Good morning, Ladies and gentlemen. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Reports First Quarter Earnings Conference Call. [Operator Instructions] After speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Now it’s my pleasure to hand the call over to your host, Mr. John Kraft. The floor is yours.

Thank you, Jerome, 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 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. 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.

Thank you, John, and thank you, everyone, for joining today’s call. I’m pleased to start off by saying that this morning we announced the completion of the acquisition of Speedpay from Western Union. I will spend the next few minutes covering both the immediate as well as longer-term strategic opportunities for ACI made available as a result of the Speedpay acquisition. Next, I’ll share a sampling of Q1 wins and demonstrate momentum across our key bank, intermediary, merchant and corporate customer segments. I will then turn the call over to Scott to cover our Q1 financial results and updated 2019 guidance. Let me start by saying that the acquisition of Speedpay is exciting and significant to ACI on several levels. First, it brings immediate financial strength and scale to our ACI On Demand platform business. With our investment phase largely behind us, ACI On Demand has turned the corner to profitability and delivered its first full year of positive EBITDA in 2018. The acquisition brings together two market-leading the U.S. bill payment portfolios with the combined revenue of over $600 million in 2018. The acquisition brings tremendous scale to our ACI On Demand business. It enhances our profitability, boosts recurring revenues, drives efficiencies and enables increased investments in R&D and platform infrastructure that will benefit our entire UP portfolio. We plan to combine the Speedpay and ACI Bill Payments solutions into a unified platform capable of supporting billions of transactions and driving next-generation bill pay capabilities. We will also expand our reach into existing and complementary segments such as consumer finance, insurance, healthcare, higher education, utilities, government and mortgage. The combination of Speedpay and ACI is also exciting as it brings together the industry’s top talent under one roof. As we join forces, we will drive innovation and revolutionize payment…

Thanks, Phil. Good morning, everyone. I first plan to go through our results for Q1 and then provide an update for full year 2019, given the acquisition of Speedpay that we completed today. We’ll then open the line for questions. I’ll be starting my comments on Slide 7 with key takeaways from the quarter. New bookings were $70 million and total bookings were $112 million. Recall the Q1 saw particularly tough comparison given our record bookings in Q1 last year. We continue to expect full year in bookings to increase in the upper single to low double digits with our quarterly phasing of bookings for this year following a more traditional pattern with Q3 and Q4 being the highest bookings quarters for the year. We ended Q1 with a 12-month backlog of $811 million and 60-month backlog of $4.2 billion. Q1 revenue came in within our guidance expectations at $206 million with our On Demand business growing 5% over Q1 last year offset by lower revenue in our On Premise business. The decline in the On Premise business was due to the timing and size of renewal and capacity events in Q1 2019 compared to Q1 2018. The timing of our non-recurring license fee revenue will follow the expected timing of our bookings this year, as I mentioned, which will be heaviest in Q3 and Q4 this year. Revenue growth in our On Demand business contributed to strong improvement in net EBITDA margins. As we’ve been saying for some time now, margin expansion will come with scale as we grow into the infrastructure that we built out here over the last several years. As you recall, 2018 was really the turning point when we started to see that margin expansion in our On Demand segment. And we see continued margin…

[Operator Instructions] Your first question comes from the line of George Sutton from Craig-Hallum. George, you’re now live.

Thank you. Congrats on getting the Speedpay acquisition closed. Honestly, don’t remember such an attractive acquisition. I wanted to focus, if I could, on the slide that you had on Page 5 – or the chart you had on Page 5 relative to the Bill Pay market, and the portions that you’re going to begin to focus on. Just to be clear, you’re talking about those upper two areas of opportunity, which are the faster-growing parts of the market. And aren’t those completely new to you with this acquisition?

Yes. No, I mean ultimately, the digital subscription services and the digital subscription on physical goods will both be – that – those are areas where we will be able to expand additional R&D resources. Remember, we’re combining two sets of R&D spend, and on top of that, we’re actually investing more in R&D to be able to go and tackle and build out capabilities for some of these higher-growth Bill Payments markets.

So, George, it’s great question because what this does is – subscription is a wonderful example of explaining what the UP strategy is all about. So PAY.ON’s ability to have this diverse global network of endpoint, our real-time business intelligence broad capabilities and the ability to sit behind the corporate or the – so now they have the ability – it’s not Bill Pay kind of in the traditional way where people think about it. It’s in effect, providing the set of rails both to endpoint – both to the endpoint and to the intermediate tests that have to take place. And if the form of subscription has a low unit cost or something, it cannot afford to be an interchange kind of payment or whatever. Or if immediate payments really start taking off as a push credit and whatnot, it provides another channel for people to – and a lot of the merchant acquirers are beginning to see this need. And we’re actually having more conversations with merchant acquirers and corporations about this than we’re having with banks with our more traditional banking segment. In a way, it makes sense because a lot of these alternate payments are – don’t come from the bank – directly from the banking community or they’re coming in from overseas.

Understand. Obviously, a lot of things driving the business right now. So Scott, can you just give us the composition of Speedpay in the Q2 numbers that you discussed, the $280 million to $290 million. And I’m asking that really to get a better sense of the progress you’ve seen thus far in Q2?

Yes. When we closed today, so we’ll be picking up their financial results effective today going forward. I would really prorate what we’re putting out for the full year, just take it pretty equally between today and the end of the year. Their – the Speedpay business’s portfolio is not as lumpy as in some cases ours. Our biller business has a certain bit of seasonality in it because of the heavy portion is in government tax payments. So Q2 on our side can be – actually can be one of the higher quarter of the year. But this portfolio with Speedpay is actually pretty normalized throughout the year. So I take our total just spreaded over the rest of the year.

Thank you.

Your next question comes from the line of Brett Huff from Stephens. Brett, you’re now live.

Good morning and congrats on getting the deal done. Also echo, it seems like a really nice deal. Two questions for me. Number one, can you give us more detail on sort of the tenure and the timing of bookings? I know we – the renewals – there’s a couple of big renewals that got pushed from 4Q, I think, but as you mentioned, from sort of capital markets activity. Sounds like that’s still supposed to – those are expected to close in the 3Q, but the bookings this quarter were a little lighter than we expected. I know there’s – those can naturally be lumpy, but just wanted to get some insight into that? How’s the pipeline looking? Do we kind of – can you just give us some color on kind of how we get to the high single or low double-digit growth for the year?

Yes. I would say that you got a pick a couple of dynamics. Number one, again, and I mentioned in my prepared remarks that if you look at it from a comp perspective, Q1 of last year was a record Q1 quarter for us. So certainly, on a comp basis. I think this year will look more traditional in terms of the timing of our bookings with a lot of it sitting out there in Q3 and Q4. So – and I think it just – there’s a natural get-back a little bit after coming off the year where we had over 20% growth in new bookings to have a little bit of slowdown here in the first quarter. But the pipeline is strong and so we’re comfortable with that high single to low double digits for the full year.

Okay. Great. And my second is, so I think you mentioned combining platforms between your existing Bill Pay business and Speedpay’s. Can you give us a more sense on that? Is it – whose platform is going to remain or is it going to be kind of best of both? And what’s the timing of that? And how do we think about any financial benefits? Is that included in the guidance you’ve given or is that on top of?

That’s a great question. Actually, it’s kind of a great marriage. Western Union Speedpay has done a lot of very good work on the front end of their system – of their product, which is they’re calling Next Gen. And they really included their customer base and the marketplace in terms of what Next Gen should look like and whatnot. And we are going to embrace the vast majority of what Next Gen has to offer. We have things like our student portal that we mentioned today. So we have more vertically specific pieces but as – there’d be one overarching UI that will be specific to the individual verticals in terms of what they need and what not. But a good piece of encompassing technology that we’re – it’s going to take us – this – the first round of this is being implemented throughout the entire Speedpay population and there is Phase 2, Phase 3, there’s going to be fair amount of work. We’ve been doing exactly the opposite, and we’ve been building a powerful back-end of the system, and Speedpay has not been working on that piece. That’s also a multiyear effort and all of the expenses are modeled into the guidance and whatnot that we gave in terms of – so the upside of that is that it could change our growth rate once this functionality becomes clear road map to the prospective customers. One of the things you got to think about, Brett, you watch the Uber and you watch the Lyft, you watch these guys. These guys are saying, oh gee, how are we going to get past the profitability and everyone’s kind of scratching their head. At 5% to 6% cost of sales, right, that’s really expensive, we think that we are sitting in a sweet spot, right, in terms of if we get people depend on your form of payment, if we can get them to a much more efficient cost of sales, as all these different subscription-based guys or guys, in effect, where you’ve already preset how you’re going to pay, they may have to go into models that say, you pay one way, it costs you one thing for Uber, you pay another way, it costs you another thing. We think that this creates a real solution that, right, for some of these syntax that are coming out that difference between not having the game plan to profitability and profitability could largely be impacted by what they’re currently spending for the cost of sales.

That’s helpful. Thank you, guys.

Your next question comes from the line of David Eller from Wells Fargo. David, you’re now live.

Hey, good morning and thank you for taking the questions. Could you talk – start by talking about any financials on the Walletron acquisition. So couple of questions there. Was that a cash acquisition? And then you already had a partnership sitting there. So will there be additional revenue from that? Or will that be netted against anything?

Yes. You haven’t disclosed what the financials are from Walletron. For Walletron came to us as a part of the Speedpay acquisition.

Okay. So that is – that’s included in the price? Or you’re saying that’s a separate deal?

It’s going to be included in the ultimate purchase price for Speedpay.

Got it. And then I know historically, you’ve had a focus kind of on the larger number of smaller billers and Speedpay has had much larger focus on a smaller set of larger billers. So can you talk about any of your initial conversations with some of the larger clients on the Speedpay side? So any pushback from accounts either on pricing concessions or anything like that? Or whether they plan to stay or go?

We had one of the preeminent consulting companies operate which we call a white room for us, right, because we’re not allowed to interfere with their business until we’re closed. But one of contractual agreements we went through was that we wanted to perform very heavy interaction between ourselves and the customer base and whatnot, and the feedback has been positive and has been good. And we are not changing Speedpay’s business model. As a matter of fact, we’re embracing their mortal as it relates to significant – these significant relationships and whatnot. And having said that, we actually believe that there’s a backflow value. We have some very, very, very large Bill Pay customers. And we believe that their model is going to be very helpful in terms of us even improving our large customer model. So in effect, we’re going to embrace their customer-centric method of dealing with their larger customers. So the answer is, yes, we have been in contact.

Got it. And then talking a little bit about your underlying existing OnDemand business. It’s been a time since we’ve been waiting for – to see that kind of big step change in the number of wins and volume there. So can you talk about any progress you’re seeing in accelerating demand towards maybe that high-single-digit growth range?

I think you’re starting to see it in the results. Q1 year-over-year growth with 5% margin expansion is 600 basis points. I think what you’ll see obviously, starting in Q2 going forward, is layering on significant amount of EBITDA on top of that cost structure. So you’re going to see a very different profitability profile going forward. But we expect the OnDemand business to come in probably closer to our higher end of the revenue growth expectations for the year. So we’re talking upper single digits on the OnDemand side for the year.

That’s great. And then last question for me. Just on the large capital markets deals that have pushed, do you have any additional color there in terms of conversations you’ve had with those respective parties about continuing service with ACI? And just the level of confidence that you will continue to have that business after close?

Well, the only way I can answer that is that we’ve had no discussions with any of these customers about discontinuing offer – things – and as we went through the wins today, and I cannot discuss any individual accounts but as we go through the wins, you can see that we’re clearly increasing business with some of the affected parties.

Got it. Thank you for taking the questions.

[Operator Instructions] Next question comes from the line of Peter Heckmann from Davidson. Peter, you’re line is now open.

Thank you. Good morning, everyone. Wanted to just review, if you could, a little bit more detail, some of the major milestones we should be thinking about for the integration of Speedpay as we go over the next four quarters? And then as well that $35 million is significant transaction cost, how that may go through the year? I assume a big chunk of that will be in the second quarter but how do you envision it in the back half?

Yes. We’re going to be operating under TSA in terms of the operations. I don’t know necessarily, if there – I would say there’s key – we obviously have milestones, but I don’t think from a market-facing perspective. The point is that we made that transition from Speedpay to us as smoothly as possible. So as it relates to that, we’ll be operating under TSA as we migrate those customers from their data centers to our data centers, and so that’s going to take time and it will take the amount of time it takes to not be disruptive to the customer base.

Yes. One thing I would add to that is we’re not doing any maths conversions. We’re moving these customers one by one around their specific needs. It’s one of the reasons that we put the energy into the TSA that we did.

Yes. And then in terms of the one-times, yes, Q2 will be heavy. Obviously, a lot of the professional fees associated with the transaction this year in Q2 and then the phasing I think then for the rest should be very consistent in Q3 and Q4.

All right. Thank you very much.

[Operator Instructions] At this time, there are no further questions on queue. Presenters, you may continue.

Well, thanks, everybody, for dialing in, and we look forward to catching up in the coming weeks. Have a great day.

Thank you. And that concludes today’s conference. Thank you all for participating. You may now disconnect.