Real-time banking boosts ACI but merchants disappoint

ACI Worldwide reported a mixed performance with its Q2 results as it enters the second year of its turnaround. The global move to real-time payments is creating healthy demand from banks but the merchant side of ACI’s business has struggled. 

Relocated to Miami in 2019, ACI has been selling software to financial institutions since the early 1980s and now claims 6,000 direct customers worldwide including 1,000 financial institutions and intermediaries. It serves more than 80.000 merchants indirectly through banks and PSPs.

Total revenue excluding interchange was up 18% year on year in Q2 to $236m. Net Adjusted EBITDA, ACI’s preferred measure of profitability, rose 10% to $66m with margins stable at 28%.  There was a £1.8m exceptional cost in H1 for European data centre migration.

Banking sales were up 24% to $141.9m but the proportion of recurring revenue fell from 56% to 43%. This suggests ACI is still charging hefty upfront licence fees despite the long-term industry tend to SaaS. Segment adjusted EBITDA was up 29% with margins remaining a very healthy 49%.

Many countries are busy converting their domestic payment networks to real-time processing and ACI announced recent wins in Oman, Japan and South Korea. According to Odilon Almeida, ACI’s CEO, “There is a revolution coming right [now], real-time payments, and [banks] understand that they need to modernize.”

Future banking revenues should be boosted by new product development. Almeida explained that “work is underway on our next-generation, real-time payments cloud platform, and we expect the release of the minimum viable product in the first quarter of 2023. This is the next generation Base 24.”

Base 24 was first launched in 1982 and is intrinsic to the operations of many core payment platforms. Customers will be looking forward to upgrading to a modern, cloud-native version. 

Merchant revenue fell 2% to $36.5m. Segment adjusted EBITDA fell 40% and margins contracted from 35% to 21%. 

Despite the weak numbers, ACI remains optimistic about its merchant business. I can tell you that we are still estimating a very strong year for merchants in the year to go,” said Almeida.

New merchant wins included Deutsche Payment. ACI hopes future growth will also be boosted by new products such as ACI Smart Engage which lets merchants offer goods and services directly to consumer smartphones using location, voice and image recognition technology.

ACI’s third business line is a Speedpay, a US bill payment service that it bought from Western Union in 2019. Revenues were up 8% in Q2 due to “really strong growth in government tax payments year-over-year.”

Overall, ACI’s net income grew from $6.5m to $13.3m with the margin (net of Interchange) improving from 3.0% to 5.6% 

Subsequent to the Q2 results, ACI announced that it had divested its online banking software business to One Equity Partners for $100m.  This will reduce annual revenues/EBITA by $15m/$5m in H2.

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