ACI Worldwide, Inc. Reports Financial Results for the Quarter Ended March 31, 2019

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

NAPLES, Fla.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/ACI?src=hash” target=”_blank”gt;#ACIlt;/agt;–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 Worldwide
ACI 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 SUBSIDIARIES
CONDENSED
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 SUBSIDIARIES
CONDENSED
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 SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and
in thousands)

 

For the Three Months Ended
March 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  
             

Contacts

John Kraft, Vice President, Investor Relations & Strategic Analysis
ACI
Worldwide
239-403-4627
john.kraft@aciworldwide.com

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