ACI – management upbeat despite lower Q3 revenue and profits

ACI Worldwide disappointed with lower revenues and profits in Q3. Nevertheless, management gave an upbeat assessment of the company’s prospects for 2023 as cash from this year’s new deals starts to arrive and the benefit of new SaaS products comes on stream.

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. ACI also provides electronic bill payment services to utilities in the US through its Biller segment.

Total revenue was $307m. This was 3% lower than the same quarter of 2021 although, if you exclude FX and the divesture of Corporate Online Banking, there would have been a slight increase. 36% of total revenue is earned outside the US. Recurring revenues represent 80% of total and give a good indication of the rather flat underlying performance in recent quarters.

New sales are reported promising. ACI stated that annual run rate (ARR) bookings were up 35% and that revenue would start to arrive in the new year.  Billing normally commences 3-6 months after signing new merchants and after 12 months for banks. Odilon Almeida, CEO said: “[we] saw notable bookings success across all segments, providing visibility into future revenue growth…. We are also on track to launch our next-generation, real-time payments cloud platform in 2023, driving new growth across our business segments.” 

2023 may be looking good but, for the moment, all three ACI business lines have been under pressure.

Merchant revenue, which is more heavily skewed outside the US than the other units, was down 9% to $36m. Even with 6ppts of the decline due to the strong dollar, this is an unimpressive performance compared with the positive results reported by its global competitors. Adjusted EBITDA was down 31% to $10m as margins contracted 8ppt to 28%.

Despite the unhappy financials, management remains optimistic about transaction growth.“We actually see transaction volumes picking up as we’re entering the fourth quarter and exiting the year,” said Scott Behrens, CFO.

Revenues from the Bank segment were down 11% to $118m and adjusted EBITDA down 26% to $50m. Despite the move to SaaS, ACI is still very reliant on software license sales which are heavily backloaded into the final quarter. This is clear from the graph above. Management explained that new customers like the SaaS model but existing clients still buy licenses. As Almeida said: “We have not seen a lot of migration from license to SaaS in our base. I mean what is license continues to be licensed. And SaaS is all about new logos. The SaaS business that we are generating is all about new logos in banks.”

The company continues to win contracts to implement national real-time payments infrastructure. The latest is Qatar’s Central Bank. Other bank wins included Nexi Group and the Italian branch of Worldline. The company echoed feedback from other banking technology vendors that the European market is softening in comparison to US and Asia. 

Biller revenue was up 5% to $154m but EBITDA down 18% to $26m. ACI has found itself locked into fixed price contracts at a time when average ticket value is rising swiftly due to inflation, notably in domestic energy bills. As a result, ACI’s interchange payments have risen sharply but its revenues have not, resulting in sharp margin contraction. The CEO reassured investors that he is on weekly calls to resolve the position through renegotiations with key customers.

Total adjusted EBITDA, the company’s preferred measure of profitability, was $46m in Q3, down 38% with margins falling 10ppts to 22%. FX and the divesture contributed just 2ppts of the contraction. 

Total operating income fell to $3.5m from $30m in Q3 2021, a margin of just 1%. However, cashflow was boosted by proceeds from the $100m sale of the online banking division.