Good morning. My name is Tom, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Reports Second Quarter Earnings 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. I would now like to turn the conference over to John Kraft. Sir, please go ahead.

Thanks, Tom. 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. Before we begin, though, I'd like to let everybody know that ACI will be attending the 2019 Wells Fargo Technology Services Forum in Newport, Rhode Island on August 13 as well as the Craig-Hallum's FinTech Innovators Conference in New York City on September 4 as well as the D.A. Davidson 18th Annual Technology Conference also in New York on September 4. 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 report that Q2 was a strong quarter for ACI. As the digital transformation of payments accelerates rapidly around the globe, ACI's vision of Any Payment, Every Possibility, is resonating with the market. Our solutions continue to drive customer innovation and success. And as a result, we grew our business organically across our two P&Ls, four customer segments and six solution areas. In the first quarter, as part of ACI, Speedpay further propelled our results, bringing notable improvements in profitability and scale to our ACI On Demand platform business. I'm going to spend the next few minutes providing additional commentary on the quarter, and will share a sample of the Q2 wins that demonstrate ACI's momentum across the key bank, intermediary, merchant and corporate customer segments. I will then turn the call over to Scott to cover the details of our Q2 financial results. I'll start with our ACI On Demand business. This quarter, ACI On Demand grew revenues and profitabilities year-over-year, driven in particular by the increased demand for secure and reliable e-commerce and digital bill payment solutions among merchant and corporate customers. In Q2, ACI On Demand achieved 8% revenue growth year-over-year before the contribution from Speedpay. In early May, we completed the acquisition of Speedpay, bringing together the industry's market-leading U.S. bill payment portfolios. The acquisition brought immediate scale to our platform and has accelerated ACI On Demand's path to achieve our Rule of 40's profitability target. ACI On Demand net adjusted EBITDA margin improved to 18% from a minus 5% in Q2 last year. I'm extremely pleased by the progress we achieved integrating Speedpay and UP Bill Payment businesses during the first 90 days. Our teams are already working successfully as part of…

Okay. Thanks, Phil, and good morning, everyone. I first plan to go through the highlights of the second quarter and then provide our outlook for the second half and full year. We'll then open the line for questions. I'll be starting my comments on Slide 6 with key takeaways in the quarter. Most notably in the quarter, we closed on our acquisition of Speedpay, and our integration efforts are on track. Our reported results for the quarter include the contribution of Speedpay from May 9 to June 30. The results for Speedpay came in as expected, contributing revenue and EBITDA of $49 million and $12 million, respectively. Speedpay also contributed to our growth in backlog, adding $311 million to our 12-month backlog and $1.5 billion to our 60-month backlog. For the rest of my comments here, I'll be discussing our results on an organic constant currency basis, so excluding the contribution of Speedpay. Starting with bookings. Total bookings were $301 million, up 57% versus Q2 last year. And new bookings were $129 million, up 4% from Q2 last year. We ended the quarter with 12-month backlog of $1.1 billion, up $16 million during the quarter and 60-month backlog of $5.7 billion, up $29 million during the quarter. Q2 revenue grew 8% over last year and came in above our guidance and expectations. And most notably, recurring revenue now represents 75% of total revenue. Our solid revenue growth contributed to strong EBITDA growth, which was up 41% over last year. Turning next to our 2 operating segments. Our On Demand business saw revenue growth of 9% over Q2 last year and continues to show solid margin improvement, delivering net adjusted EBITDA margins of 7% in Q2 this year compared to a negative 5% in Q2 last year. And combined with Speedpay…

[Operator Instructions] Our first question comes from the line of George Sutton from Craig-Hallum. Your line is open.

Thank you. Nice results, guys. So I wondered if you could give us an update on the large M&A related deals that had pushed from prior quarters and seem to be big opportunities for you. Did any of those close in the quarter?

George, this is Scott. Yes, as I mentioned, in terms of our Q3 guidance range, they did not close in Q2 and the Q3 guidance range that we put out there does not have them included. But, we are in what I call late stages on those and so if those close here in Q3, which we continue to expect them to, they would be upside to what we've guided to.

Superb. Relative to your on demand margins, which improved very nicely, do you view that as an inflection that we have achieved and is that now going forward, just going to be a continued area of margin expansion?

Well, the short answer is yes. I mean, I think the inflection really started even if you go back to last year where we flipped positive and in terms of EBITDA margins for the first time and we're continuing even on an organic basis to show the power and scale of that, the AOD business, meaning just layering on the organic revenue alone was driving margin expansion. The addition of the incremental SpeedPay EBITDA on top of that is allowing us kind of a step up in our trajectory in our path toward the our Rule of 40 targets for AOD. So, yes, I think we had that inflection point last year. It's more noticeable this year with the layer on of SpeedPay.

Got it. Great results. Thanks, guys.

Thanks George.

Our next question comes from the line of David Eller from Wells Fargo. Your line is open.

Hey, good morning, Phil. I think in the script you talked about maybe accelerating some of the SpeedPay integration plans. So could you talk about any changes in plan and any milestones or timeline you have planned for, that we can be looking to?

In terms of bringing the businesses together, well, we've been working on a multi-year project to build a state-of-the-art back end system. Western Union had embarked on a front end, they call it NextGen system. So, as we've really gotten under the covers and looked at it in great detail, we found that there is more leverage coming from the synergy than we originally thought. And we're going ahead on a, on some additional adds such as subscription billing, and we've already implemented the educational, the portal and whatnot. So, we're feeling confident that it's still going to be a year and a half, two years before we start seeing major improvements and it's going to be three years before, three plus years before we're totally done. But we see the, we see our results improving. We're getting more critical mass, not less critical mass. It's a big project, but it's going to a one of a kind platform once it's done.

Great. And then, Scott, back to the SpeedPay, I was kind of having a little trouble reconciling the organic versus reported numbers. So was SpeedPay dilutive to the On Demand segment in Q2? Am I calculating that right? So like what was the, I guess, the organic change in EBITDA?

Yes. So the organic change in the if you're looking at specifically the AOD segment went from a negative 5% EBITDA margin last year to a plus 7% EBITDA margin this year. Then you layer on the Speedpay EBITDA. And again, Speedpay delivered for the subperiod, less than two months, they delivered $49 million of revenue and $12 million of EBITDA. That drove the EBITDA margin up to 18%. So both on an organic basis as well as with EBITDA, they're both accretive year-over-year.

Okay. Yes. Got it. That's super helpful. That clears that up. And then last question from me on the you talked about some of the tax effects that were more beneficial after the close. What could that look like on an annual basis? I know previously, you talked about cash taxes this year of $40 million. So what sort of reduction would you expect either for this year or going forward?

Well, a lot of the cash taxes that we're paying right now are in our international operations. Historically, we had acquired a lot of NOLs that have made our U.S. federal cash tax pretty low, and that's going to continue. And that's going to continue for 2 reasons. One, the 338(h)(10) election on the acquisition of Speedpay is going to give us a substantial tax deduction of almost probably $700 million. Now that stretches out over time, but that will be a deduction against taxable earnings going forward and will impact U.S. cash taxes. But also, the point I've made on the foreign tax credits. We had reserved this $18 million because we felt that they wouldn't be able to be utilized before they expire. And by adding in the projections that Speedpay gives us in its predominantly U.S. earnings, we're going to be able to utilize those foreign tax credits before they expire. So that was the benefit that I mentioned in my scripted comments. But yes, it'll be a number of years before we are really paying anything of significance in terms of U.S. cash taxes.

[Operator Instructions] Our next question comes from the line of Peter Heckmann from Davidson.

It seems as though there have been several deals in billing as well as B2B payments over the last, let's say, four to six months. Have any of those deals, in your view, changed some of the competitive dynamics? Or do you continue to feel that the combination of ACI and Speedpay has the formula to be a long-term leader in the bill pay space?

Well, a lot of the acquisitions that have been made, there's been some very big horizontal acquisitions. And they've largely been either between customers of ours and customers of ours or customers of ours and near competitors of ours. And that doesn't really make a certainly doesn't make an immediate change. A lot of the pressures that they are dealing with have to do with real-time payments and alternate payment methods that you really need a broader array array than front-ending traditional association kinds of payments. There have been some other more innovative payments that have taken place that also are recognizing the growth of non-traditional and certainly immediate payments and whatnot. And I would say that some of those are competitive in that they're going to go after opportunities that we're going to go after. But our growth, the 40% -- you're getting -- we haven't even gotten into the point where the real growth rates of immediate payments are hitting, right? So there's a lot of room, and I think you're going to see a lot of activity in that category. And I worry less about the horizontal mergers that take place than other people who are rethinking, reshaping. The good news is that we sit at the center, we sit at the apex, of where this change is taking place. We don't have the scale to compete against some of those guys, but we certainly have the current share and the current capabilities to effect the change. So we feel really comfortable in terms of our position, but we have immense respect for the sized players that are entering the space.

And then just on -- you mentioned a little add-on, I think, at Wells Fargo for Universal Online Banker, some of the functionality. But as regards to that product within commercial or corporate digital banking, do you feel like we're past some of the attrition that we had seen from the legacy platform? And do you think within the next year or so we should see your digital banking on a net basis contributing to growth rates?

Yes. I think you should. Now one thing that we did not broadcast, but being it's now completely behind us, we can tell you, is we never had any intention of staying in the consumer online business. And we have now attrited through not renewing, right? We've now attrited 100% of that, right? So we've eliminated that category from our repertory of products. So it's attrition. We can't get anymore attrition there because we're out of that business. And we really -- that was a planned exit. That was not an unplanned exit. And by all accounts, our other product is a very, very high quality -- is a very high-quality product. I think you saw today that Dollar -- there was a company -- there's 2 or 3 guys that are long-term customers that are going from older technology to the newer technology, the new platform. We are not -- also, we're also not a supporter of on-premise, except from a product standpoint. Like we'll supply ACH capability to Bank of America or Wells Fargo or whoever, but we will not give them a generic online banking system because that's key to their branding and everything else. What we do is we offer platforms for those sized banks that want a high-quality corporate interface or we provide functionalities to big players that need our payments skill set versus our digital skill set in terms of the offering. So yes, we've kind of crossed the Rubicon in terms of working our way out of acquired assets that we didn't want to continue.

Great. That's helpful. Thanks so much.

Our next question comes from the line of Brett Huff from Stephens, Incorporated. Your line is open.

Good morning, Phil, Scott and John. Congrats on a nice quarter.

Thanks Brett.

A follow up question on SpeedPay. I'm not sure for Phil or Scott, but my understanding is that SpeedPay had trended a little bit bigger in terms of customers for the bill pay solution. And wondering how the initial visits are going with some of those big customers. I suspect that SpeedPay probably wasn't as well, didn't have as many resources at its former home as it does now in terms of resources and focus. So wondering if bringing more of that to bear and speaking with those customers, you know, as there are likely renewals, were there any customers we are worried about, we feel better about renewing in the future, etc?

We've put an extensive amount of energy into making it clear that this is a clear and important and heavily invested focus of ours and what not. And we've had some very good conversations. You know, any time you go through something like this, you find out five or 15 things that you can do to make your customer happy, that, you know, not that they weren't being well treated, but actually, the SpeedPay, the people that oversaw the accounts really did a fantastic job. They didn't have our resources in the category, but they really did a fantastic job. But we actually had hired as good consultants as you can get to manage the interface with the customers during the entire quiet period and what not. So we were able to get off of that running and really reshape our roadmap in terms of addressing the needs of some of these customers. And, you know, we have some very large customers, yes, a lot of those large customers are more conglomerate oriented. So they're both large customers, but they're something we're very used to dealing with in terms of our big customers around the world. So there's both the, there's the corporate relationship, plus there's the more localized business relationship that has to take place. I think the team, the SpeedPay team, the now One ACI team, I think they've done a really good job in terms that the cross-sell, now Walletron, we don't talk a lot about Walletron and what not. But the applicability of wallet and alternate and you know, as real time payments work their way into bill pay, our customers are smart, they're big, intelligent companies. They see the benefit in terms of, you know, not necessarily more of the same business, but more different ways of making real time payments, making their customer payments take place, be it a real timer or alternate or, or just an easier and easier process and the educational portal is a good example of that because it's really addressing ways for our customer to better engage with their customer, which is actually the student and student's families. So, we're looking at a lot of things across the board that way and having very good conversations.

Thanks. And my follow up is on the faster payments evolution, things seem to be heating up both via M&A by the big two networks. Some partnerships they've started to strike, etc. And then a recent announcement of a big European purchase. Does that, I'm sure that that makes faster payments higher in everybody's mind, which is I think is a positive for everybody in the market, probably including you. But does that how does that change the -- on the ground trying to win deals either at the country's switch level or at the helping banks connect to the country switch level? How does it, how does the kind of feet on the ground change the competitive dynamic, if at all?

Well, I would these guys, you know, I have nothing. I think, you know, my history. I certainly understand these guys awfully well, I have immense respect for them and what not. Right now what it's doing is that they're increasing the current and therefore the speed of the stream, you know, if you think about this as a river, we're paddling like mad, you know, everyone is saying oh, anything but immediate payments. And they're, we're really we're kind of really kind of paddling uphill. Suddenly, the big guys come in and say, well, gee, you know, we think it makes sense. Well, step number one is that's going to accelerate our boat down the downstream. Now, that being said, we understand that, these guys are 70 times our size or, you know, whatever you know. So, you know, we're playing with we're playing with giants in terms of that. So I wouldn't get cocky, right. And I wouldn't get into a pricing war with one of these, you know, with one of these guys. I can't win, right. But right now, there's plenty of space and quite honestly, I think we have we're from a connectivity standpoint we're in fantastic shape. We have got the right we've got the right connectivity to the right banks and what not. We've been giving the banks the technology, right, in terms of renewing, we've been giving them the old and the new technology. This is a perfect use case for the new technology. You heard things I've been talking about BMO and some of these other places that we're talking about how they're utilizing and what not. That's wind behind our back, but it's also an increase in the current where we don't have, you know, where we don't have the…

And this concludes our question-and-answer session. I would now like to turn the conference over to our presenters for any further comments.

Well, thanks, everybody, for your time. We look forward to catching up in the coming weeks. Have a good day.

And this concludes today's conference call. Thank you for your participation. Have a great day and you may now disconnect.