ACI Worldwide, Inc. (ACIW) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Second Quarter 2026 ACI Worldwide Earnings Conference Call. [Operator Instructions] I will now hand the conference over to John Kraft. Please go ahead.

Good morning, everyone, and thanks for joining us. On today's call, we will discuss ACI Worldwide's Second Quarter 2026 results as well as our updated financial outlook for the remainder of the year. We will then open the line for your questions. The slides and press release accompanying this webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. As always, today's call is subject to safe harbor and forward-looking statements. You can find the full text of these statements in our earnings materials and SEC filings. Joining me this morning are Thomas Warsop, our President and CEO; and Robert Leibrock, our Chief Financial Officer. Before I turn it over to Tom, I'd like to highlight several upcoming conferences where members of management will be participating. The KeyBanc Technology Leadership Forum on August 11, the Seaport Research Partners Annual Summer Investor Conference on August 18, and the FT Partners FinTech Conference on September 15. We look forward to meeting many of you at these events. With that, I'll turn the call over to Tom. Tom?

Thanks, John. Good morning, everyone. As always, I appreciate you joining us for our earnings call today. We'll talk about our second quarter 2026. And let me start by saying financial performance was strong. And the quarter was fulfilling in many ways, in addition to those strong financial results. I want to share a few examples of the things we at ACI are proud of as we continue to deliver on our promises and transform for the future. Let me start with the headline financial results, and then I'll discuss the operational progress driving the momentum we're seeing across the business. Today, we reported 7% revenue growth, 12% adjusted EBITDA growth and 54% adjusted diluted EPS growth, and we're again raising our full-year guidance. Perhaps even more importantly, we continue to make progress on our key strategic initiatives, the things we believe drive long-term growth and shareholder value creation. We signed our first U.S.-based Connetic customer in the quarter, and we've already signed another in Q3. Traction with Connetic is a result of our ongoing strategic growth investments and the privileged position we have in the payments ecosystem around the world. We remain well positioned to benefit from the ongoing need for payments modernization. I'm going to discuss this in more detail shortly. Our margin expansion is a result of disciplined expense management while continuing to invest in innovation and returning capital to shareholders. Before I discuss our business segments, I'll spend a few minutes on what's happening in the payments industry. Across financial services, payment ecosystems are becoming significantly more complex. Financial institutions are managing more payment types, more payment rails, increasing real-time payment adoption, rising fraud threats, evolving regulatory requirements and continually increasing expectations from consumers and businesses. At the same time, many organizations are operating on infrastructure that was designed for a very different payments environment. As a result, modernization has become one of the most important strategic priorities for customers around the world. Increasingly, the discussion is no longer whether institutions will modernize, but how they will modernize and who they will partner with to help them get there. That trend continues to create meaningful opportunities for us at ACI. As I mentioned, one of the most significant accomplishments during the quarter was the signing of our first U.S.-based Connetic customers. We signed one customer during Q2 and a second customer shortly after the quarter ended. We view these wins as further validation of the Connetic strategy. Customers are increasingly looking to simplify complex payments environments through a modern cloud-native platform that provides connectivity across payment types while positioning them for the next generation of payment intelligence and orchestration. Our Connetic pipeline continues to expand faster than any other solution set. In the biller business, our Speedpay One platform continues to advance with new customers being implemented on this cloud-native leading-edge solution. We now have more than 100 customers live on this platform and our continuing investments are improving performance and flexibility. Our Connetic solution and our Speedpay One biller solution are broadly AI-enabled, meaning we're building AI-powered capabilities directly into the solution from day 1. And I've previously mentioned a little bit about how ACI is taking advantage of the potential of AI. But I want to give you a little bit more flavor in terms of how AI is really impacting us and our customers. We're already seeing tangible benefits from these efforts. Here's a few examples. In terms of test automation, our AI mandate analyzer is reducing the time required to interpret payment scheme mandates from 2 to 3 weeks to minutes or hours. And that's shifting roughly 2 weeks of effort earlier in each cycle across schemes and products and creating an incremental person-year of engineering capacity over time, and that's just the beginning. In our biller business, AI-supported rearchitecture work on one of our common products has reduced the effort by about 50% and that's already saved over 6,000 hours of engineering time. And in customer support, we built a retrofit agent team. So it's a team of agents doing retrofitting work, and that will automate up to 85% of a previously completely manual process, saving approximately 10 hours per week per user with additional benefits and related root cause workflows. That work has already been piloted with a large customer in our European business with broader rollout coming soon. We've integrated AI-powered functionality into products across our portfolio, and this is accelerating. Just a couple of examples. Connetic, we've implemented a dynamic context-dependent intelligent routing and scoring capability. This enables very fast adjustments to fraud and routing algorithms based upon up to the second information that is only possible with generative AI and related tools. On Speedpay One in our biller business, we've deployed tools to simplify and accelerate our customers' ability to deploy our standard APIs and to accelerate the customer implementation journey. These are only 2 of the many solution capabilities we've implemented, which are powered by AI. I do want to comment briefly on each of our operating segments. Obviously, Bobby will cover more detail, but let me start with payment software. Payment Software continued to perform well during this quarter. The segment delivered 9% revenue growth, driven by strength in issuer acquiring, where revenue increased 37%. Encouragingly, we're seeing customers move beyond evaluating modernization initiatives and increasingly begin executing against them. As transaction volumes continue to grow and payment environments become more complex, customers increasingly view ACI as a strategic technology partner rather than simply a software provider. Our merchant and anti-fraud solutions both grew in the mid-single digits, and both solutions are well positioned to benefit from some interesting new AI, which is driving new technology opportunities and tools, and that includes a new collaboration with some of our merchant clients, where we have created an agentic commerce solution that can be used both by consumers making a purchase and by our customers' agents who are assisting consumers. So we're playing both sides of that opportunity. In our Biller segment, revenue increased 5% during the quarter. While year-over-year comparisons in Q2 were challenging following unusually strong volumes last year as well as some unique margin benefits that did not recur, the underlying health of the business is strong. We continue to see growing adoption of our Speedpay One platform through expansions across our installed base and success with new customer wins. We remain confident in our expectation for upper single-digit growth in Biller for the full year. We're also continuing to execute our balanced capital allocation strategy. We deployed approximately $41 million of capital to share repurchases in Q2, and that brings our year-to-date repurchases to approximately $107 million. As we previously communicated, we expect to allocate between 50% and 60% of operating cash flow to share repurchases during 2026. At this level, we will maintain flexibility for further organic growth investments and potential strategic acquisitions, particularly focusing on those that accelerate our cloud-based payments modernization offerings. As we've said before, driving a superior return on capital deployed is a core tenet of our leadership team and a strategic imperative for our business. We take this capital stewardship seriously. And as a part of this disciplined effort, our corporate development team regularly evaluates inorganic opportunities across the full spectrum of strategic actions, including opportunistic acquisitions, divestitures and partnerships. There are some interesting technologies in the marketplace that could help accelerate our growth and the valuations are more attractive than they've been in the recent past. Evaluation of those opportunities occurs in the normal course of business for us. And I'm sure you understand that I will not comment directly on any recent speculation about us in the news. To be clear, our business is operating from a place of financial and competitive strength, positioning us to further establish ACI as a platform for profitable growth over time, consistent with our proven track record as a value compounder. I'm pleased with our execution in the first half of the year, and I remain encouraged by the strength of our pipeline, which gives us confidence we are on track for a strong finish to the year. Our recurring revenue profile, strong customer relationships, ongoing technology investments and disciplined cost management have us well positioned to continue delivering profitable growth. This strategic framework, combined with our shareholder-focused returns-based capital deployment strategy positions us well to continue to create long-term shareholder value. I want to thank our employees around the world for what they do every day. Their dedication to our customers and their commitment to operational excellence are what makes our success possible. I also want to thank our customers for their partnership, and our shareholders for their continued trust and support as we execute on our long-term value creation strategy. With that, I'll turn it over to Bobby.

Thank you, Tom, and good morning, everyone. I'll begin with a review of our second quarter financial results, then discuss our first half performance, capital allocation activities and outlook for the remainder of 2026. Overall, we delivered another quarter of solid financial performance characterized by revenue growth, margin expansion, earnings growth and strong cash generation. Second quarter revenue was $430 million, up 7% on a reported basis and up 6% in constant currency. Net income was $32 million compared to $12 million a year ago. Adjusted diluted earnings per share was $0.54, up 54% from the prior year, reflecting strong operational performance and the benefits of our share repurchase program. Adjusted EBITDA was $91 million, up 12% on a reported basis and up 9% in constant currency. Net adjusted EBITDA margin expanded to 34% from 32% last year, even as we increased R&D spending by 17% to support innovation and future growth. This margin expansion was driven by strong operating leverage and reflects disciplined expense management. Year-to-date revenue was $956 million (sic) [ $856 million ] , up 8% on a reported basis and up 6% in constant currency. Year-to-date adjusted EBITDA was $196 million, up 12% on a reported basis and up 8% in constant currency, while net adjusted EBITDA margin for that period expanded approximately 200 basis points to 36%. In the Payment Software segment, second quarter revenue was $196 million, up 9% on a reported basis and up 7% in constant currency. The segment benefited from notable strength in issuing and acquiring, which grew 33% in constant currency versus the prior year period, driven by large expansions with renewing customers. Merchant and fraud management revenue also delivered year-over-year growth. Real-time payments revenue declined versus the prior year period, while the number of renewal and expansion opportunities was lower than a year ago, retention and expansion performance remained strong, underscoring the healthy demand environment we continue to see in real-time payments. We continue to expect real-time payments to contribute to growth in 2026 and remain encouraged by customer demand and the strength of our pipeline. Segment adjusted EBITDA for payment software was $94 million, up 12% on a reported basis and up 9% in constant currency, resulting in a net adjusted EBITDA margin of 48%. The margin expansion reflects the inherent leverage of a highly recurring software model. In Biller, revenue was $234 million, up 5% on both a reported and constant currency basis. As we noted last quarter, second quarter revenue, net of interchange and adjusted EBITDA were impacted by mix and difficult comparisons against unusually strong volume activity in the prior year, which also included certain credits that did not occur. Despite those near-term comparisons, underlying customer demand remains healthy, and we continue to expect upper single-digit revenue growth for the Biller segment for the full year. While adjusted EBITDA declined year-over-year, the pressure was primarily driven by prior year comparison items rather than any change in the underlying health of the business. Results in the current quarter were also impacted by a onetime charge related to a partnership that has since been terminated and is not expected to reoccur. The business continues to benefit from healthy transaction growth, strong customer retention, new customer additions and continued adoption of Speedpay One. We also expect net revenue growth to trend more closely with gross revenue growth over the balance of the year. Net new ARR bookings were $18 million during the quarter, while new license and services bookings were $59 million. ARR bookings were compared against a particularly strong prior year period that benefited from several large payment software contract signings. This year, strong biller performance partially offset lower payment software bookings with a greater concentration of expected signings weighted towards the second half of the year. New license and services bookings reflect similar timing of anticipated payment software deals. While quarterly results can fluctuate based on the timing of large transactions, we remain encouraged by the strength of our pipeline and continue to expect both net new ARR bookings and new license and services bookings to grow for the full year. On the balance sheet, we ended the quarter with $167 million in cash and a net leverage ratio of 1.2x adjusted EBITDA. Year-to-date operating cash flow was $135 million, reflecting the strength of the business and disciplined execution across the organization. As Tom mentioned, we continue to take a balanced and disciplined approach to capital allocation, investing in initiatives that support long-term growth while returning capital to shareholders. During the second quarter, we repurchased approximately 948,000 shares for $41 million. Year-to-date, we have repurchased approximately 2.5 million shares for $107 million and ended the quarter with approximately $349 million remaining under our authorization. Turning to guidance. Based on the first half performance and the strength of our pipeline, we're increasing our full year 2026 outlook. We now expect revenue in the range of $1.895 billion to $1.925 billion, up from our prior range of $1.89 billion to $1.92 billion. We expect adjusted EBITDA in the range of $545 million to $560 million, up from $540 million to $555 million. For the second half of 2026, as we discussed last quarter, we continue to expect an approximately 40% and 60% revenue weighting between the third and fourth quarters, respectively, driven by the timing of high-margin payment software license renewals. This implies third quarter revenue of $417 million to $427 million and adjusted EBITDA in Q3 '26 is expected to be $90 million to $95 million. Additional income statement, balance sheet and cash flow guidance assumptions are available on the guidance slide in our earnings presentation. Our outlook continues to be supported by a strong recurring revenue base, healthy customer demand and a robust pipeline across both payment software and Biller. The increase in our guidance reflects both our strong first half performance and our confidence in the opportunities we see ahead. We remain committed to investing in innovation and our strategic growth priorities while maintaining a disciplined approach to profitability and cash generation. As we look to the balance of 2026, we remain focused on executing our strategy, investing in innovation, maintaining operational discipline and generating strong cash flow. As customers continue to modernize their payment infrastructure, the need for intelligent payment orchestration continues to grow. We believe ACI's unique combination of software, data, industry expertise positions us well to capitalize on that opportunity while continuing to deliver long-term shareholder value. With that, Tom and I will be happy to take your questions.

[Operator Instructions] The first question comes from the line of Jeff Cantwell with Seaport Research.

Can you talk more about the Q3 and Q4 guidance? Why is there a 40%, 60% cadence this year? What are the major callouts? I hear you on the timing, but can you go through this in a little more detail, if you don't mind? And can you confirm whether that was expected because we're getting questions on that this morning.

Jeff, I'll jump in. This is Bobby. And I think it would be helpful for Tom to kind of expand on some of the strength we're seeing for the year that supports the confidence we have in the raise of the overall guide. Yes, as we get into Q3 and Q4, we've been trying to be very transparent with the guidance we provided, one, because the recurring nature of our business -- we provide the recurring revenue that happens every quarter. And I like to think 95% of ACI's revenue is recurring, but on a 5-year base contract basis for the payment software license renewals. That gives me and Tom a lot of visibility as we enter the year to know when we're going to have the best opportunity to renew those customers as well as expand on them. Last quarter, 90 days ago, I gave headlights into the Q3, Q4 guide as being more of a 40-60 split versus the last couple of years, it's been 50-50. You go back and you compare, call it, 3, 4, 5 years ago, you'll see that same 40-60 split, which is indicative of the types of customers and the concentration we see in Q4 this year, and we feel good about that. As you look underneath it, it's all payment software driven, and that's our high-margin business. So the EBITDA even has a bit more of a skew towards the fourth quarter. But as shown in the confidence of raising both revenue and EBITDA on the full year, we feel good about that. Payment software had a good Q2, and they're coming out of the first half very strong.

Yes. Jeff, we have good visibility, very good visibility into the second half given what Bobby just described and the driver for that 40-60 versus what saw in the last couple of years more closer to 50-50. It's all due to renewal dates. And as you know, we, by U.S. GAAP, we have to book the revenue on the renewal date. So we can't change that, but we have excellent visibility to that, and we have strong pipelines, business is performing very well. So we tried -- last quarter, Bobby talked about the 40-60 split. That's still what we see. But as he just said, the business -- the higher skew to fourth quarter on revenue drives an even higher skew towards EBITDA because of that high-margin software business.

Okay. And can you tell us about the Connetic signing in the U.S., how that came about? And anything that you can give us in terms of was it an existing customer that converted? Was it a new customer? Is this a sizable asset base? And then what does the pipeline look like for Connetic right now? I'd just love to hear an update on that as well.

Sure. So the one we signed in the quarter, it is an existing customer, and that's great news actually because that's -- we're attacking opportunities across all types of customers, net new, existing customers that will convert and then a little bit hybrid. We've got a very strong pipeline, growing pipeline across all of those types of customers. This particular one that we signed in the quarter was an existing -- is an existing customer and we will convert in the next few months from an existing solution to Connetic. So that's great, and we're excited about it. But that specifically to your question. The pipeline, that is the fastest growing. I think I mentioned this previously, that is -- Connetic is the fastest-growing solution set in terms of our pipeline. It has been for a couple of quarters now, and we expect that to continue. So very pleased with the progress on Connetic. We also announced a couple of months ago, I think, that we have enabled Connetic across 8 different sets of payment rails in the U.S. so we can handle just about anything that gets from Connetic in terms of payment types and payment rails.

Yes. I think the thing I would add, Jeff, on the Connetic part would be, one, we talked about the guidance this year really doesn't depend on Connetic revenue. But as Tom is showing almost every sales discussion with our customers starts with the Connetic level of excitement and how they can modernize. And as you get under that, all the Connetic signings to date have been SaaS, which is exciting because it's proving the cloud-native platform that we've built there, the customers -- it really resonates with them. The other thing that's exciting is Solaris, we mentioned last year, the team has made great progress with them leaning in both on their side and ours. And we're excited to start to get them live here in the second half of the year, which will be a good instantiation of the platform.

Okay. That's a great update. And then maybe if I could just squeeze one more in. There were some articles out there about Biller, which obviously you're not going to comment on rumors. Could you maybe talk to everyone who's listening about your approach to M&A? And maybe just give us an update because it's been a while since we've had to consider a potential sale of Biller. So how would you frame that for us?

Yes. I mean, as I said in the prepared remarks, we -- this is sort of normal course of business. We evaluate constantly what's the best way to drive shareholder value, and we look at potential acquisitions, potential divestitures, different kinds of investments. We do that all the time. There's nothing unusual about that. We obviously don't comment on specific rumors in the marketplace. But I think it's fair to say we have great businesses, and there's a lot of people that would probably love to own all the businesses that we have. But that's just what we do.

I think, Jeff, I'll take the opportunity to talk mostly about the strength we see in payment software and Connetic. We do have, as Tom mentioned, a very healthy Speedpay business within our Biller segment. I talked a bit in my earlier comments around the bookings health we see. And I just want to -- similar to what I did last quarter, put a little more detail on that. Year-to-date, we're doing great in terms of ARR bookings in that business. In Q1, I mentioned we had 3 new logos and about 70% of our top wins actually work within our expansion customers, and we're seeing really good return on the customer success, account management focus that the team is driving there. In Q2, we signed 2 nice new logos there. And then across those bookings, 80% of them were really healthy expansions, customers doubling, tripling their relationships with us. So I'm excited on the health of that business, and we see it growing high single digits for the year and really accelerating in the second half.

The next question comes from Pete Heckmann with D.A. Davidson.

Good to see the good results and the raise in the annual guidance. Also good to see the 2 new Connetic wins. Can you talk a little bit about how the perception of ACI might be changing for a long time, I think people who used ACI and people who are deep in the industry understood how important ACI was to certain processes within financial or electronic payments but maybe the company was viewed as maybe having some older technology or not being as innovative. I guess with Connetic, I guess, how is this changing your perception with customers? And clearly, it appears that there's been some good early acceptance of the platform. But I guess what I'm thinking is, do you think the fact that you have this road map towards this modern payments can actually cause some noncustomers to think differently about ACI and potentially adopt other solutions that you have?

Yes, great question. Yes, I mean the short answer to your question is yes. We are having very different dialogues with customers and prospects now as we lead with Connetic. And I think one of the biggest drivers of that is that our vision of the future of payments, the payments industry is that you have a very consistent set of technologies, platforms that can handle essentially any type of payments. That will allow financial institutions and merchants to get maximum leverage out of the investments they make in payments and provide even better service to their customers. And so we -- that is our vision, and Connetic was built very specifically to support that vision. And what's happening now is in the old days, so maybe a couple of years ago, Pete, we would go in and we were perceived as trying to sell a piece of software. And of course, we want to sell software. But now what tends to happen is we'll sit down with a customer or a prospect we'll talk about how can we help them change the way they do business? How can we help the bank or the merchant provide a better customer experience, get better results, reduce the cost of handling payments inside of their organization and ultimately modernize their infrastructure. So not just the payments side, but every -- especially financial institutions, they're all thinking about how do I modernize my infrastructure. And they look increasingly to ACI to help them think that through. How do I modernize specifically? How can I take advantage of this new way of approaching the technology around payments? And that's what Connetic gives us. It's created a different kind of dialogue and it's created -- it's definitely started. We have more to go, Pete, but it started to change the perception that we have in the industry. We're much more often people are thinking of us as a current innovator instead of, well, they've got software that they've been running for a long time. It's really good, but it's not all that innovative. Now we're much more likely to be seen as an innovator.

And Pete, I'll just add to Tom's comments. I mean that whole -- this idea of the momentum we have, the perception, it is very contagious across multiple elements of the business, everything from how do you attract talent, the sense of urgency in the company, how fast we show up to customer requests, demands. The thing I'd also add is you talked about Connetic. I think the focus that ACI has and the 2-segment model, GM model that Tom has put in place over the last few years has definitely unlocked that as well. A lot of the commentary around Connetic, I would say you're seeing it show up in the Speedpay biller business as well. One of the stats I put out there is our customers this past year have given us a 15-point increase in their Net Promoter Score for Speedpay. And I think that's a bit of how we're showing up, as you described in the Speedpay business as well. So the focus we have on not managing as mixing our biller customers with our banking customers and intermediary customers, our merchants, that focus has helped a lot in how the company is showing up, and we're seeing it across both segments in a really healthy way.