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ACI Worldwide Inc (ACIW 0.94%)
Q1 2020 Earnings Call
May 7, 2020, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the ACI Q1 Earnings Announcement. [Operator Instructions].
I would now like to hand the conference over to your speaker today, Mr. John Kraft. Thank you. Please go ahead, sir.
John Kraft -- Vice President, Investor Relations and Strategic Analysis
Thanks Justin and good morning everybody. Thank you all for joining us on this earnings call for the quarter ending March 31, 2020. Today's call like all of our events is subject to both Safe Harbor and forward-looking statements. You can find the full text of both statements on the first and final pages of our presentation deck today, a copy of which is available on our website, as well as with the SEC.
I'm joined this morning by Odilon Almeida, our President and CEO; and Scott Behrens, our CFO.
With that, I'll turn it over to over Odilon.
Odilon Almeida -- President and Chief Executive Officer
Good morning, everyone. Thank you for joining us for our first quarter 2020 Earnings Conference Call and my first one as President and CEO of ACI Worldwide. In the next few minutes, we will cover the Q1 results, our response to the COVID-19 crisis and my view about the medium and long-term growth potential of our company.
We are pleased with our first quarter financial performance. We generated revenue of $291 million, up 42% over last year. From a profitability perspective, our adjusted EBITDA increased to $38 million, with margin expansion to 19% from 5% last year. We are fortunate to have a resilient business model, which involves multiyear customer commitments with a large contractual backlog of $5.7 billion. In addition, nearly 75% of our annual revenues are recurring in nature, which provide us with reliable cash flows.
In the quarter, we generated $58 million in cash flow from operations and exit Q1 with a strong liquidity position, consisting of $119 million in cash on the balance sheet and $270 million of available revolver capacity.
Now I would like to turn your attention to the current COVID-19 situation. I hope, first and foremost, that you and your families are staying safe and well. The last few months have posed unprecedented challenges for countries and communities around the world. We are committed to doing everything we can to ensure the health, safety and well-being of our employees, all while enabling them, include implementation teams to seamlessly support our customers, without interruption. Our team has remained highly focused on providing our customers with a software-led payment solutions they need, at a time when digital payments are more critical than ever. We are fortunate to have a strong customer base, which includes large global banks, financial intermediaries, bidders and omnichannel retailers, including e-commerce, most of whom are also well positioned to weather the COVID-19 disruption. In 2020, we will focus on maximizing profitability, while advancing our pipeline of deals, to position ACI for future continuous profitable growth.
Now moving to the future; I would like to give you my perspective about ACI and its growth potential, as well as my thoughts on our path forward. Through my 30 plus year career, I have had a track record in realigning companies and operations for value creation through revenue growth. The importance I place on integrity, accountability and diversity has helped me guide different cultures, and markets around the globe. Over the past two months, I have had the chance to speak with many customers, employees and leaders of our company. It is clear to me, that ACI has a strong portfolio of customers and software-led payment solutions, and most importantly, the human capital to succeed. Going forward, I will be assessing our operating structure, business processes, product portfolio, and investments, to ensure we are organized for sustainable, predictable, profitable growth.
Our growth will be enabled by three pillars. Number one, we will accelerate organic growth. A nimble, agile, fit for growth structure will maximize the revenue opportunity. We will focus capex and opex behind growth areas, and operational discipline will be our internal language. A strong and global sales culture will lead the company into the future and will assure that our customers are in the center of our actions.
Number two, we will focus R&D on differentiating innovation, such as investing in our fast growing real-time payments; and number three, M&A will continue to provide our shareholders with a step change value creation. Over the coming quarters, I will provide you updates on where we are in this transformation, but you can expect a sense of urgency and a bright future ahead of us.
I will now turn the call over to Scott, to provide additional financial highlights. Scott?
Scott Behrens -- Senior Executive Vice President and Chief Financial Officer
Thanks Odilon and good morning everyone. I first plan to go through our results for the quarter and then provide an update on our outlook for the rest of the year. We'll then open the line for questions.
I'll be starting my comments on slide 8, with key takeaways from the quarter. New bookings were $120 million, up 7% from Q1 last year. We ended the quarter with a 12-month backlog of $1.1 billion and a 60-month backlog of $5.7 billion. Q1 revenue came in at $291 million, up 42% compared to Q1 last year, with our On-Demand business growing 76%, driven primarily by the Speedpay acquisition. While our On-Premise business grew 3%, with particular strength coming from our real-time payment solution, which grew 20% over Q1 last year. This revenue growth contributed to strong growth in adjusted EBITDA, with Q1 EBITDA coming in at $38 million, up from $8 million in Q1 last year. We continue to see EBITDA margin expansion in our On-Demand business, with net EBITDA margins increasing to 22% in Q1, from essentially zero in Q1 last year. And this really shows again, the scale of our On-Demand business, where we're able to layer on incremental recurring revenue on to a relatively fixed cost structure. We also saw EBITDA margin expansion on our On-Premise segment, with EBITDA margins improving to 31% from 29% last year.
Turning next to slide 9, starting with debt and liquidity, cash flow from operations was $58 million in the quarter, up 36% from Q1 last year. We ended the quarter with significant liquidity with $119 million in cash and $270 million available on our revolver. We use cash in the quarter to pay down $19 million of debt and also repurchased 1 million shares of our stock. Our current debt balance is $1.4 billion, which represents a net debt leverage ratio of 3.6 times, compared to the maximum leverage in our credit facility of 4.75 times. And also of note here, is that we have relatively low required term debt repayments for the rest of 2020 and 2021, of approximately $29 million and $39 million respectively.
Turning next to our outlook for the rest of 2020, as previously announced, given the uncertainties around COVID-19, we have temporarily suspended our financial guidance for the rest of the year, so I won't give you full financial ranges, but I will provide you with some incremental color on our customer segments, and where we may see some financial impact.
So with that, turning to slide 10, we thought it would be helpful to highlight really, our resilient business model and our customer mix, which includes some of the world's largest banks, financial intermediaries, merchants and billers. You'll see here our customer mix broken out into our two P&L statements, starting with On-Premise, which was just under half of our consolidated revenues last year, nearly two-thirds of our On-Premise business is represented by large global banks, most with more than $50 billion in assets. 30% of this segment is what we call financial intermediaries or the large technology providers, that cater to the smaller and mid-sized financial institutions. And the smallest group here is merchant, which represents less than 10% of the segment. Although the merchants we target are generally large omnichannel merchants, with a significant e-commerce presence. We really have no small or mid-size customers in our On-Premise business.
It's also important to note here, that these customers are on five-year fixed term software subscription contracts for license and product support fee. So a large stable customer base, with fixed contractual committed revenue streams. The uncertainty with this segment is really the non-recurring license and service revenue from sales in-year, and how quickly the customer base will be back making purchasing decision, once COVID-19 subsides.
Moving next to our On-Demand business, this business is substantially all recurring revenue and doesn't have as much the lumpiness and timing issues as we have in the On-Premise business, but it is more susceptible to near-term changes in payment transaction volumes. This business is roughly three quarters. electronic bill payment. You'll see here, our main customer segments in bill pay are a third consumer finance and insurance, a third utilities, and a third higher education and government. This business is transaction based, and any changes in consumer bill payment volumes will impact the revenue we receive. And one of important timing note here, we do expect some seasonality shift in this segment, especially in the federal and state tax payments, which typically would spike in Q2, are now expected to come in Q3, as many of the tax filing deadlines have been pushed out 90 days.
The next largest segment here are merchant retailers, which represents roughly 10% of the On-Demand segment. Again we have a particular strong presence in e-commerce merchants. Obviously, some retailers are seeing transactions declines, while others are seeing notable increases. This business is less impacted by rest of year sales, meaning if it's not already sold and installed, it's not likely to deliver a significant amount of in-year revenue. The uncertainty with this business is really around the volatility in transaction volumes. But overall it's important to remember, regardless of whether it's in our On-Demand or On-Premise business, this is not discretionary spending. These are mission critical payment systems for our customers.
About 75% of our annual revenues are recurring, and we also have committed contractual backlog of non-recurring service revenue, which we're able to continue to operate, serve remotely, as well as license fees from renewals. But that still leaves us with a significant amount of revenue that we derived from in-year sales. And while we're optimistic about our pipeline of deals, the duration, severity of COVID-19 outbreak has caused uncertainty about the timing of those signings, and that's why we're suspending the financial guidance for 2020. But as Odilon said, we are prioritizing profitability during this period and have already taken and continue to evaluate further steps this year to reduce our cost base.
So that concludes my prepared remarks. Operator, we are ready to open the line to questions at this time.
Questions and Answers:
Operator
[Operator Instructions]. Your first question comes from the line of Joseph Vafi from Canaccord. Your line is open. Please ask your question.
Joseph Vafi -- Canaccord Genuity -- Analyst
Hi, good morning. Thanks for taking my call and welcome and congratulations Odilon, on the new position. I was wondering if we could talk a little bit more about strength and real-time payments in the quarter? And then, perhaps as a follow-up, what you see as the strategy in real-time moving forward? Thank you.
Scott Behrens -- Senior Executive Vice President and Chief Financial Officer
Yeah, well, I think -- Joe, this is Scott. I mean that the growth in the quarter, the 20% growth is pretty consistent with the types of double-digit growth we've been seeing in real time for a number of years. I will say, that we did have a net -- one of our net new logo sales in the quarter, was actually a fast growing U.S. commercial bank that purchase both our Universal Online Banker, in combination with real-time payments. We also had one of our -- existing Asian customers, that renewed retail payments, but also purchased a real-time payments as well.
So we're seeing it -- again consistent with what we've seen as double-digit growth now for a number of years. Obviously, we see that as a fast growing segment with a significant amount of opportunity, and we're selling at both net new -- new logos, as well as combining it with our renewals.
Odilon Almeida -- President and Chief Executive Officer
So Joe, nice meeting you and just to reinforce, I mean this will continue to be one area of priority for us. There's a lot of growth in real time around the world. And you know that real-time is different in every country that you go. And I think that is a place that you can really build a strength from a local point of view and we have the DNA to do that. So I foresee a great future for us in real-time payments.
Joseph Vafi -- Canaccord Genuity -- Analyst
Thank you.
Operator
[Operator Instructions]. Your next question comes from the line of George Sutton from Craig-Hallum. Your line is open, please ask your question.
George Sutton -- Craig-Hallum -- Analyst
Thank you. First Scott, thanks for the customer mix breakdown. I think that's helpful and Odilon welcome to your first call. So I have a bigger picture question, given that you've just joined a question I think a lot of investors have been asking, there aren't a lot of remaining payment businesses in this size range, most of them have been acquired and scale is really important. So I'm curious, where you see ACI fitting into the long-term payments market with that, kind of as a backdrop and maybe from the perspective of the On-Demand in the On-Premise?
Odilon Almeida -- President and Chief Executive Officer
Sure. Nice to meet you. I see ACI with a very relevant space going forward and this is a scale business. There is always a space for differentiation. And I think that ACI is well positioned to differentiate itself or to continue to differentiate itself in some very specific areas. For example, real-time payments. It's a part of strength for us and as you know, I mean it's not about having global scale in real time, it's about having local scale, in the country that you are, and we are very well positioned on that. And it is a race, and we are driving this race very consciously. And there are also other spaces that you can create differentiation.
So I think that there is a very strong value proposition for ACI going forward.
George Sutton -- Craig-Hallum -- Analyst
Could you discuss organic growth potential? Take a longer-term view outside of the COVID era? I'm curious what you envision that opportunity to be?
Odilon Almeida -- President and Chief Executive Officer
Yeah, I'm not, I'm not giving numbers at this point. But what I can tell you is that, I think that we are very well positioned. and the opportunities, there are significant opportunities. I think if you look at the company, the company has been very successful in organic, and we will continue to do that. Also it has been very successful in differentiating its offerings, like the R&D investment and so forth. There is one part that we can improve, and that should be no surprise, because that was said, I think by the end of last year in the investors meeting, which is really about the scaling part of the business. It is about the go-to-market part of the business, and that's my DNA. My DNA is on growth, as in revenue growth, and it's about -- the structure you have, it is about the process you have and it is about the culture. I use one kind of phrase all the time, which is blood on the teeth on sales, right, and I think you're going to see much more of that in our business going forward.
George Sutton -- Craig-Hallum -- Analyst
Thank you.
Operator
[Operator Instructions]. There are no further questions at this time. Please continue.
John Kraft -- Vice President, Investor Relations and Strategic Analysis
Well, thanks everybody for joining. We look forward to catching up in the coming weeks. Have a good afternoon.
Operator
[Operator Closing Remarks].
Duration: 19 minutes
Call participants:
John Kraft -- Vice President, Investor Relations and Strategic Analysis
Odilon Almeida -- President and Chief Executive Officer
Scott Behrens -- Senior Executive Vice President and Chief Financial Officer
Joseph Vafi -- Canaccord Genuity -- Analyst
George Sutton -- Craig-Hallum -- Analyst
