ACI Worldwide, Inc.

Good morning. My name is John and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Incorporated Reports financial resource for the quarter and full year ended December 31st, 2024. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to John Krass. You may begin your conference.

Thank you, and good morning, everyone. On today's call, we will discuss the company's fourth quarter and full year 2024 results, as well as our financial outlook for 2025. We will take your questions at the end. 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 Warsop, our President and CEO, and Scott Behrens, our CFO.

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 2024 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 million in 2024, more than double the previous year. As we've discussed throughout the year, we made a conscious effort to complete the signing of contracts, 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 when signed. As I reflect on 2024, this effort was clearly successful in delivering results ahead of our quarterly forecasts throughout the year, and it's something we're continuing to do in 2025. 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 coloring segment, I want to discuss an organizational improvement we made starting on January 1st 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 use to serve banks and large merchants is very simple. While the software is configured differently for the bank and merchant customer targets, the coding expertise and much of the functionality and the R&D is shared. The combination is synergistic. and 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 Litsch 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 to the largest global banks, which, of course, he will continue to do at 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 product, 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. Development is on track. We remain extremely focused on our launch in 2025. Our offering will be cloud native, which 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 of our hub 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 closing out the year is strong, with ARR bookings in Q4 up more than 20% over 2023 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 million in first quarter 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. Scott?

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 $1.6 billion, up 10% from 2023, and total adjusted EBITDA was $466 million, up 18% from 2023, and 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 biller segment revenue increased 6% versus 2023 with adjusted EBITDA margin of 51%. And as a reminder from our last earnings call, bill or 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 of 359 million, more than double last year. and we ended the year with a strong liquidity position, including $216 million in cash on hand. In 2024, total debt outstanding decreased by more than $100 million to $932 million, 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 million shares of our stock, representing approximately 4% of our shares outstanding. And at year end, we had 373 million remaining on our repurchase 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 to $1.715 billion, representing 7% to 9% growth over 2024 on 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 to 495 million, 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 finish 2024, we were able to deliver a fully demonstrable MVP for our new payment sub at a cost less than we had expected, but we'll increase that investment in 2025 as we roll out the product to market and build incremental functionality on top of the new architecture. For Q1 2025, we expect revenue to be in a range of $360 to $370 million, representing 17% to 21% growth over last year. We expect adjusted EBITDA to be in a range of 70 to 80 million, 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% weight of 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 modeling, you'll find a few additional guidance assumptions here on slide six. So, in summary, in 2024, we saw 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 and significant momentum. 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. Tom. Thanks, Scott.

So in summary, we remain focused on sales execution and the development and rollout of our next generation payments hub platform. We're pleased with our progress and our extremely strong results in 2024. 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. If you have dialed in and would like to ask a question, again, as a reminder, that is to press star 1. And we will kindly ask everyone to limit themselves to one question and one follow-up. Again, it is to press star 1 on your telephone keypad. Your first question comes from the line of Peter Heckman with DA Davidson. Please go ahead.

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

Yeah, Pete, no, it's primarily certain contracts. We talked about this after our Q3 call, certain contracts where we had a margin benefit, called a one-time margin benefit in 2023 that did not recur in 2024. So you'll see net revenue increase and EBITDA increase in 2025 once we get away from that, you know, kind of year-over-year opting. But obviously, at the consolidated level, we were able to increase our margin expansion by 300 basis points, even with that kind of year-over-year headwinds.

Yeah, those benefits that Scott's referring to, those fall through straight to Nats from growth.

So when those didn't occur, that had an impact on both.

Okay, 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?

Yeah, it's our flagship issuing and acquiring solutions. It is one of the very few extremely large banks in the world that we're not previously using flagship solutions. So we're super, I mean, obviously super excited about that. And as we've mentioned, I just want to reinforce this is a very competitive takeaway. And it's really encouraging. And it's a program that we started last year targeting some very specific solutions from some of our competitors And to try to graph those few remaining banks and very successful, obviously this one was successful. And we have a whole pipeline that we're going after that looks 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 program.

Okay, that's great to hear. And just a quick follow-on though, but are they going to run that on an in-house basis? It's on CREV, so they'll be running it in their own data center. That is correct. Okay, great. Thank you very much. You're welcome, Steve.

Your next question comes from the line of Trevor Williams with Jefferies, please. Go ahead.

Great. Thanks, guys, and congrats on the year. 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 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. Thanks.

Yeah, sure. Sure. So if I go back to when I first walked in the door in November of 2022, you had an organizational structure that was Functional. And there's nothing wrong with a functional organization. We got some efficiencies out of it. My challenge was I prefer, and I think just works better, to have leadership teams that are as fully accountable for results in an entire business as possible. And so I've always preferred to operate that way. I wanted to make sure that I got my arms around 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 now rolled it out across the company. So what it means is Eric, the general manager 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, you know, no matter how good everybody is at working across a 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 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. I'm highly confident that it's going to have very positive results. I think what we'll see, and we'll keep you updated on this and how it's really going, but 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 twice. about who is accountable for their business inside of ACI. In the past, we had times where a customer would say, well, if it's implementation, I need to call James. If it's a new opportunity, a sales thing, I need to call Joe. None of that anymore. 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 to already see benefits there. Hopefully that's helpful, Trevor.

Yeah, no, that's great. I appreciate all that. For Scott, just anything more specific on, and 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, 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 volumes. if there's any cadence in 25 to be mindful of. Thank you.

Yeah. First item, you know, last year we laid out kind of the long-term targets by each of the three segments. They were all over the, you know, three-year time price and, you know, call it high single-digit revenue growth. That won't change. You know, ultimately, I think there was opportunity, upside opportunity in banks. If we do get, you know, traction on the payments hub with the tier two banks, that could push banks up to double digit. But because merchants relatively small, you know, 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 bank, what is historically been bank and merchant. So if you're modeling kind of the go forward, it's really combining those two business segments into one. It's 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 de-risk full year, make it so that we don't have to rely so much. see more of the full year revenue in the first half than we saw in 2024. And hopefully that'll be a trend going forward as we begin to balance out the year. So last year, 2024 had 43%. The first half this year is going to be 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

Yeah, I think this is obvious, but the reason that it takes some time to really make an impact there is, as we say all the time, these renewal deals, it doesn't matter when we sign them. They're recognized on the renewal date. And so we're still doing a really good job. The team's doing a really good job of signing these renewals earlier. That doesn't move the needle. But where we have the leverage is on the new business, and that's why you're seeing a very strong Q1 because this is a great thing for the company. It's great for our shareholders. 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. I think great progress already, but we're going to continue to push that. So we get closer and closer to that magic 50-50 between the S. Okay.

No, I appreciate all that. Thank you, guys. Thanks, Jeff.

Thanks, Trevor.

Your next question comes from the line of Jeff Cantwell with Seaport Research Partners. Please go ahead.

Hey, Eddie. Thank you very much. On your , can you talk about what the factors are That would drive you towards the higher end of the range for the full year. And commercially, what we'll put you at the lower end, $480 million, $95 million range for the full year.

Thank you.

Well, yeah, the factors that were pushed into the high end, you know, again, we have a very leverageable model. I mean, we have the, whether it's the software model or the SaaS model, both are, you know, highly scalable. And so it really comes down to, you know, that mix. of whether it's called license fee services or SAS and what that mix ends up being on a year. We're comfortable with this range, but delivering up high end would be very similar to this year. You overachieve in areas like license, and that really falls dollar per dollar down to EBITDA. So we're comfortable with that range. A lot of tabs, 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.

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

Got it. Got it. Great. And then can you maybe 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 you think the drivers were but I'm going to make the change over to you. Maybe talk a little more about that sales environment with banks. It sounds like you're starting the year stronger. I mean, is that your expectation for the coming year? Are there any big renewals that we should be aware of as well? Thanks.

Yeah, Jeff, we have a little over-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 before, which is a very large financial institution, Asia Pacific-based, global institution, but based in the Asia Pacific region. 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, you know, 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 and try to take advantage of those. So that was number one. But number two, and really the reason, is because we started the whole conversation talking about the future and where we're headed. with our payments hub strategy. And 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 other customers. They said, we can use that immediately you can, you can help us implement that really fast. And we're, we're totally comfortable with that. And you're giving us a path to modernization that no one else has been able to demonstrate for us. So that's why we won. Um, and it's a, it's a, it's a wonderful thing where we'll do a, we'll do a celebration in a month or so. Um, and I'll, I'll be there for that. I'm excited about that. Um, In terms of the overall sales environment, I think that description I just gave you of this process is a pretty good proxy for how conversations are going around the world. This is the whole reason that we embarked on our payments hub strategy. By the way, we call the payments hub Kinetic now. We did actually come up with a name for it. But it's 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 move at their pace to new cloud-native technology.

So

It's a, I think this is a really good example of our sales strategy, and it's, obviously it works, certainly worked in this case.

Great. Thanks very much. Thanks, Jeff.

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

Thank you. Tom, just more on the payment hub. or now Kinetic. 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 it sounds like I might address a modestly larger market than you had prior thought. Sure.

Sure, Jeff. 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. They will come in with a PowerPoint slide saying, 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 sell Kinetic until the first of this year. And what drove that was we have a functioning demo. 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 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'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 six the Salesforce on it. So as far as exactly when the first one will go into production, I don't know that yet. But what I do know is we've got a lot of interest. Our Salesforce is thrilled to be let loose. They're out there right now. In fact, there's a deal we're proposing right this second of a kind of a mid-sized financial institution that I hope we win it. And if we do, that would probably be the first one. I don't know. But 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 with tons of interest. And then you, Scott, I think mentioned incremental functionality. So what we did was 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 SWIFT 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 likely to be cards. 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 system. By demonstrating this, and just, you know, we've had a bunch of analysts look at it, industry analysts. And I'll just give you one quote that I love. I won't tell you who the analyst was because this person hasn't published the study yet or the paper yet. But we showed the demo. We let this person play with it. And her reaction, I think I gave something away, didn't I? Her reaction was, I have never seen anything like this. No one in the market has this. It blew me away. Those were her exact words. So we're very excited about that. Obviously, the proof is in the pudding. We need to sell, we need to implement, and we need to continue to deliver that workshop.

at the new payment software group um you know one who's watched the merchant segment which has struggled a bit and and not necessarily achieved the size we would hope also man is it fair that merch in this emphasize or do you see getting more emphasized in the structure no i i definitely don't think he emphasized forge um

It's just to refresh everybody. When I originally hired Eric Mitch, I asked him to take on merchant and build a plan to re-energize merchant. He had a bunch of experience with large merchants around the world. He was the CEO of a company that served large 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 company. software company, and I worked with him at Fiverr after we bought Checkfruit, which had bought Cerulean. 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 re-energize or energize folks 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 probably a couple 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 Hub, Kinetic. But actually, when we talk to large merchants and expanders, what we're doing with Kinetic, they go, when can I have 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.

Great. Well, look, we thank you very much for participating. 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 and beyond. I think we feel internally 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 appreciate your support. And let's get on with your day. Thanks, everyone.

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