ACI Worldwide, Inc. Reports Financial Results for the Quarter and Full Year Ended December 31, 2018

HIGHLIGHTS

  • Full year new bookings up 22% from 2017
  • Full year total bookings up 15% from 2017
  • Cash flow from operations up 26% from 2017
  • Providing 2019 guidance; raising adjusted EBITDA outlook

RELATED NEWSACI to Acquire Speedpay. This morning ACI
announced a definitive agreement to acquire Western Union’s Speedpay
U.S. domestic bill pay business. Please refer to simultaneously issued
press release available in the Investor Relations section of our website
www.aciworldwide.com/.

NAPLES, Fla.–(BUSINESS WIRE)–ACI
Worldwide
(NASDAQ: ACIW), a leading global provider of real-time electronic
payment and banking solutions
, today announced financial
results for the quarter and full year ended December 31, 2018.

“ACI delivered strong bookings in 2018, with 22% new bookings growth,”
stated Phil Heasley, President and CEO, ACI Worldwide. “We saw
particular strength within our Real-Time Payments and Merchant eCommerce
solutions. In addition, cash flow from operating activities grew 26%
from 2017. However, we did not deliver 2018 revenue and EBITDA as
expected as we were impacted by unforeseen events that delayed certain
contracts. This included a recent capital markets transaction in the
financial services industry. We expect these contracts to materialize in
2019 and are increasing our guidance to reflect these deals.” Heasley
continued, “We are also very excited to announce the anticipated
acquisition of Speedpay. The combination is expected to strengthen our
leadership position in the U.S. bill pay market. Further, we expect the
increased scale of the combined bill pay business to enhance ACI On
Demand profitability, and fuel investments and innovation across the
entire portfolio.”

FULL YEAR 2018 FINANCIAL SUMMARY

Full year new bookings of $757 million and total bookings of $1.26
billion were up 22% and 15%, respectively, from last year. We ended the
year with a 60-month backlog of $4.2 billion and a 12-month backlog of
$811 million.

Effective January 1, 2018, the company adopted Accounting Standards
Codification Topic 606, Revenue from Contracts with Customers (“ASC
606”), which supersedes the revenue recognition requirements in ASC
Topic 605, Revenue Recognition (“ASC 605”).

Full year revenue under ASC 606 was $1.010 billion. Under ASC 605,
revenue was $1.012 billion, down slightly from $1.024 billion in 2017.
Under both ASC 605 and ASC 606, net income in 2018 was $69 million, or
$0.59 per diluted share, versus net income of $5 million, or $0.04 per
diluted share in 2017. Adjusted EBITDA under ASC 606 was $251 million.
Under ASC 605 adjusted EBITDA was $261 million versus $262 million in
2017.

ACI’s On Premise segment revenue in 2018 was $577 million on a reported
basis. On a constant GAAP basis revenue was $580 million, or a decline
of 3% given the previously mentioned contract delays. On Premise segment
adjusted EBITDA margin was 56% in 2018 versus 58% in 2017.

ACI’s On Demand segment revenue in 2018 grew 2% to $433 million and
represented 43% of total revenue. After adjusting for pass through
interchange revenues of $170 million and $163 million in 2018 and 2017,
respectively, net adjusted EBITDA margin was 5% in 2018 versus negative
1% in 2017.

Cash flow from operating activities in 2018 was $184 million, up 26%
from $146 million in 2017. 2018 adjusted operating free cash flow (OFCF)
was $148 million, up 14% from 2017.

As of December 31, 2018, ACI had $149 million in cash on hand and a debt
balance of $685 million, down $11 million from $696 million at year end
2017. In 2018 we repurchased 2.3 million shares for $55 million, or an
average price of $23.21 per share. We have $176 million currently
available under the repurchase authorization.

2019 GUIDANCE

For the full year 2019, the company expects revenue to be between $1.10
billion and $1.125 billion, which represents 9-11% growth over 2018.
Adjusted EBITDA is expected to be in a range of $310 million to $325
million, which is up from previous expectations of $300 million to $315
million, and represents 24-29% growth over 2018. We expect to generate
between $205 million and $215 million of revenue in the first quarter.
We expect full year 2019 new bookings to grow in the upper single digits
to low double digits. 2019 operating free cash flow expected to be in a
range of $165 million to $180 million.

In addition to our updated 2019 guidance, we are reiterating our
previously issued 2020 EBITDA outlook. 2020 adjusted EBITDA is targeted
to be in a range of $335 million to $350 million.

We will update our 2019 and 2020 financial expectations for the
financial impact of the Speedpay transaction upon closing.

CONFERENCE CALL TO DISCUSS FINANCIAL RESULTS AND OUTLOOK

Management will host a conference call at 8:30 am ET to discuss these
results, 2019 guidance, as well the Speedpay acquisition. 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 5556709.
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, the ACI logo, ACI Universal Payments, UP, the UP
logo and all ACI product/solution 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.

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 Speedpay
acquisition will strengthen our leadership position in the U.S. bill pay
market and expectations that the increased scale of the combined bill
pay business will enhance ACI On Demand profitability, fuel investments
and innovation across the entire portfolio; (ii) expectations that
delayed contracts will materialize in 2019; (iii) expectations regarding
our increased guidance in 2019; (iv) expectations regarding revenue,
adjusted EBITDA, new bookings growth and operating free cash flow in
2019; (v) expectations regarding revenue in Q1 2019; and (vi)
expectations regarding our 2020 adjusted 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

CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands, except share and per share amounts)

 
December 31,
2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 148,502 $ 69,710
Receivables, net of allowances 348,182 262,845
Recoverable income taxes 6,686 7,921
Prepaid expenses 23,277 23,219
Other current assets   39,830     58,126  
Total current assets   566,477     421,821  
 
Noncurrent assets
Accrued receivables, net 189,010
Property and equipment, net 72,729 80,228
Software, net 137,228 155,386
Goodwill 909,691 909,691
Intangible assets, net 168,127 191,281
Deferred income taxes, net 27,048 66,749
Other noncurrent assets   52,145     36,483  
TOTAL ASSETS $ 2,122,455   $ 1,861,639  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 39,602 $ 34,718
Employee compensation 38,115 48,933
Current portion of long-term debt 20,767 17,786
Deferred revenue 104,843 107,543
Income taxes payable 5,239 9,898
Other current liabilities   88,054     102,904  
Total current liabilities   296,620     321,782  
 
Noncurrent liabilities
Deferred revenue 51,292 51,967
Long-term debt 650,989 667,943
Deferred income taxes, net 31,715 16,910
Other noncurrent liabilities   43,608     38,440  
Total liabilities   1,074,224     1,097,042  
 
Commitments and contingencies
 
Stockholders’ equity
Preferred stock
Common stock 702 702
Additional paid-in capital 632,235 610,345
Retained earnings 863,768 550,866
Treasury stock (355,857 ) (319,960 )
Accumulated other comprehensive loss   (92,617 )   (77,356 )
Total stockholders’ equity   1,048,231     764,597  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,122,455   $ 1,861,639  
       

ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)

 
For the Three Months Ended

December 31,

For the Years Ended

December 31,

2018 2017 2018   2017
Revenues
Software as a service and platform as a service $ 110,626 $ 112,895 $ 433,025 $ 425,572
License 137,991 129,546 280,556 293,124
Maintenance 53,065 55,242 219,145 222,071
Services   18,268     28,712     77,054     83,424  
Total revenues   319,950     326,395     1,009,780     1,024,191  
 
Operating expenses
Cost of revenue (1) 104,281 115,993 430,351 452,286
Research and development 32,969 30,732 143,630 136,921
Selling and marketing 24,576 26,695 117,881 107,885
General and administrative 20,399 22,700 107,422 153,032
Depreciation and amortization   21,311     22,238     84,585     89,427  
Total operating expenses   203,536     218,358     883,869     939,551  
 
Operating income   116,414     108,037     125,911     84,640  
 
Other income (expense)
Interest expense (9,875 ) (8,815 ) (41,530 ) (39,013 )
Interest income 2,893 143 11,142 564
Other, net   (688 )   (443 )   (3,724 )   (2,619 )
Total other income (expense)   (7,670 )   (9,115 )   (34,112 )   (41,068 )
 
Income before income taxes 108,744 98,922 91,799 43,572
Income tax expense   21,054     65,758     22,878     38,437  
Net income $ 87,690   $ 33,164   $ 68,921   $ 5,135  
 
Earnings per common share
Basic $ 0.76 $ 0.28 $ 0.59 $ 0.04
Diluted $ 0.74 $ 0.28 $ 0.59 $ 0.04
 
Weighted average common shares outstanding
Basic 116,066 118,315 116,057 118,059
Diluted 117,852 119,727 117,632 119,444

(1) The cost of revenue excludes charges for depreciation but includes
amortization of purchased and developed software for resale.

       

ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

 
For the Three Months Ended

December 31,

For the Years Ended

December 31,

2018 2017 2018 2017
Cash flows from operating activities:
Net income $ 87,690 $ 33,164 $ 68,921 $ 5,135
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation 5,909 6,213 23,805 24,871
Amortization 18,552 19,239 73,545 77,353
Amortization of deferred debt issuance costs 756 749 4,637 4,286
Deferred income taxes 1,405 59,367 (5,734 ) 21,660
Stock-based compensation expense (282 ) (9,041 ) 20,360 13,683
Other 575 (659 ) 2,007 435
Changes in operating assets and liabilities:
Receivables (73,203 ) (88,641 ) (14,760 ) (8,243 )
Accounts payable 9,983 9,910 5,766 (1,700 )
Accrued employee compensation (9,776 ) 1,150 (9,684 ) 94
Current income taxes 5,314 5,934 (5,115 ) (4,227 )
Deferred revenue 14,266 1,687 14,219 439
Other current and noncurrent assets and liabilities   22,281     22,053     5,965     12,411  
Net cash flows from operating activities   83,470     61,125     183,932     146,197  
 
Cash flows from investing activities:
Purchases of property and equipment (1,831 ) (7,151 ) (18,265 ) (25,717 )
Purchases of software and distribution rights (3,752 ) (7,369 ) (25,628 ) (28,697 )
Other           (1,467 )    

Net cash flows from investing activities

  (5,583 )   (14,520 )   (45,360 )   (54,414 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock 772 773 3,098 2,958
Proceeds from exercises of stock options 1,269 3,588 19,674 13,872
Repurchase of restricted stock for tax withholdings (2,588 ) (5,311 )
Repurchases of common stock (37,387 ) (54,527 ) (37,387 )
Proceeds from senior notes 400,000
Redemption of senior notes (300,000 )
Proceeds from revolving credit facility 25,000 109,000 67,000
Repayments of revolving credit facility (27,000 ) (111,000 ) (153,000 )
Proceeds from term portion of credit agreement 415,000
Repayments of term portion of credit agreement (3,957 ) (5,188 ) (109,289 ) (386,040 )
Payment for debt issuance costs (66 ) (7,319 ) (5,340 )
Payments on other debt and capital leases   (2,421 )   (614 )   (4,753 )   (9,900 )
Net cash flows from financing activities   (4,403 )   (40,828 )   (57,704 )   (98,148 )
 
Effect of exchange rate fluctuations on cash   (1,324 )   (3,997 )   (2,076 )   322  
Net increase (decrease) in cash and cash equivalents 72,160 1,780 78,792 (6,043 )
Cash and cash equivalents, beginning of period   76,342     67,930     69,710     75,753  
Cash and cash equivalents, end of period $ 148,502   $ 69,710   $ 148,502   $ 69,710  
           

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 December 31, Year Ended December 31,
2018   2018   2017 2018   2018   2017
As Reported

ASC 606

  Under

ASC 605

  Under

ASC 605

As Reported

ASC 606

  Under

ASC 605

  Under

ASC 605

Net income $ 87.7 $ 72.2 $ 33.2 $ 68.9 $ 68.9 $ 5.1
Plus:
Income tax expense (benefit) 21.1 17.6 28.9 22.9 23.0 1.5
Tax reform transition tax 20.9 20.9
Tax reform revaluation of deferred tax balances 16.0 16.0
Net interest expense 7.0 9.6 8.7 30.4 40.7 38.4
Net other expense (income) 0.7 0.8 0.4 3.7 3.3 2.6
Depreciation expense 5.9 5.9 6.2 23.8 23.8 24.9
Amortization expense 18.6 18.6 19.2 73.5 73.5 77.4
Non-cash compensation expense   (0.3 )     (0.3 )     (9.0 )   20.4     20.4     13.7
Adjusted EBITDA before significant transaction related expenses $ 140.7 $ 124.4 $ 124.5 $ 243.6 $ 253.6 $ 200.5
Legal judgement 46.7
Significant transaction related expenses   0.9       0.9       5.3     7.4     7.4     14.7
Adjusted EBITDA $ 141.6     $ 125.3     $ 129.8   $ 251.0   $ 261.0   $ 261.9
                                           
                               
Segment Information (millions)   Quarter Ended December 31,   Year Ended December 31,
2018   2018   2017 2018   2018   2017
Revenue As Reported

ASC 606

  Under

ASC 605

  Under

ASC 605

  As Reported

ASC 606

  Under

ASC 605

  Under

ASC 605

ACI On Premise $ 209.3 $ 190.7 $ 213.5 $ 576.8 $ 580.1   $ 598.6
ACI On Demand   110.6     110.2     112.9   433.0     432.1     425.6  
Total $ 319.9   $ 300.9   $ 326.4 $ 1,009.8   $ 1,012.2   $ 1,024.2  
 
Segment Adjusted EBITDA
ACI On Premise $ 152.4 $ 133.0 $ 151.0 $ 323.9 $ 327.7 $ 347.1
ACI On Demand 16.3 18.5 7.0 12.0 15.6 (1.8 )
                               

Contacts

Investors:
John Kraft
[email protected]
Phone:
+1 239-403-4627

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