ACI Worldwide (NASDAQ:ACIW) is a leading global provider of real-time digital payment software and solutions, powering digital payments for over 6,000 organizations around the world. The company's comprehensive suite of software solutions, delivered on-premises, through the public cloud, or through ACI's private cloud, enables real-time, immediate payments capabilities and a complete omni-channel payments experience.
Business Overview
ACI Worldwide serves three key customer segments: Banks, Merchants, and Billers. The Banks segment provides payment solutions to large and mid-size banks globally for retail banking, real-time, digital, and other payment services. The Merchants segment supports Tier 1 and Tier 2 merchants, online-only merchants, and the payment service providers that service them, offering a secure, omni-channel payments platform. The Billers segment provides electronic bill presentment and payment (EBPP) services to companies in consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories.
The company's solutions transform complex payment environments, enabling customers to speed time-to-market, reduce costs, and deliver a consistent experience across channels. ACI's products are sold and supported directly and through distribution networks covering the Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific regions.
Financials
In fiscal year 2023, ACI Worldwide reported annual revenue of $1.45 billion, net income of $121.5 million, operating cash flow of $168.5 million, and free cash flow of $130.7 million. The company has demonstrated resilience, with revenue and profitability holding up well despite macroeconomic headwinds.
For the first quarter of 2024, ACI Worldwide reported revenue of $316 million, up 9% year-over-year. Segment performance was strong, with the Banks segment revenue growing 20% to $105 million, the Merchants segment revenue increasing 3% to $36 million, and the Billers segment revenue rising 5% to $175 million. Adjusted EBITDA for the quarter was $48 million, nearly double the $24 million reported in the prior-year period.
The company's geographic mix is weighted towards the United States, which accounted for 72% of revenue in the first quarter of 2024, with the remaining 28% coming from international markets. ACI Worldwide continues to see significant growth opportunities in international markets as digital payments adoption accelerates globally.
Liquidity
As of March 31, 2024, ACI Worldwide had $183 million in cash and cash equivalents, and $461 million in available borrowing capacity under its revolving credit facility. The company's total debt stood at $1 billion, with a net debt leverage ratio of 2.0x, representing the lowest leverage in over a decade.
During the first quarter of 2024, the company generated $123 million in operating cash flow, a significant increase from the $40 million reported in the prior-year period. Free cash flow for the quarter was $105 million. ACI Worldwide has demonstrated a strong track record of converting earnings into cash, with a cash conversion ratio of 1.72 in fiscal year 2023.
The company's capital allocation strategy includes a focus on organic growth investments, strategic acquisitions, and returning capital to shareholders. In the first quarter of 2024, ACI Worldwide repurchased 2 million shares for $63 million, and has $109 million remaining under its current $200 million share repurchase authorization.
Outlook
ACI Worldwide is well-positioned to capitalize on several key industry trends, including the accelerating adoption of digital payments, the growing demand for real-time payments, the transition to cloud-based solutions, and the increasing need for advanced fraud detection and prevention capabilities.
In the Banks segment, the company is seeing strong demand for its real-time payments, fraud management, and issuing and acquiring solutions, with segment revenue growing 20% in the first quarter of 2024. ACI Worldwide is also seeing increased interest from smaller and mid-sized banks seeking the scalability and reliability of its SaaS-based offerings.
In the Merchants segment, the company is focused on delivering a seamless, secure, and personalized omni-channel payments experience to customers, leveraging its advanced fraud detection and prevention capabilities. The segment revenue grew 3% in the first quarter of 2024, and the company expects growth to improve throughout the year.
The Billers segment continues to benefit from the ramp-up of prior sales and the positive impact of the company's interchange improvement initiatives. Segment revenue grew 5% in the first quarter of 2024, and ACI Worldwide is seeing improving biller retention rates and a growing qualified new bookings pipeline.
For the full year 2024, the company has raised the high end of its guidance, now expecting revenue to be in the range of $1.547 billion to $1.581 billion, and adjusted EBITDA to be between $418 million and $433 million.
Risks and Challenges
While ACI Worldwide's business model and growth prospects are compelling, the company faces several risks and challenges, including:
- Intense competition in the digital payments market, with competition from both established players and emerging fintech firms.
- Potential regulatory changes or shifts in customer preferences that could impact the company's product offerings and pricing.
- Reliance on a limited number of large customers, particularly in the Billers segment, which could expose the company to concentration risk.
- Potential integration challenges and execution risks associated with future acquisitions.
- Exposure to foreign currency fluctuations, as a significant portion of the company's revenue is generated outside the United States.
Conclusion
ACI Worldwide is a leading provider of real-time digital payment software and solutions, serving a diverse customer base across the Banks, Merchants, and Billers segments. The company has demonstrated resilience and strong financial performance, with revenue of $1.45 billion, net income of $121.5 million, operating cash flow of $168.5 million, and free cash flow of $130.7 million in fiscal year 2023.
Looking ahead, ACI Worldwide is well-positioned to capitalize on the growing demand for digital payments, real-time payments, cloud-based solutions, and advanced fraud detection and prevention capabilities. The company's strong liquidity position, with $183 million in cash and $461 million in available borrowing capacity, and its focus on strategic investments, acquisitions, and shareholder returns, make it an attractive investment opportunity in the digital payments space.