ACI Worldwide, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the ACI Second Quarter Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After this figure's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. I would now like to hand the conference over to your speaker, Mr. John Kraft, Vice President of Investor Relations and Strategy. Thank you. Please go ahead, sir.

deck today, a copy of which is available on our website, as well as with the SEC. On this morning's call is Ojelon Almeida, our CEO, and Scott Behrens, our CFO. Before I turn it over, I'd like to share that company management will be attending the Wells Fargo Virtual Fifth Annual Technology Services Forum on August 11th, the Canaccord 40th Annual Growth Conference August 12th, and the Second Annual Needham Virtual FinTech and Digital Transformation one-on-one conference on August 19th. With that, I'd like to turn the call over to Ocalan.

Thank you, John, and good morning, everyone. Thank you for joining us for our second quarter 2020 earnings conference call. On our last earnings call in May, COVID-19 and its unprecedented global impact on people and economies was top of mind and a central focus of our discussion. Now in August, we find ourselves in slightly different circumstances, but with many of the same challenges. I hope you and your families are staying safe and well, and we at ACI remain committed to doing everything we can to ensure the health, safety, and well-being of our employees as we seamlessly support our customers. On today's call, I will begin with our second quarter financial results. Importantly, I'd also like to share in more detail my vision for profitable revenue growth and long-term value creation. We are living in a different world compared to even three or four months ago. While different parts of the globe are experiencing different stages and levels of severity of the pandemic, undoubtedly, there are ways in which our world has changed permanently. As it relates to ACI, the pandemic has heightened awareness and accelerated widespread acceptance of the essential role digital payment systems play in our modern economy. Starting with the second quarter, new sales bookings were $136 million, up 6% from Q2 last year. We saw particular strength in our merchant business, signing two larger BSP contracts, RS2 in Europe and HyperPay in Middle East, that will allow these partners to offer merchant acquiring and e-commerce services to their customers in new geographies. Another area of continued strength in the quarter was real-time. We signed a long-time support agreement with our customer, Rabobank, who was looking to extend its existing real-time payment offering by supporting batch payments. Another existing customer, one of the largest interbank switches in Indonesia, has selected ACI to orchestrate all their alternative payments, including QR, Alipay, and other real-time offers. Despite our revenues being impacted by COVID-19, our EBITDA increased by 42% compared to Q2 2019, with margin expansion increasing to 35%, up from 25% last year. Our efforts to improve operational discipline are working, and we continue to focus on maximizing profitability while advancing our pipeline of deals to position ACI for future continuous profitable growth. As I mentioned last quarter, we are fortunate to have a resilient business model with significant recurring revenue, reliable cash flows, and high customer retention, all of which are helping us weather the COVID-19-related uncertainty. On our first quarter call, I shared with you my background and experience in realigning operations toward revenue growth, margin expansion, and value creation. I also spoke about time I devoted to speaking with ACI's customers, employees, and leaders. Since that time, I have also been getting feedback from our investors. These conversations have made clear to me that ACI has a strong portfolio of customers and software-led payment solutions, and importantly, the human capital and talent to succeed. On the last earnings call, I have also communicated my initial and high-level perspectives on HCI's growth potential and the three pillars of our strategy, which will position the company for continuous profitable growth. Today, I'm pleased to share additional details on our growth. Over the last few months, we have engaged our best internal experts and industry-leading consultants, to help us review our business and identify opportunities for efficiency gains and growth optimization. These small consultant teams have worked with me on several similar efforts over many years. We have a playbook with a proven track record. Although our work is not complete, we have identified key initiatives to support the three pillars of our strategy that will drive value creation opportunities for ACI. Our first pillar, Fit for Growth is a refining and realignment of our organizational structure and operating model to better position the company for organic growth. This involves reviewing the organization model and geographic footprint and designing an agile and nimble organization that is better at creating and sustaining continuous profitable organic growth. We are also designing a best-in-class global sales organization and culture. This initiative focuses on execution and will strengthen accountability, enhance transparency, and reduce the duplicative costs throughout the company. We are very close to hiring a chief revenue officer and a chief human resources officer to complete the leadership team. Our second pillar is called Focus on Growth. We will design an organic growth strategy that puts a disciplined focus on areas where we can optimize growth. We are reviewing our current solutions to identify the best opportunities to invest operating and capital expenditures going forward. We'll focus on a smaller set of growth-rich software-led solutions supported by differentiated innovation in specific geographies and market segments. We will ensure all of our priority solutions are cloud-first in terms of architecture, deployment, and operations. We prioritize investments that have the best market opportunities, generate the highest revenue growth and cash flows, and would yield the highest ROI. This will become a core discipline here at HCI. Importantly, this investment will come from cost discipline and reallocation, not incremental spending. Our third pillar is step change value creation through M&A. We will also continue to pursue accurate M&A to drive step change value creation for our shareholders and further expedite our growth. Executing our three pillar strategy, we will encompass cost rationalization, which is already well underway. As we previously discussed, we action approximately $20 million in annual cash cost reductions in early 2020. During Q2, we further increased this amount by approximately $30 million in cost reductions related to COVID-19 by reducing the use of contractors, T&E expenses, and other known HR expenses for the rest of 2020. In addition, as part of our new strategy work, we're identifying additional cash cost savings by flattening our organizational structure, eliminating duplicative costs across our new organization, and reducing our global facilities footprint. A good part of this savings will be reinvested behind growth, and we assure value maximization to our shareholders. Additionally, we're reviewing our capital allocation. Our short-term priority is to continue to leverage the business. In Q2, we paid down $40 million, and our net debt ratio has declined to 3.3 times as of Q2 2020. In the medium term, we will also reallocate free cash flow to invest in our business, return capital to our shareholders through share buybacks, and undertake accretive M&A. We plan to provide an update on our progress implementing these initiatives on our Q3 earnings call. We also expect a fulsome discussion during an investor day we are targeting for November 2020. A new ACI is underway and will be fully launched by January 2021. We understand there is much work to do, but I have said before, I strongly believe we have the right team to succeed. There is a sense of urgency. as well as optimism throughout the management team as we execute our new strategy of repositioning the business for long-term value creation. To conclude, driving revenue growth is in my DNA and will be in the new HCI DNA too. We have a clear vision. HCI is well positioned to capitalize on the emerging trends in digital payments and specifically real-time payments. But we have plenty of room to improve in operational and go-to-market discipline and execution. I have no doubt that by executing on our three-pillar strategy, leveraging our go-to-market experience and benefiting from a new cutting-edge sales process and culture, we will generate continuous profitable growth and significant value creation. I will now hand the call to Scott to discuss the company's Q2 results. Scott?