more and more what they call faster payment, you'll see more and more real-time kinds of payment and whatnot. I think it further pushes real-time commerce schemas and it makes the more expensive, high interchange-based payment migration. It forces the higher-cost interchange migration to take place -- it's taking what should be a natural migration and makes it a little bit unnatural by giving it a little regulatory push.

And you were just doing some background work, it appears that Australia is currently pursuing a real-time payments project, it looks fairly significant and I didn't notice ACI's involvement in any of the bidding consortiums. Are you playing behind the scenes there or is that something that you're not involved in?

Well, you should understand we are not -- we never take sides and it's not our role around the world. We are never part of a network or a whatever. We're arms merchants. We try to be the IP and as many solutions as possible. Actually, there are 30 or 31 initiatives in faster payments taking place around the world right now, it's not just Australia. Probably the most significant one that's taking place is the United States, although it's probably behind Australia, although I'd probably bet at $2 that it will beat Australia to the finish line because it's allowing itself to be more commercially based versus government based. Australia has already delayed itself. But there's about 30 or 31 of them taking place around the world and it's important because it's now an issue of how competitive the governments are from a commerce standpoint.

Great. And then, last question, I'll get back in the queue. On the biller-direct model, can you give us an update there? Any change in dynamics in the marketplace or any change in the velocity of growth of transactions?

No, the biller-direct side of the world is kind of -- I think that market is still very virgin, I think it's still very new and when people say, well, gee, if this dual-message card business, everyone I think views biller-direct as a vehicle for traditional payment devices to exercise themselves. It's our belief that biller-direct is probably going to be the next generation of how [to pay].

Once retailers secure the omni-channel, I think you're going to start seeing any-to-any networks and you're going to see a proliferation, what goes around comes around, you're going to see private label reignite itself in major retailers and whatnot. The private label is going to come about more from an any-to-any kind of a vantage point and whatnot. And the ability for a lot of major players to allow consumers to triangulate between purchase payment and bill satisfaction is going to percolate new EBPP, which is electronic bill percent and payment.

So, it's going to impact and I think you're going to see the wholesale side of banks starting to play a much bigger role in consumer built payment and as ACH twains as a bill collection mechanism, you're going to see the wholesale bank being involved in electronic bill presentments and payments. And the other guys that may try to get into that may be the Googles and Yahoos and whatnot, but I think the ones who have the natural connections and the natural channels to make that work are actually the wholesale sites. We will see a real fuzzy in-between the technology. They've truly organized around the customers, the denominator and the technology, neither being wholesale nor retail. And both the retailer and the bank having common technologies, I think you'll see an electronic bill presentment and payment as being the linkage, the railway between the two.

Alright. Thank you.

There are no further questions at this time, are there any closing remarks?

Well, thanks, everybody, for joining the call. We look forward to following up in the coming weeks.

Thank you and thank you all for participating in today's conference call. You may now disconnect.