ACI WORLDWIDE, INC. Q2 2025 earnings call

Thank you. Good morning, everyone. On today's call, we will discuss the company's second quarter 2025 results, as well as our financial outlook for the rest of the year. We will take your questions at the end. The slides accompanying this call and webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. Today's call is subject to safe harbor and forward-looking statements like all of our events. You can find the full text of both statements in our presentation deck and earnings release, both of which are available on our website and with the SEC. On this morning's call is Tom Warsop, our President and CEO, and Robert Leibrock, our new CFO. With that, I'll turn the call over to Tom. Tom?

Thanks, John. Good morning, everyone. We appreciate you joining our Q2 2025 earnings conference call. I'm going to start by highlighting some key takeaways of our second quarter results, and then Bobby, in his first earnings call as our CFO, will provide a financial and segment-level review. He'll conclude with our updated 2025 guidance. We'll then open the call for questions. Q2 was another solid quarter for ACI Worldwide. Revenue was up 7% year-over-year versus Q2 2024, and it was up 15% versus the first half of 2024. The momentum we're achieving gives us the confidence to raise our full-year guidance for revenue and Adjusted EBITDA for fiscal 2025, and Bobby will discuss that in more detail shortly. Our strong business momentum is reflected in strength across both our segments.

Turning to the segments, the Biller Segment was up 16% in Q2 and up 13% for the first half of 2025. Our Payment Software Segment was roughly flat in Q2, and that was driven by the timings of our renewal and new business signings between Q1 and Q2, but it's up 18% in the first half of 2025. As a company, we signed notable new contracts, and our ARR bookings in the quarter were up 86%. That brings our first half 2025 new ARR bookings growth to 71%. In May, we officially launched Connetix, our next-generation payments hub platform. As a reminder, Connetix is cloud-native, and it provides enhanced capabilities such as automated decisioning, breakthrough processing, declined transaction reduction, and AI-powered insights that support fast decisions and superior value for our customers' customers.

We have several live opportunities right now, with particular interest related to Real-Time Payments and wire transfers, and the feedback about Connetix from potential customers continues to be overwhelmingly positive. Our pipeline is strong, and I'll keep you updated on our progress. In addition to our continued investment in technology leadership and innovation, we remain committed to returning capital to shareholders. In the second quarter of 2025, we repurchased 2.4 million shares, representing approximately 2.4% of ACI's common shares outstanding at the beginning of the quarter. Our ability to take these important steps to enhance shareholder returns is built on the foundation of work we've done over the last few years to strengthen our company's balance sheet.

We finished the quarter with a strong cash balance of $190 million and a Net Leverage Ratio of 1.4x Adjusted EBITDA, which is significantly below the recently lowered target of two times that we have previously discussed. I’d now like to revisit the revenue growth I just mentioned. As you know, our quarterly growth rates can fluctuate due to the timing of our term license-based business, with both new contracts and renewals having significant revenue recognition upfront. Because of this, it’s important to analyze longer-term trends to get an accurate sense of the trajectory of the business. Those trends are improving. While Q2 revenue was up 7%, for the first half of 2025, revenue grew 15%. That’s on top of the 10% revenue growth we achieved for the full year 2024.

These first-half results position us well for achieving our upper single-digit revenue growth target in 2025, and they let our team focus on new business, closing opportunities more quickly, and expanding our pipeline. That supports meeting or exceeding our long-term growth target of sustainable high single-digit revenue growth. I want to highlight the changes we’ve made to improve our growth performance. This hasn’t been an accident or a fluke. There are several factors that contribute to the growth acceleration we’ve seen over the last few years, and just a few of those include an improving solution mix, active portfolio management, including a strategic divestiture, and more aggressive pricing. One that really stands out to me is our conscious effort to complete the signing of new contracts and renewals earlier in the year.

While the revenue from a renewal contract cannot be recognized earlier than the renewal date, that’s just how the accounting rules work. Getting these time-consuming renewals out of the way continues to allow us to focus on new customer wins, which can often be recognized at the time of signing. That allows our sales team to be far more efficient, and it’s shown a direct impact on our results. In fact, this quarter marks the first time our estimated 60-month backlog has exceeded $7 billion. Before I turn the call over to Bobby, I thought I’d take a moment to address Stablecoin, which has increasingly entered the discussions I’ve had over the last few weeks, particularly after the Circle IPO. You may have heard me say before that Real-Time Payments use cases get more interesting as cross-border payments are allowed.

Stablecoin is a potential driver of more adoption of cross-border Real-Time Payments, and our solutions can already support those payments. If I broaden the lens beyond cross-border, from my perspective, the most important news to share with you today about Stablecoin is that ACI is well positioned to benefit from Stablecoin adoption in general. Our solutions have long accommodated many different digital currencies. One of ACI's sales differentiators is that our software handles more alternative payment networks and methods than any other competitor. Quite simply, increasing payment complexity drives customers to our solutions. It's part of our core competencies. We're actively working with players in the Stablecoin space as partners enabling additional payment types for our solutions and even as customers. Our software is a great way to switch Stablecoin transactions, for example. With increasing regulatory clarity, such as the signing into law of the GENIUS Act in the U.S. recently.

We see new use cases, and we're excited about the opportunities this trend represents for us. To sum up, we see potential here with Stablecoin. We feel very well positioned to take advantage of the opportunities it presents, and it will present in the future. I'd also like to point you to the newsroom page on our website where we've published some articles about Stablecoin and how it may impact the global payments ecosystem over time. Have a look. There's some interesting stuff. Lastly, I'm proud to say that our leadership in the payments software industry and our ability to stay on top of emerging trends around the world has helped ACI to earn recognition as one of CNBC's world's top fintech companies for 2025 and one of TIME's America's best midsize companies in 2025.

These two honors are a recognition of our continued efforts to power the global payments ecosystem with people and technology that push the envelope, that move our industry forward, and that solve money movement needs for banks, merchants, and billers alike. ACI Worldwide is continually committed to excellence. I want to provide a huge thank you to the entire ACI Worldwide team for helping the company earn both awards. I'm going to turn it over to Bobby to discuss our financials and our guidance. Bobby?

Thank you, and good morning, everyone. Before I dive into our financial results and guidance, as Tom mentioned, I want to express how energized and honored I am to be part of ACI's Chief Financial Officer and to be speaking with you on my first earnings call since assuming the role on July 1st. Let me start by sharing why I joined ACI. The decision was driven by the clear potential to create meaningful long-term value for customers, employees, and importantly, shareholders. That alignment is fundamental to how I lead as CFO. I was also drawn to how well-positioned ACI is in a fast-moving payments industry with rising demand for secure, intelligent, real-time solutions. ACI has a durable competitive advantage and is the trusted leader powering the world's payments ecosystem.

Over the past month, I've been diving into the business and engaging deeply with Tom, the ACI leadership team, and the financial leadership team, as well as the board. I've come away confident in the company's direction and motivated by the path ahead. I've also spent a lot of time with Scott Barron, my predecessor, and I want to extend my appreciation for his nearly two decades of dedicated leadership. His commitment to financial discipline and operational rigor has helped position ACI for continued success, and I'm grateful for his support during the transition. Looking ahead as CFO, I am committed to financial transparency, operational discipline, and a proactive dialogue with the investment community. In the coming quarters, I'll be evaluating ways to enhance how we provide you even greater clarity into our progress.

I believe the best outcomes originate from open, data-driven discussions, and I look forward to having conversations with many of you in the months to come. Now let's get into the financial results. I'll cover Q2 and then provide first-half progress. Revenue was $401 million in Q2, growing 7% compared to last year, and recurring revenue of $322 million accelerated to 13% growth compared to last year. Total Adjusted EBITDA in Q2 was $181 million, down 13% compared to last year, driven primarily by the quarterly timing of license-based contracts and payment software. Turning to the segments for Q2, growth was led by the Biller Segment, where revenue grew 16% and segment-Adjusted EBITDA increased 6% compared to last year. We saw particularly strong growth driven by our solutions in the government, consumer finance, and utility markets.

Payment Software Segment revenue in Q2 declined 1%, and segment-Adjusted EBITDA decreased 12% compared to last year. This decline year over year was expected and incorporated into the prior guidance, given our renewal calendar and the strong new business signings we had in Q1 this year. We continue to manage the business towards our full-year growth objectives and reduce historically heavy Q4 seasonality while focusing on building sustainable revenue growth. This is shown in payment software's recurring revenue that accelerated to 8% growth in Q2. Looking now at the first half of the year, revenue grew 15%, recurring revenue grew 11%, and Adjusted EBITDA grew 24% compared to the first six months of last year. Both segments contributed to growth in the first half. Payment Software Segment revenue grew 18%, and Adjusted EBITDA grew 29% compared to the first half last year.

Banking solutions saw strength across all three main product sets, with issuing, acquiring, fraud management, and Real-Time Payments all growing 20% or more for the first half of the year. Biller Segment revenue in the first half grew 13%, and Adjusted EBITDA grew 4% compared to last year. Cash flow from operating activities in the first six months of this year was $128 million, compared to $178 million last year, lower largely due to the timing of receivables. We ended Q2 with strong liquidity, including $190 million in cash on hand and approximately $900 million of total debt outstanding, representing a net debt leverage ratio of 1.4x. During the quarter, we also retired our $400 million senior unsecured notes maturing in August 2026, with an updated and expanded credit facility that matures in February 2029.

Tom mentioned our $119 million Q2 share repurchase, and for the first half, this brings our total share repurchases to approximately 2.7 million shares for $134 million. Exiting June this year, we have approximately $223 million remaining on our share repurchase authorization. Based on the momentum exiting first half, we are raising our guidance for 2025. We now expect total revenue for the full year to be in the range of $1.71 billion-$1.74 billion, higher than the previously issued guidance of $1.69 billion-$1.72 billion. We expect Adjusted EBITDA for the full year to be in the range of $490 million-$505 million, higher than the previously issued guidance of $480 million-$495 million. For next quarter, Q3, we're providing guidance for total revenue to be in the range of $460 million-$470 million, and Adjusted EBITDA to be in the range of $155 million-$165 million.

To recap, the first two quarters of 2025 are tracking ahead of our original expectations, and we're well positioned as we enter the second half of the year. As I hope you can tell, I'm excited to be part of the ACI team at such a pivotal time, and I look forward to helping deliver on our mission and our commitments to shareholders. With that, I'll pass it back to Tom for some closing remarks.

Thanks, Bobby. We're pleased with our progress in 2025. We remain focused on our broader strategy, on sales execution, and the development of our next-generation Connetix platform. The first half of 2025 was strong, and we're increasingly optimistic about the rest of the year as well. With our healthy pipeline and strong full-year financial forecasts, we're confident in our ability to continue delivering significant shareholder value. Finally, I want to mention an upcoming event we're planning for October 21st to the 23rd in New York City. We've named it Payments Unleashed, and it will be partly a celebration of 50 years of ACI payments innovation. This is our 50th year as a company, and partly it's a thought leadership event for the payments industry, gathering some of the brightest minds in payments for two days of speakers, panels, and topical sessions.

This is not a financial or investor-focused event per se. I think many of you will appreciate learning more about AI, Stablecoin, ACI Connetix, and many other hot topics in payments. If you're interested in attending, please reach out directly to John Kraft, and we'll do our best to make that happen. Thank you for joining our call. Thank you for your interest in ACI, and thank you for your ongoing support. We really appreciate it. Operator, we can now take questions.