ACIW
#Thanks, Phoenix 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 are <UNK> <UNK>, our CEO and <UNK> <UNK>, our CFO.
With that, I'd like to turn the call over to <UNK>.
Thank you, <UNK>.
Good morning and thank you for joining our call.
Our quarter two is a very productive quarter and we continue to be on track to achieve our full year goals.
We delivered strong growth in net sales bookings of 18%, while overall sales bookings including term renewals grew 24%.
Our UP enablement strategy continues to gain momentum.
In Europe, a large financial institution purchased UP BASE24-eps 2.0 for their faster payments platform.
This is one of the many initial [iterative] steps towards the adoption of a broad UP enablement strategy across all our markets, and it is an important validation of the unique UP concept.
For a decade, ACI has been the backbone of faster payments infrastructure in the UK, and our leadership role there is expanding our opportunity as similar, faster payments initiatives are being contemplated throughout the world.
In the Americas, we signed a large hosted contract with a value-added vendor in the mortgage entitled industry to provide an innovative solution uniquely utilizing both our EBPP remittance services, as well as our MTS wire application.
This is another new vertical and use case and has already led to increased discussions in the sector.
Our renewals was also strong, growing 37% in the quarter and we're happy to announce a five-year extension with the IRS for Federal tax bill payment services.
As you know, the tax payment space is competitive and ACI was chosen largely because of the proven reliability of our systems.
We continue to see strong and growing pipeline of UP opportunities and expect interest to increase with the fourth quarter launch of our Linux-based version of the UP BASE24-eps 2.0 product.
Extending the BASE24 application to Linux systems has the potential to reduce our customers' hardware and middleware overhead costs by more than 50% and allow them to more broadly deploy the UP framework for efficiency and in consolidation throughout their network ---+ throughout their organization.
We are also investing in our retailer focused offerings as we continue to experience growing demand for these payment engines.
Combining the e-commerce capability of our recently acquired ReD with our legacy platform creates a truly differentiated omni-channel multi-payment offering.
Notably, ACI is taking a leading role in Payments.com, R2 Retailer Payments Conference in Chicago next week.
We expect the event to generate important dialogue on sales leads given the disruption permeating the retail payment category.
Many leading retail brands will be present both as discussion leaders with ACI executives and as conference participants.
I'm very proud of what we've accomplished this year-to-date and we're tracking well to achieve our full-year targets.
I will now hand the call over to <UNK>, who will discuss our financial results and 2015 expectations in more detail.
Thank you.
Thanks, <UNK> and good morning, everyone.
I first plan to go through the highlights of our second quarter and then provide our outlook for the full year 2015.
We'll then open the line for questions.
I'll be starting my comments on slide 6, with key takeaways from the quarter.
As <UNK> already highlighted, we had a very strong sales quarter with overall sales bookings in Q2 including term extensions up 24% over last year, net new sales bookings up 18% from last year's Q2 and up 9% excluding the [$14 million] contribution from ReD.
And we remain on track to deliver our full year target of high single digit growth in net sales.
Moving to backlog, we ended the quarter with 12-month backlog of $883 million, down $11 million from last quarter after adjusting for FX and 60-month backlog of $4.1 billion, down $10 million from last quarter after adjusting for FX.
It is important to note here however though that during the quarter, we made the decision to exit a bill payment sub-segment as a result of regulatory changes impacting that particular vertical.
The net impact to our 60-month backlog was approximately $30 million.
So absent this decision, 60-month backlog would have been up $20 million during the quarter.
We saw revenue of $266 million in the quarter, up 4% from Q2 last year or 6% on a constant currency basis, and excluding the incremental impact from the Retail Decisions acquisition, our organic revenue grew 4% on a constant currency basis.
Recurring revenue grew to $194 million or 73% of the total and specifically, our SaaS subscription and transaction-based revenues continue to grow, up 9% from Q2 last year.
Our adjusted EBITDA grew to $58 million, up 3% from last year's Q2 and when combined with our strong Q1, adjusted EBITDA is up 9% year-to-date.
We ended the quarter with $50 million in cash on hand and after paying down $84 million in debt year-to-date, we ended the quarter with a debt balance of $808 million.
Our operating free cash flow declined in the quarter, mainly due to the timing of a couple of large renewals that happened late in the quarter.
We now expect these cash receipts in Q3.
Also of note, during the quarter, we received cash proceeds of $35 million and recorded a gain of $24 million from the sale of our holdings in Yodlee, Inc.
stock.
Lastly, turning to slide 7, based on our solid performance year-to-date and our outlook for the second half of the year, we are reaffirming our previously provided full year 2015 guidance.
We reviewed and are comfortable with the Firstcall estimates for our full year revenue and EBITDA expectations.
We continue to expect full year non-GAAP revenue to be in a range of $1.04 billion to $1.07 billion.
We expect 2015 non-GAAP EBITDA to be in the range of $280 million to $290 million, which is also unchanged.
And as I said earlier, we expect sales net of term extension bookings to be in the high single digits for the full year.
A couple of other items, foreign currency fluctuations and expectations have not changed materially since last quarter's guidance was provided, and we do expect Q3 revenue to be in a range of $235 million to $245 million.
And lastly, our guidance excludes approximately $12 million in expected one-time integration-related expenses for our continued datacenter and facilities consolidation and bill payment platform rationalization.
That concludes my prepared remarks.
Operator, we're ready to open the line to questions at this time.
Thanks.
This is separate and distinct customer.
This is an upgrade to faster payment and actually using ---+ bringing in 2.0 for a broader application than how they were using our products in the previous generations.
So it's a nice validation of UP and it's also a nice validation of our ability to support the 31 countries around the world that are implementing faster pay right now and it's a good validation of UP's utility in that regard.
What I can comfortably tell you is that, last time I told you that we were actively involved with about a dozen and I can tell you that, that number ---+ that active dialogue is now reached a number that's at or above a dozen and half.
And there is a large assortment of use cases at this point.
So, we are very pleased.
These are transformational projects, so we're not going to be overly aggressive in terms of saying when.
The only other thing I will say is that we've not fallen off the charts with any of our dialogues at this point and each one has actually had probably more steps to conclusion than I would have predicted at the inception of the dialogue.
But we are growing very nicely and the interest is truly global.
We've created a real-time wire process for the closing of mortgages, [and they've even been through] a mortgage process.
We've kind of brought it into the 21st.
We have really supported ---+ and it's not a mortgage company, it's a supplier to the mortgage industry.
And I can't tell you their name, but they now have a process for which they can give you real time support to the closing process that utilizes wire.
So, the process is much cleaner and much more straightforward.
So a lot of people realize that real time payments should and does include wire as being one of the forms of real time.
I think if you look at Q3, I mean, yes, we beat the second quarter, part of that was timing of deals that came in from Q3.
We've said in the past that there are ---+ last year, we said there was certain customers that were deferring things like capacity purchases and waiting to make that decision.
At some point, the time runs out and they have to come back and purchase capacity.
So it was a strong capacity quarter.
It was really timing based on the market and, so that would be part of the Q2, Q3 optics.
I think the ---+ being a banker for as many years as I was, it would be very unfair for me to say that ---+ it'd be very unkind for me to say that a large percentage of bankers are [lemmings] and very few are change agents, but that might actually be the case.
We actually have a pilot going and I can't tell you who the pilot is.
I think that when the numbers ---+ I think there will be a lot of resistance from people who have large revenue streams at stake.
But I think when the numbers kind of prove themselves out and the significance of our active ---+ active working at the software level to the extent that it enter the perfection that it does.
I think when that proves itself out, I think there will be an orderly rush to Linux because it ---+ and if your revenue is coming down, if the regulators are bringing down the top line payments, you have to do intelligent things on the bottom line and this is a really intelligent thing because it doesn't do anything but perhaps improve your flexibility and lowers your cost.
So it makes a lot of sense.
The gating factor, gating is like in a horse race versus a gate is, there'll be a natural rollover of the hardware contracts.
And I think that will be the ---+ those will be the timings in which it will be reviewed.
But the numbers that we're giving you that are around 50% is actual use case experience of our pilot at this point.
So I think the numbers are very, very compelling.
Thanks, <UNK>.
Here is the way I explain the math to everyone, and I should explain it to you.
The answer is yes, and it was I felt a lot less comfortable saying yes when I had four or five deals and each deal you could say, well, from a timing standpoint it has a 20% to 30% chance of closing by the end of the year.
If we now have 18, 20 deals that are actively working their way through the pipe and they've got, you know what, 33%, 40% ---+ 25% to 33% chance of closing between now and the end of the year, the probability that one or two of those actually close gets very, very high.
It gets very, very high that it actually happens.
So can I tell you which one it is.
No.
Can I guess which one of five or six or which two of six or eight it is, I could kind of guess.
But I think the probability gets very, very high because we're now getting to references and things are getting to boards and things like that.
So I'm feeling more and more confident that the answer is yes.
I'd say there's probably two drivers there.
One, first, you have to take out the growth in the interchange, that's the pass through of cost that we have in the bill pay business, that growth was up $4 million year-over-year.
But we also had a large implementation project that finished up in the second quarter that was taking ---+ that took quite a bit of resources to get it done.
The plus side of that is now we free up those resources for second half pipeline implementation.
So I would say those two.
So let me be more direct, right, not that <UNK>'s not been direct, but ---+ and this is kind of ---+ this is internally a cause for celebration.
I told you guys many quarters ago that our fun times with the justice department over nothing in the acquisition of S1 we landed up inheriting a very [dis-economic] deals that we didn't discover till several months after we were integrating the business, because we weren't allowed to look at the business for the last six months before we purchased it.
And went and told you that we're taking our lumps and we moved on and we handled most of those contracts.
The final one of those contracts just completed and to give you guys an idea of living up to our word, we got a couple of million dollars of revenue, which I think we recognize ratably or whatever, and we just finished spending about $25 million putting that system in.
And so, that's actually instead why we're celebrating because that frees up an awful lot of capacity to earn real revenue going forward.
And why did we do it versus cut our losses and walk away and we did it for honor and reputation, and we bought the company that did a bad deal and we lived up to that deal.
So that stuff is all beyond us and even if you take that extra expense, S1 was still a wonderful acquisition.
So we're not going to cry in our fear about that.
And I would actually add a third element, is that, our hosting business is doing very, very well and the more we grow the hosting business, the more we temporarily depress its margin as we implement, because if ---+ as long as the percent of implementation grows, you temporarily bring its margin down and we for one don't want ---+ we like that percentage growth actually growing, it can't continually grow, but we like it growing, we're doing a lot of things to improve the speed of our implementation.
But as we've had this nice growth in growth rate in terms of the SaaS cloud part of our business, it depresses and then you take the revenue ---+ you don't have the revenue celebration on (technical difficulty) an installed basis, you then take it ratably.
Thanks everybody for joining the call.
We look forward to catching up with most of you in the coming weeks.
Have a good day.
