John Kraft - Vice President of Investor Relations Phil Heasley - Chief Executive Officer Scott Behrens - Chief Financial Officer

David Eller - Wells Fargo Securities George Sutton - Craig Hallum Wayne Johnson - Raymond James Alex Veytsman - Monness Crespi & Hardt Brett Huff - Stephens Inc.

Good morning. My name is Jacquelyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Reports Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. John Kraf, Vice, you may begin your conference.

Thanks Jacquelyn, and good morning, everybody. Today's call like all of our events, is subject to both Safe Harbor and forward-looking statements. You can find the full text to 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. On this morning's call is Phil Heasley, our CEO and Scott Behrens, our CFO. With that, I'd like to turn the call over to Phil.

Thanks John, and good morning, everyone. I am pleased to report our first quarter financial results. We are ahead of our expectations and a strong start to 2017. First quarter revenue of $231 million was up 10% compared to last year. We also generated $42 million in EBITDA which was a 68% increase over last year and operating free cash flow of $76 million, which was a 157% from last year. In the quarter, we signed some important contracts across a range of solutions and geographies. We signed an important contract with Jack Henry to help bring Immediate Payments for a wide range of their financial institution customers, notably customers who have connected with some Clearing House and Zelle Networks through real-time systems allowing consumers and businesses to send and receive payments and data instantly directly from their accounts to the financial institutions. We also continue to make progress with our Universal Payments and Retail Payment solution initiatives signing important renewals including two with large national switches, one in the Middle East and one in Asia. These customers plan to use our flexible Universal Payments technology to gain competitive advantage with functionalities such as Apple Pay Acceptance and ATM Surcharging. Further we are seeing that transaction capacity requirements are growing faster than customers expected in terms of both newer wallets and micro payments, as well as traditional usage. In our fast-growing e-commerce segments we continue to sign contracts with traditional merchants that increasingly appreciate our industry-leading Omni channel solutions and endpoint connectivity. We are also signing customers pursuing new used cases including end console payments in the gaming vertical. Looking ahead in our pipeline we are making progress with several customers that are interested in leveraging the power of UP in significant and transformational way. We hope to have more to say later in 2017 about this. Following the successful Investors Day in March, as well as several customer-focused events, plus key geographic regions, we remain extremely optimistic that we have positioned ACI to benefit in the coming years in the evolving electronics payments landscape. In summary, ACI is off to a good 2017. We are firmly on track to achieve our financial targets for the year and are fully committed to our longer term growth goals. With that, let me turn the call over to Scott to provide details on our first quarter and 2017 guidance. Thank you.

Thanks Phil, and good morning, everyone. I first plan to go through the highlights of the first quarter and then provide a reminder of our outlook for the full year 2017. We'll then open the line for questions. I’ll be starting my comments on Slide 6 with key takeaways from the quarter. Now, overall, we had a solid start to 2017. Our renewal bookings were particularly strong up 34% over last year. This was offset by a decline in new bookings mainly given the timing and the particularly strong comparison in Q1 2016 when we saw nearly 50% growth. We continue to expect full year new bookings growth to be in the high-single-digits Our 12 month and 60 month backlog declined $6 million and $23 million respectively from Q4 2016, again mainly due to the timing of new bookings. We saw strong growth in revenue, up 10% over the prior year quarter and given a relatively fixed cost structure, this revenue growth delivered adjusted EBITDA growth of 68% compared to the prior year quarter. We saw strong growth in operating free cash flow coming in at $76 million and more than double the prior year quarter and while we don’t officially guide the cash flow for the year, we are clearly tracking ahead of our original forecast. We ended this quarter with a $100 million in cash and a debt balance of $710 million, down $43 million during the quarter. And lastly, here we have $78 million remaining on our share buyback authorization. And one thing of note, as we mentioned at our Analyst Day in March, we have updated our financial segment disclosures in our Form 10-Q to reflect our new two P&L organizational structure and have presented our revenue and profitability for our ACI on-demand business, which consists of our Software as a Service and Platform as a Service and our ACI on-premise business which consists of our traditional license maintenance and professional services operations. So you will see that when we file our 10-Q. Turning next to Slide 7 with our full year outlook. We are reaffirming our full year guidance for the full year 2017 we expect revenue to be in a range of $1.0 billion to $1.25 billion and we continue to expect adjusted EBITDA to be in the range of $250 million to $255 million and we expect new bookings growth to be in the high-single-digits. For Q2, we expect revenue to be in a range of $225 million to $230 million. So overall a strong start to the year and positions us well to achieve our financial targets in 2017. That concludes my prepared remarks. Operator, we are ready to open up the line for questions at this time.

[Operator Instructions] Your first question comes from David Eller from Wells Fargo. Your line is open.

Good morning. Thanks for taking the questions. You mentioned in the script that you’ve signed two national switches in the Middle East and Asia and I wondered if you could talk more about the pipeline for additional opportunities for that segment.

Our pipelines are very, very strong almost everyone around the world is either in planning to upgrade or in the process of upgrading as electronic payments redefine themselves with much more width of how electronic real-time payments take place, but – around the world and last place is whether it be in India, Far East, places that are just growing their consumer economies they are growing much more rapidly on the ecommerce side than they are in, the more traditional, what we view as traditional way.

Okay, and then, you also just mentioned, I think you said that the volumes are more quickly than customers expected. Could you just provide a little bit more color there? I think you talked about micro wallets, but any other color you’ve got there?

Well, traditionally the growth in ecommerce transactions even for our traditional customers who are renewing and we’ve had tremendous successes on our RPF programs. So what’s come with that is, people not only renewing their traditional business with us were getting a very healthy growth in the incremental transactions that they are purchasing going forward. That I will remember there.

Gotcha, is that – I guess, my question – but about a point on is, has that kind of changed early in 2017 versus what you saw last year or is that just a continuation of the trend that you are speaking to?

I think we saw it in the fourth quarter of – I think we saw it accelerate towards the end of – we saw an acceleration towards the end of last year which is continuing.

Okay, and then, Scott, I think you mentioned on cash flow that’s tracking kind of ahead of your original thoughts and I wondered if you could provide any color on you know what additional – what you might apply that extra cash to?

I would say, generally, our – I would say we apply it for historical uses of cash. Obviously, we have scheduled term repayments. We would look at – games type acquisitions as well as we still have nearly $8 million left on our share buyback authorization. So I think the overall uses of cash will generally be along those lines.

Okay, thanks for taking the questions.

Thank you.

Your next question comes from George Sutton from Craig Hallum. Your line is open.

Thank you guys and I appreciate the relatively quick commentary. So, as we look at the UP platform, can you just walk through what is live? What’s in implementation? And then what are you seeing from a pipeline perspective?

What is live on the UP platform, we have – we don’t have that many customers that are totally – that are totally live on – we probably have a dozen or so RPFs that have rich customers that are live. We have some very big projects that are finishing Phase 1. On the retailer side, we have some big projects, railroads, retailers and I am not saying the third category.

Hotels.

But.

Hotels.

Hotels, right that are just coming live. You don’t see the impact of those yet and we have some – from a pipeline standpoint, we have not a few but several transformational UP deals that are in the pipeline, George. So, I had never felt – since it’s been a labor of love for over a decade, I’ve never felt more comfortable about us than I feel right now.

Perfect. And I know at your Analyst Day, you had a day before the financial analyst day with the industry analyst day. And my sense is coming out of that, you’ve kind of opened some of their eyes relative to the product set that you have. Can you just give us an update of what you’ve heard from the industry analysts side since that point?

Well, I think the best thing we’ve heard from them that we felt pleased and were grateful is that the immediate increase in dialogue and pipeline that came from that, I believe was our greatest affirmation and then I also believe having demonstrated real-time both the days, Financial Analysts Day. But we also did it the day before demonstrating our – the UP capabilities and that UP is not hard wired hub type structure but it’s a tightly orchestrated, very variable interactor set so to speak. That really struck us forward with several of our – of the people that follow our industry that hadn’t attained that level of comfort before. So, that was very positive for us.

Perfect. Thanks, guys.

And your next question comes from the line of Wayne Johnson from Raymond James. Your line is open.

Yes, good morning. In the – on the quarter report, and I apologize if you went over this, but could you just highlight any G&A call outs in the expenses? And then I have a follow-up to that.

Yes, I wouldn’t say there is anything in particular. I think most of our cost structure generally is the same any year-over-year difference could be attributable mostly to timing of certain professional fees.

Okay. So, was there and on perhaps related, I don’t know, I’ll let you answer, but, was there any further progress or anything else to comment regarding the IT consolidation in Europe?

Yes, I mean, we are – thanks for asking that question. We are within one quarter of taking 20 some datacenters down into four datacenters and I think you know we said we’ve invested in the very recent past $100 million in capital costs and some of that cost is continuing to build highly leveragable infrastructure that today were easily balanced between our ability to support North America and our ability to support the European, Middle East African continents. So, we are within one quarter of concluding that effort.

Okay. I appreciate that. Thank you for that color. And then also on the revenue line, license revenue was certainly a little bit better than our model, a very profitable revenue stream. Do you feel or sense that there is going to be a more predictable cadence on the license side? I know, you guys have talked a lot about the services and delivering SaaS type of capabilities. But just on the license side itself, could you talk a little bit about how you see that cadence throughout this year?

Well, the license by its nature has a pretty – I mean that’s a lot of that is not recurring. So it has seasonality to it part of the beat in the first quarter was higher than expected with capacity revenues which can be – it’s really, it’s based on a numbers by the customers that need capacity in a given quarter. So, part of that beat was higher capacity which in last year sort of came later in the year.

Okay, great. All right. Thank you

[Operator Instructions] Your next question comes from Alex Veytsman from Monness Crespi & Hardt. Your line is open.

Yes, thank you. Good morning. Just wanted to ask about the guidance. It looks like you adjust the guidance intact, there was a good beat that you are all suspecting, I mean, the Jack Henry deal although, I mean, I think the question is whether it’s going to impact this year? Is that just you being conservative keeping the guidance intact or is there something you could be seeing for the next few quarters?

We are very – we – our business has a natural shape to it of which you have the first three quarters and then you have the fourth quarter, right. And the first three quarters can look a lot more lumpy year-to-year against each other, because they are not that specific into the fourth quarter. I suppose, we could get out over our feeds and what not to be more aggressive. We are a little more aggressive as relative to cash we are going to bring in. But other than that, this gives us the luxury of bringing on as high quality as that a deal as we can. So it certainly makes our guidance more comfortable for us. So we are not – we don’t think there is any value and increasing it at this point. Scott, do you want?

I would agree with that. I think it’s certainly de-risked to what would typically be a pretty heavy fourth quarter. So, great way to start the year and we are comfortable with where we are at.

If you look at what we are doing certainly is, we have significantly increased bookings in our business and the bookings, it takes us at the short end of the 180 days, at the long end it takes us almost 500 days to install these bookings. And so, if you ask me if I felt lot better about 2019 and second half of 2018, I do feel a lot better about it. But, we don’t felt – so we can’t convert it right away to our revenue line.

Okay, that’s fair. That’s fair. And then, the Jack Henry deal, I mean, when should we expect going be first or the once they hit is it going to be this year or is it mainly next year?

You’ll see most of those revenues next year.

Okay, okay. And can you share the runrate or is it something you don’t disclose?

No.

Okay.

You know, we’ve been disclosing their proprietary information, but from now, we couldn’t do that.

All right. And then finally, you mentioned several important contracts in the quarter that were signed anything that’s going to hit this year?

Not necessarily I think one of the bigger ones is Jack Henry. So we said that will likely begin next year. On some of the contracts that are in our SaaS and platform businesses have shorter time to install. So we could begin to see those recurring revenues kick in before we exit 2017. But not a pretty – not a significant contributor this year and lot of the sales that we get in any particular year are going to build our backlog and really contribute to future year’s revenue.

Okay, very helpful. Thank you guys.

Your next question comes from Brett Huff from Stephens Incorporated. Your line is open.

Thanks, good morning. So, Scott and John, hope you are all well. A question for you on, I just want to make sure I am – we reconcile or I reconcile my mind, the momentum we seem to be seeing specifically a big 4Q UP deal, some more important deals closed that you guys noted. Just reconcile that with the bookings number being down year-over-year and then the backlog numbers being down year-over-year. So just, we had a couple questions on that. I want to make sure that we all understood how that was working given what looks like better momentum in the numbers?

Well, I would say, again Q1 had a – I said it in my prepared comments, the comp with last year, Q1 last year if you look back was nearly 50% growth. So, we had a very strong Q1 last year and essentially maintained our full year guidance. I wouldn’t look at Q1 as anything other than a – as a tough comp. So and the backlog is also a factor of that in that in a quarter in which you have as much revenue as we did. It’s again, it’s a timing issue when we have the new bookings, because it’s the new bookings, that’s still backlogs. And so, again, I think they are both are a function of timing in the year and as we get into Q2, Q3 and Q4 and we start to see those new bookings pick up, that’s ultimately going to feed the backlog and contribute to future.

Yes, Brett, this is Phil. I just think, I don’t want to overly make it. Bookings by quarter, fourth quarter is picking up that you can really have a good year-on-year. But what will probably happen in the second quarter is, we will do tremendously versus the previous year. So, and I wouldn’t want to overly celebrate that too, right. It just has to do with the way it comes, certainly the first half of the year, the way it comes in. We are – I could not – I am more confident than I was three months ago about our ability to make our full year bookings. But, I don’t want to make too many excuses about the first quarter and I am not going to pretend second quarter that with the second coming, because we have such a great year-to-year comp. It’s kind of – it’s year-to-year, we sell capital-oriented items and what not, where there is only buys at the first quarter, they buy at the third quarter, that’s not that big, that’s not that big a deal. What we like about selling it’s earlier in the year is it gives us more discretion towards the end of the year, but we are very, very comfortable. The momentum is here. I think we told you, we are not renewing deals prematurely unless there is some customer needs for it to take place and that shows up the year-to-year a little bit. We signed very little in the way of renewal but it wasn’t a time appropriate to do. So, I am very, very – the net is, I am very comfortable where we are and we are not going to take more credit than we deserve, say, next quarter we blow that at the border, we are not going to take credit for that, because it’s the sum of the two quarters, it’s again the full year commitment.

That’s helpful. And then, my follow-up is, I walked away from the Analyst Day thinking I have underappreciated the Immediate Payments opportunity. The panel was really helpful that signing of Jack Henry is a big deal. We’ve been very focused on the UP deal specifically vis-à-vis the banks kind of from their debit business and moving beyond that as you say more different electronic payments, as you guys look out and think about the addressable market, are you – do you see the Immediate Payments markets ultimately being larger, maybe than the UP market with the banks in your more traditional business? Or give us a sense of how you rank those.

Well, I think you know that UP powers everything we do. So UP powers our Immediate Payments capability. I think that, just my personal – lot of decades in the payments business, I think we are underestimating the power of Immediate Payments the same way thirty years ago we underestimated the power of credit buys. And that I think we’ll be amazed – I think real-time commerce deserves and requires real-time payments and whether the world collectively understands what they are putting together it happens then, but suddenly all the governments around the world and their central banks become en lighten that that real-time payments and I think you are going to see under an UP infrastructure that real-time had wire and Immediate Payments are going to become couple cousins and you are going to see a lot more sophisticated way that companies big and small and there is no way they are going to hold the individual out of the benefit of Immediate Payments. I think Immediate Payments is huge, first you have to build the infrastructure, then you have to build its usage. But so much of the world is coming onboard at the same time and so many of the people are thinking globally about how the scheme should work and it’s just making a lot of – I couldn’t be more enthusiastic about Immediate Payments and we are seeing that in the marketplace. I mean, the – our customer base certainly getting it. So, the ones that are seeking us out, they certainly get it. And I would say that the retailers understand and the e-commerce players understand Immediate Payments maybe – they are making more benefit to us than even the financial institutions and financial intermediaries.

That’s helpful. Thank you.

There are no other questions at this time. I turn the call back over to the presenters.

Well, thank you all for dialing in and we look forward to catching up with everybody in the coming weeks. Have a good day.

This concludes today's conference call. You may now disconnect.