ACI Worldwide, Inc. Price & Performance (ACIW)

The slides accompanying this call and webcast can be found at aciworldwide.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 press 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 ACI. With that, I'd like to turn the call over to Tom. Thanks, John, and good morning, everyone. I appreciate you joining our full year twenty twenty four earnings conference call.

I'll start this morning with some comments about the full year and then I'll hand it over to Scott to discuss detailed financial results for the year as well as our expectations for 2025, and then as always, we'll open the line for some questions.

Let me start with this.

I am immensely proud of the results my team delivered last year Performance was strong across every one of our metrics. In fact, 2024 results were ahead of our own expectations and the guidance we provided throughout the year.

Total revenue was up 10% over 2023, which was above our upper single digit longer term forecast we provided at our Analyst Day last March.

Our adjusted EBITDA for the year grew 18% also notably above our guidance.

Our adjusted net EBITDA margin of 41% expanded more than 300 basis points over last year, which highlights the inherent leverage in our software model. And cash flow generation remains strong with cash flow from operating activities of $359,000,000 in 2024.

More than double As we've discussed throughout the year, we made a conscious effort to renewal and new earlier in the year. While the revenue from a renewal contract cannot be recognized earlier than the renewal date, getting these time consuming renewals out of the way allowed us to focus on new customer wins which often can be recognized. As I reflect on 2024, this effort was clearly successful in delivering results ahead of our quarterly forecast throughout the year. And it's something we're continuing to do in 2025.

Further, it helps reduce the heavy seasonality we've traditionally seen It also allowed us to start working on deals in our 2025 pipeline This momentum and our large current pipeline provide me with high confidence in our full year 2025 outlook. Before I give you a little more color on segment, I want to discuss an organizational improvement we made starting on January one of this year.

We've combined the Bank segment and the merchant segment into one new business called Payment Software. This makes sense for a number of reasons. First and quite simply, the fundamental software, the code that we used serve banks and large merchants is very simple. While the software is configured differently for the bank and merchant customer targets, coding expertise and much of the functionality and the R and D is shared. The combination is synergistic. It simplifies operations in many ways. In addition, we're moving to a general manager structure for the business unit. We did this with the biller segment last year and we found significant success. We're highly confident this change will allow us to accelerate progress in the Payment Software segment as well. I've asked Eric Litch to lead this new business. As I mentioned on our last call, I've known Eric for many years. And I'm highly confident in his abilities. His experience is perfect for this role. Including the years he was involved selling and servicing mission critical enterprise software the largest global banks, which of course it will continue to do at ACI ACI. Look for us to report our financial results in this new structure starting in first quarter of this year.

Turning to the three segments you're familiar with. The bank segment, which will now be the majority of the payment software segment, grew 14% in terms of revenue and 20% in terms of EBITDA compared to 2023. We saw particular strength in our issuing and acquiring solutions with revenues up 23% from last year.

Our increased focus on next generation modernization and software, especially our payments hub [indiscernible] really is driving the pipeline. The merchant segment which going forward will also be included in the payment software segment, saw revenue grow 10% in 2024 and adjusted EBITDA grew 57%. Before moving on from payment software to biller, I want to provide an update on our next generation payments hub solutions. Investments are continuing We remain extremely focused on our launch [indiscernible] 2025. Our offering will be cloud native increases usability in terms of how customers utilize the tools and in terms of the breadth of customer segments we can target. And we're not just targeting our current very large bank segment. One important addition to our payments hub efforts, I hope you saw the announcement that I hired Phil Bruno as our Chief Strategy and Growth Officer. I've known and worked with Phil for a very long time. And we're excited for him to join the team. Bill will be instrumental in helping ACI execute on the broader strategy we launched in 2024.

In particular Bill will be utilized in a customer facing capacity helping our sales efforts by partnering with ACI customers and providing valuable assistance with their modernization efforts. We expect his efforts to be a very large part [indiscernible] Go to market strategy. Now turning to Biller, Our 2024 revenue was up 6%. We signed some significant contracts during the year and our bookings momentum strong with ARR bookings in Q4 up more than 20% over twenty twenty three Q4.

Overall, We're very happy with our full year financial results and we're confident in our 2025 outlook.

We started the year very strong We created a smart start program to encourage and reward early new business execution. This year. As part of this program, early this month, we signed the largest new logo and competitive takeaway we have ever had in our Asia Pacific region. While the contract is an excellent win by itself, the relationship is opening up additional opportunities for us in the region. Inclusive of this very large new logo win, the team has as of today signed net revenue contracts in our Banking segment yielding more than $50,000,000 in first quarter of revenue.

Scott will give more details about Q1 in the first half, but I'm sure you can appreciate the benefits of signing deals early in the year. Now I'll turn it over to Scott to discuss financials and our guidance. [indiscernible] Thanks, Tom, and good morning, everyone.

I first plan to review our financial results for 2024 and then I'll provide our outlook for 2025. We'll then open the line for questions.

In 2024, we capped off a year of strong revenue growth significant margin expansion improved cash flow and a strong liquidity position. Full year 2024 revenue was 1,600,000,000.0 up 10% from 2023 and total adjusted EBITDA was $466,000,000 up 18% from 2023 ACI adjusted EBITDA margin of 41% representing over 300 basis points of margin expansion. Looking at the results by segment, Bank segment revenue increased 14% versus 2023 with adjusted EBITDA margin of 61% Merchant segment revenue increased 10% versus 2023 with adjusted EBITDA margin of 42% And 6% versus 2023 with adjusted EBITDA margin of 51%. And as a reminder from our last earnings call, biller EBITDA dollars were down compared to last year due to certain one time non recurring margin benefits that did not recur here in 2024. We continue to see strong cash flow growth in 2024 with cash flow from operating activities $359,000,000 more than double last year and we ended the year with a strong liquidity position including $216,000,000 in cash on hand 2024 total debt outstanding decreased by more than $100,000,000 to $932,000,000 dollars and our net debt leverage ratio declined to 1.5 times which is below our recently lowered stated target of two times that we discussed last quarter.

During the year, we repurchased nearly 4,000,000 shares of our stock, representing approximately 4% of our shares out outstanding. And at year end, we had $373,000,000 remaining on our REIT authorization. With the strong bookings growth we had in 2024, and the momentum we saw exiting the year, we are confident in what we are seeing here in 2025. As Tom mentioned, we are starting the year strong, in particular with new sales bookings in our Bank segment including a large new logo and competitive takeaway in our Asia Pacific region which we expect to show up in our results here in Q1 as we start the year. For the full year 2025, we expect revenue to be in a range of $1,685,000,000 to 1,715,000,000.000 representing 7% to 9% growth over 2024 an FX adjusted basis which is in line with the long term growth targets we discussed at our Analyst Day last year and is particularly encouraging on the back of our strong growth in 2024. 2025 adjusted EBITDA is expected to be in a range of $480,000,000 to $495,000,000 dollars which again is coming on top of the strong year we had in 2024. Where we achieved over 300 basis points of margin expansion.

Notably, as we finished 2024, we were able to deliver a fully demonstratable MVP for our new payment sub that cost less than we had expected but will increase that investment in 2025 we roll out the product to market and build incremental functionality on top of the new For Q1 twenty twenty five, we expect revenue to be in a range of $360,000,000 to $370,000,000 We representing 17% to 21% growth over last year We expect adjusted EBITDA to be in a range of $70,000,000 to $80,000,000 representing 43% to 63% growth over last year. And looking to the sequential phasing of revenue for the rest of the year, we expect the first half of the year to account for a little more of our full year revenue or approximately 45% of our total revenue for the year in 2025 versus the 43% weighted the first half we saw in 2024. This is due to our continued efforts, as Tom mentioned, to sign our new contracts earlier in the year. And to help with the rest of your financial model and you'll find a few additional guidance assumptions here on Slide six. So in summary, in 2024, we saw a strong revenue growth contributing to strong EBITDA growth and margin expansion and cash flow growth more than double last year.

We exited 2024 with a healthy pipeline As Tom mentioned, we started the year strong, in particular with new sales wins giving us high confidence for 2025. With that, I'll pass it back to Tom for some closing remarks. Thanks Scott.

So in summary, we remain focused on sales execution and the development and rollout of our next generation payments hub. [indiscernible] We're pleased with our progress.

Looking to 2025, our pipeline is large, We have had a great start as you can see from our first quarter guidance, and we're confident in our full year financial outlook. Overall, we are optimistic regarding both our long term profitable growth and our ability to deliver significant shareholder value.

Thank you very much for joining our call. Operator, we can now take questions.

Thank you. We will now begin the question and answer session. [indiscernible] Your first question comes from the line of Peter Heckmann with D. A. Davidson.

Hey, good morning, everyone. Could you comment a little bit about the the net revenue dynamics within biller seems like we saw kind of a reversal from a number of quarters of relatively strong trends and is that what's contributing to the down year over year EBITDA within Biller or Are there kind of two overlapping dynamics?

Yes, Pete. No, it's primarily, certain contracts we've talked about that after our Q3 call, certain contracts where we had a margin benefit, we call it a one time margin benefit in 2023 did not recur in 2024. So you'll see net revenue increase and EBITDA increase in 2025 once we get away from that kind of year over year OpEx. But obviously, at the consolidated level, we were able to increase our margin expansion by 300 basis points points even with that kind of year over year Yes. Those benefits that Scott is referring to, those those fall through straight to net. From growth. So when those didn't occur, that had an impact on both. Okay. And then in terms of thinking about this this win in the first quarter, can you talk about what solution or what solution, what area that was in?

Yes. It's our flagship issuing and acquiring solutions is one of the very few extremely large banks in the world that we're not previously using our flagship solution. So we're super I mean, obviously super excited about that.

And as we've mentioned, I just want to reinforce this is is a very competitive takeaway and [indiscernible] really encouraging and it's a program that we started last year [indiscernible] some very specific solutions from some of our competitors and to try to grab those few remaining banks and very successful. Obviously, this one was successful. And we have a whole pipeline that we're going after that looked like this This is one of the largest ones which is obviously great to start with one of the largest ones. But there's more to come.

On that on that program.

Okay. That's great to hear. And then just to quick follow on though, but are they going to run that on an in house basis and [indiscernible] It's on Friday. So we'll be running it. Be running it in their own data center.

That's correct.

Okay.

Your next question comes from the line of Trevor Williams with Jefferies.

Great. Thanks guys and congrats on the year. Tom, Tom, just to go back to the reorg with merchant and banks and the shift to the GM model, if you could just expand on what the impetus was for for both of those? And then just as we think about this year, what kind of tangible benefits we might start to see from those as we work through?

Yes, sure. So if I go back to when I first walked in the door November of twenty twenty two, we had a organizational structure that was functional And so, and there's nothing wrong with the functional work [indiscernible] We got some efficiencies out of it. My challenge was I prefer and I think just works better leadership teams that are fully accountable for results in an entire business as possible. And so I've always I've always preferred to operate that way.

Wanted to make sure that I got my arms around [indiscernible] the ups and downs, the positives and the negatives of that with respect to ACI and I became very comfortable last year after seeing how successful we were on biller, we've downloaded out across the company. And so what it means is Eric, the General Manager of of our payment software business, he now has the sales resources the account management resources, the implementation team, the product marketing teams, they all are working on the same team. And so we've already started to see benefits from consistency of direction from no matter how good everybody is at at working across them. Matrix if you have different bosses, it's challenging. And so now every person in the company that's supporting directly our bank and merchant customers they all report to the same team. The same leader.

And they are very clear on what their objectives are and they they're actually they're thrilled that we've done this because it just helps everybody get on board with what we're trying to do. So that's why we did this. We're [indiscernible] highly confident that it's going to have very positive results I think what we'll ACI and I'll keep you updated on this and how it's really going, Well, I think the first impact we're probably going to see is our customers are going to be happier. Because we're going to have they don't it's easier now for them. They don't have to think [indiscernible] About who is accountable for their business in of ACI. In the past, we had times where a customer would say, well, if it's if it's implementation, I need to call James.

If it's If it's a new opportunity, a sales thing, I need to call Joe. None of that anymore. There's we've made that much easier for our customers They're going to really be happy about it. And then internally, we're going to see efficiency because as I mentioned, the software is very, very similar But because we had it in separate organizations, I'm absolutely certain that we had some wasted efforts, some duplicative efforts and we're eliminating those. They don't go away on day one.

But we're starting already to see benefits Hopefully, that's helpful, Trevor.

Yes, no, that's great. I appreciate all that. And for Scott, just anything more specific on I guess now we're down to two segments, but on what the growth expectations are at the segment level, between the new payment software and biller? And then just as we think of the and I know banks is now wrapped with merchant, but just relative to 24 contribution you guys are expecting from new sales, And then also any impact we should think about from renewal volume if there's any cadence in 25 to be mindful of? Thank you.

Yes. First, I think last year we laid out the long term targets by each of the three segments.

They were all over the three year time horizon call it high single digit revenue growth that won't change Ultimately, I think there was opportunity, upside opportunity in banks if we do get traction on the payments hub with the Tier two banks. That could push banks up to double digit. But because merchants relatively small, It's a part of the payment software business. It's really not going to really not going to change the trajectory of those numbers. They were pretty much all in line. So I would stick with those growth numbers. I think externally what you guys will see starting with Q1 is really a combination of what is the source within bank and merchant So if you're modeling kind of the go forward, it's really combining those two business segments into one. Really not going to be any more complicated than that. And as it relates to this year's new business and renewal business, renewal book is again, I think that every year it's call it 20% plus or minus of the total book. So nothing really significant there in terms of sizing. The new business as I said on the call, we are making a conscious effort to kind of derisk full year make it so that we don't have to rely so much on the fourth quarter.

And that's why I said in my prepared remarks that you're going to see more more of the full year revenue in the first half. Than we saw in 2024. And hopefully that will a trend going forward as we begin to balance out the year. So last year, 2024 had 43% in the first half is 45%. It doesn't seem like a big shift, but again, it's going to take time to balance out the year and get rid of some of that variability that we see by quarter.

Yes. And I think this is obvious, but the reason that it takes some time to to really make an impact there is as we say all the time, these renewals It doesn't matter when we sign the They're recognized on the middle of the And so we're still doing a really good team's doing a really good job of finding these renewals earlier that doesn't move the needle. But where we have the leverage is on the new business [indiscernible] because this is a great thing for the company great for our shareholders. They don't have to they don't have to worry so much about Q4 and frankly, I don't have to worry so much about Q4 getting it all done. So it's good news.

All the way around, but it's going to I think great progress already, but we're going to continue to push that. So we get closer and closer to that magic fifty-fifty between the s. Okay.

No, I appreciate all that. Thank you, guys. Thanks, Trevor. Thanks, Trevor. Your next question comes from the line of Jeff Cantwell with Seaport Research Partners. Please go ahead. Hey, thanks very much. On your adjusted EBITDA guidance, could you talk about what the factors are would drive you towards the higher end of the range for the full year? Conversely, what we'll put at the lower end of that $4.00 $8,000,000 to $495,000,000 range for the full year? Thank you.

Well, yes, the factors that we're pushing to the high end, again, we have a very leverageable model. I mean, we have the whether it's software model, SaaS model, both are highly scalable. And so it really comes down to that mix. Of whether it's call license fee services or SaaS and what that mix ends up being on a year We're comfortable with this range, but delivering up up high end would be very similar to this year. You overachieve in areas like [indiscernible] and that really falls dollar per dollar down to EBITDA. So So we're comfortable with that range. A lot of halves, I think, to that high end. So I wouldn't limit it to one particular path, but highly scalable models You saw that in 2024. It'd be very similar mechanics or ability to reach that in 2025.

Yes. And I mean, just Scott said this I'm going to say it a little differently. I think the most likely path to the high end or over the high end of EBITDA guidance would be We're even more successful than we expect to be on the these new license deals. Such as the very large and we signed in Q1. We signed another one of those during this year there's a very real chance we could be behind or above.

Got it. Got it. Great. And then can maybe you just talk a little more about that competitive takeaway in Asia Pacific? I'm curious to be able to share who that was and what do you think the drivers were having to make the change over here? Maybe talk a little more about the sales environment with bags. It sounds like you're starting the year stronger I mean, is that your expectation for the coming year? And are there any big renewals that we should be aware of as well? Thanks.

Yes, Jeff. We have a little under on how long it would take for somebody to ask who it was. I can't tell you who it is. But what I can say is just to repeat what I said a very large financial institution, Asia Pacific based global institution, [indiscernible] Based in a specific region, It's It's again, as I said, one of the very few in that region that didn't already use our flagship products. So we're really excited about that.

The reason that I think there are two main things that I would say about why we were able to win this Number one, was, I think our competitor made a mistake. They did not serve the customer well.

They were not happy. Of course, we always look for those situations try to take advantage of those.

So that was number one, but number two is really the reason is because we started the whole conversation talking about the future and where we're headed with our payment hub strategy. And they the reason that they bought was they said this is fantastic because I can use proven, absolutely proven technology. I mean, I think at one point they used the word bulletproof with me. I would never actually use that word myself. But that's what they said because they got feedback from from other customers said we can use that immediately. You can help us implement that really fast and we're totally comfortable with that. And you're giving us a path to modernization that no one else has been able to to demonstrate for us. So that's why we won and it's a wonderful thing. We'll do celebration in a month or so.

And I'll be there for that. I'm excited about that. In terms of the overall sales environment, I think this that description I just gave you of this process is a pretty good proxy for how conversations are going around the world. These are this is the whole reason that we that we embarked on our Payments Hub strategy. By the way, we call it we call the Payments Hub Kinetics now. We did actually come up with a name for it. But if that path to modernization which is far lower risk and easier to understand for institutions. So they can either continue to use proven software until they're ready or like in this case, they can move over to already proven platforms and then then move at their pace to new cloud native technologies. So I think this is a really good example of our sales strategy and it's obviously it works, certainly work in this case.

Great.

Thanks very much. Thanks, Jeff.

Your next question comes from the line of George Sutton with Craig Hallum. Please go ahead.

Thank you. Tom, just more on the Payment Hub. [indiscernible] Yes. You mentioned the launch would be in 2025. I wondered if you could give us a little more specificity there. And there was also a mention of incremental functionality. I just wanted to make sure I understood what the incremental functionality was and if sounds like I might address modestly larger market than you had prior [indiscernible] Sure. Sure, Joe. So We've actually already let our sales force loose to sell the product. I think I've said before, On earnings calls and then in individual calls that I was personally particularly pedantic about not having our sales force sell from a PowerPoint.

And many of our competitors do that. Right? They will come in with a PowerPoint slide, Dave, set of slides and say, hey, look at this. This is what we can do. Well, they can't actually do that. I didn't want to do it. And so we waited. We did not allow our sales force to [indiscernible] [indiscernible] the first of this year and the reason and what drove that was we have a functioning demo. And and when I say demo, I mean, it actually works. It's running on the same servers that production systems will run on. It uses synthetic test data that looks very much like real real transactions for very, very large financial institutions.

We're able to demonstrate extraordinarily high throughput in fact much higher than any bank has ever needed in the world. We can we've been able to demonstrate that. So we got to that point where we could show the customer, they can touch it, they can feel it, they can play with it. And that's when we fixed the Salesforce on it. So as far as exactly when the first quarter loan reduction I don't know that yet.

But what I do know is we've got a lot of interest our sales force is thrilled They're out there right now. In fact, there's a deal we're closing right this second.

Of a kind of a midsized financial institution that I hope we win it And if we do, that would probably be the first one. I don't know. We'll we've got a lot of interest, we're very focused on it.

We'll keep you updated.

In terms of our progress on actually selling the product that tons of interest. And then you Scott, I think mentioned incremental functionality. So what we did was in the in this working demo, we chose one of the most common or several actually of the most common payment types and we chose account to account So that could be a real time payment, a small payment or a very large wire.

For example, or a Swiss transaction, anything that goes from one account to another That's what we're able to demonstrate right now.

The next set of functionality is going to be like like So debit cards, credit transactions, and then ACH will come a little bit later. So we've phased in the functionality but it's the same platform with the same database the same middleware, if you will, the same interfaces to the customer systems. So by demonstrating this and just we've had we've had a bunch of analysts look at industry analysts And I'll just give you one quote that I love I won't tell you the analyst was good.

Person hasn't published the the study yet or the paper yet.

But we showed the demo We let this person play with it. And be her reaction, I gave something away, didn't ask.

Her reaction was I have never seen anything like this. No one in the market has this. It blew me away. So we're very excited about that.

Obviously, the proof is in the footing. We need to sell, we need to implement and we need to continue to deliver that push out. [indiscernible] The new payment software group One who's watched the merchant segment, which has struggled a bit and not necessarily achieve the size we would hope All set. Is it fair to that merch In this getting more emphasized in the structure?

No, I definitely don't think we emphasize George. It's just a refresh everybody. When I originally hired her, I asked him to take on merchant, build a plan to to reenergize merchant He had a bunch of experience with large merchants around world with CEO of a company that merchants around the world. But his real passion was banks.

And Eric was one of the early employees of Carillion, which is an online banking software company and I worked with them at Pfizer after we bought Checkreaves which had bought. Brilliant. And so Eric's passion is banks He knows the executives at large banks around the world already.

And so that's a very long way around to your question, which is Eric is the right person to reenergize or energize both banks and merchants and we get a lot of leverage that we really haven't gotten enough of. By putting merchant and banking together because as I mentioned, a couple of times now, the software itself is very similar.

It's just a matter of exactly how it's applied and then really importantly, we talk about banks, for the most part when we talk about payments health, Kinetics, but actually when we talk to large merchants and ask that? Because that orchestration of payments, that super efficient routing the traceability all of those things large merchants want just as much if not more than financial institutions.

We had to start somewhere and we started with banks, because it's our largest business, but that will equally apply, at least equally apply to merchants and that's another reason we brought it together. So I don't want to miss That opportunity. Helpful stuff. Thank you very much. Thank you.

Further questions at this time. I would like to turn the call back over to the management team for closing remarks. [indiscernible] Well, look, we thank you very much for participating. We're as you can tell, we're very excited about the performance our team put in, in 2024, but much more importantly, where we're headed and we're very confident in 2025 NBI I think we've we feel internally, we've we've turned a corner and we feel great about the future and we're talking about the future, we're talking about growth, we're talking about expansion, which is what we want to do.

And so we're very excited about it and we appreciate your support and let's get with your day.

Thanks everyone.

This concludes today's conference call. Thank you for your participation. You may now disconnect.