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Edited Transcript of ACIW earnings conference call or presentation 2-Nov-17 12:30pm GMT

Q3 2017 ACI Worldwide Inc Earnings Call

NEW YORK Dec 4, 2017 (Thomson StreetEvents) -- Edited Transcript of ACI Worldwide Inc earnings conference call or presentation Thursday, November 2, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Kraft

ACI Worldwide, Inc. - VP of IR & Strategic Analysis

* Philip G. Heasley

ACI Worldwide, Inc. - CEO, President and Director

* Scott W. Behrens

ACI Worldwide, Inc. - CFO and Senior EVP

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Conference Call Participants

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* Brett Richard Huff

Stephens Inc., Research Division - MD

* George Frederick Sutton

Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst

* Paul Condra

Crédit Suisse AG, Research Division - Research Analyst

* Peter James Heckmann

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Wayne Johnson

Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the ACI Worldwide reports third quarter earnings conference call. (Operator Instructions)

It is my pleasure to turn the conference call over to John Kraft, Vice President, Investor Relations. Please go ahead, sir.

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John Kraft, ACI Worldwide, Inc. - VP of IR & Strategic Analysis [2]

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Thanks, Raquel, 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 the 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. But before we start, I just want to make sure everybody is aware that we will be attending Citi's Financial Technology Conference on November 7 and that ACI will be hosting an Analyst Day here in Naples on November 14. Later in November, we'll be attending the Bank of America Leveraged Finance Conference as well as the Crédit Suisse 21st Annual TMT Conference.

With that, I'd like to turn the call over to Phil.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [3]

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Thanks, John, and good morning, everyone. Quarter 3 was another strong quarter for ACI and a continuation of a solid 2017. We came in ahead of our revenue and EBITDA guidance and made significant progress in the execution of several strategic initiatives. Our sales pipeline remains strong and growing across all our solutions, and we are confident in achieving our full year financial targets.

Let me discuss some of the trends in the market and strategic deals signed in the quarter. We continue to have success with our UP Retail Payment Solution program, including the renewal of a large customer in Australia this quarter. 2017 is the second year we have offered RPS, and we continue to see virtually all of our BASE24 customers opting for this package, which bridges them to our powerful UP technology. The results of the RPS programs are exceeding our expectations, and we are realizing 25% to 30% uplift in contract values over the terms of the agreement.

In Asia, we have been awarded a contract to build out a national switch, which will leverage our UP immediate payments as the infrastructure for its real-time payments platform. All of the approximately 40 member banks will require technology to connect to this switch. With many of these member banks already ACI customers, we have multiple opportunities for additional immediate payment gateway deals.

We are seeing significant interest in our UP immediate payments offering and expect to sign several more contracts in the coming quarter. We also continue to sign large EBPP contracts, including one of the largest contracts ever in the healthcare space. This customer will use ACI's UP Bill payment solution to offer their clients an omnichannel solution with an easy-to-use single e-wallet experience. Healthcare is a growing market for our biller solution.

Overall, there's been a lot of activity in the payment space. In conjunction with numerous industry events, including Sibos and Money20/20, we have announced material upgrades to several ACI solutions, including UP payment risk management, our fraud and analysis solution, UP real-time payments, which combines our UP immediate payments in MTS solutions, into a single offering for both high- and low-value real-time payments as well as our award-winning digital banking solution, Universal Online Banker.

With 3 major product releases, 2017 is not a normal year. In addition, we also unveiled a new API manager capability across all our UP solutions to support financial institutions' open-banking strategies. These upgrades are the culmination of significant investments we have made over the last several years, and we are confident they will create increased shareholder value in the years to come. You will hear more details at our -- at our Analyst Day in -- on November 14. This event will be in Naples for both industry and financial analysts.

In summary, 2017 is proving to be an important year. We have largely digested recent acquisitions, winding down our data center and cybersecurity investments and taken the actions to support ongoing growth. We are well prepared to achieve our financial targets for the year and remain committed for our longer-term growth goals.

With that, let me turn it over to Scott, who'll provide more detail on our third quarter and full year outlook. Thank you.

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [4]

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Thanks, Phil, and good morning, everyone. I first plan to go through the highlights of the third quarter and then provide an update on our outlook for 2017. We'll then open the line for questions. I'll be starting my comments on Slide 6, with key takeaways from the quarter. As Phil said, Q3 was another solid quarter for us. We saw revenue of $226 million, up 3% over the prior year quarter and ahead of the guidance we provided you last quarter. This revenue growth contributed to strong EBITDA growth, which was up 34% from last year and an EBITDA margin of 25%, which was 600 basis points higher than last year.

New bookings were $143 million, which was down from Q3 last year and our 12-month and 60-month backlogs of $883 million and $4.1 billion were also down a bit during the quarter, although it's not uncommon for us to see small decreases before we enter the fourth quarter, which historically represents our biggest bookings quarter. And we do expect to see strong sequential growth in all these categories in Q4.

Year-to-date, we've generated $82 million in free cash flow, which is up 94% over the same period last year. We ended the quarter with $68 million in cash. We had a debt balance of $703 million, which is down $51 million this year. And we have $78 million remaining on our share buyback authorization.

Turning next to Slide 7 with our full year outlook. With 60 days left in the year, we are raising the low end of our revenue guidance range for the year. So for the full year, we are now expecting revenue to be in a range of $1,010,000,000 to $1,025,000,000, which is up from the prior range of $1,000,000,000 to $1,025,000,000. We continue to expect adjusted EBITDA to be in the range of $250 million to $255 million, and we continue to expect new bookings growth to be in the upper single digits. So overall, Q3 results continue a solid 2017 performance, and we're comfortable raising the lower end of our revenue guidance range.

That concludes my prepared remarks. Operator, we are ready to open the line for questions at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from line of Brett Huff from Stephens.

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Brett Richard Huff, Stephens Inc., Research Division - MD [2]

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Can you guys hear me okay?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [3]

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Yes.

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Brett Richard Huff, Stephens Inc., Research Division - MD [4]

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Okay, great. Congrats on a nice quarter. Two questions. My first one is, like, Phil, you mentioned this in passing, but wanted to get a little more specific if we could. You have said there is several large transformational bank UP deals still in the pipeline. Can you just give us a little bit more detail on that as they progress further in the pipeline? And what's the -- what are the things to knock down in order to close those? That's my number one.

And then my follow-up is, can you give us an -- some insight into the -- how the big $80 million 5-year deal that you closed in 4Q. I don't know how that's rolling through bookings and rolling through backlog. But Scott, could you give us a sense of did that show up or if it didn't, kind of what's masking it? So those are my 2 questions.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [5]

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Okay. Let me answer. I was -- I wanted to be very specific on the RPS program. So when you think about our BASE24, what is now BASE24 UP, there is some interest in terms of who is on the old technology and who is on the new technology.

Last year, we introduced a program in which we said, listen, for a larger commitment going forward, we would provide the bridging mechanism between the old and the new, and let people migrate versus try to do the major conversion on legacy systems that have been in as much as decades. And last year, we were very pleased, we put it in the second half of the year, and we saw a 90-plus percent adoption rate of the new program.

We've got 60 days left in this year, and we are virtually at 100% adoption. And that includes the largest banks that -- what -- so every year, about 20% of our customers renew. Our attrition is as low or lower than it's even been, which is almost not measurable, and these contracts are coming in between 25% and 30% higher in value, both volume/price adjusted basis.

So the new technology is rolling through. Of the ones that went in last year, the 90%, over 25% of them at -- have projects in place right now to put new transactions onto the UP as well as converting some of their historic load from classic to UP. Now you don't turn the switch on this technology and that's why we went to the migration versus conversion.

When -- when people come and visit on the 14th and we take you through Analyst Day, you'll see that Linux phased up 2.1, right? Has about an 89%, 90% efficiency in hardware middleware to the existing program. So the economics to our customers are huge, right? As it relates to that. And being you asked Scott about the $80 million contract, you can answer it.

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [6]

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Yes. I think what you're asking about is the $80 million deal that we signed in Q4 of last year, and, kind of, where that is in the process. That deal was an RPS deal. That's an example of the price uplift that we're getting on RPS deals.

So of the $80 million call it, $50 million of it was renewal and $30 million of it was incremental value that we received on that. We have begun getting a revenue from that $30 million of 5-year incremental value. We've been getting that this year. So that deal is in backlog and that deal is getting -- we're getting the benefit of that this year, and it's a very good example of the price uplift power of the RPS program.

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Operator [7]

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Your next question comes from the line of George Sutton from Craig-Hallum.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [8]

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So as I look through your new bookings guidance for Q4, that implies a very significant growth rate in Q4 bookings. We're a month into the quarter and you're reiterating that. I just wondered if we can get a little better picture there.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [9]

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I'd tell you a series of things on new bookings, right. One is, I think, you know that we've stretched out the renewal process to be a real renewal process, and we don't -- there has to be a really customer-driven reason for us to do any early renewals. So that pretty much forces us to renew at the same quarter that it was put in, and that puts us back into -- lot of the renewals being fourth quarter because that's when the capital budgets were approved, God knows when, for them to do that. That's one piece of it.

And you really have -- when you think of our business going forward in this year, you have to really separate the on-premise business that has $2 billion in backlog and $600 million in revenue. And what that needs to get is single-digit revenue growth rates, and it's very renewal, and RPS can be RPTS, we will tell you about some new programs on the 14th. And that is -- that's very safe, that's very stable. And we have -- we can kind of measure that going out next quarter into next year.

Then you look at the $400 million side of the business, which is the AOD side of the business, which also has $2 billion in backlog. Our focus there is much more in terms of harvesting revenue than it is -- we've been growing bookings there faster than we can convert and -- that we can convert it from bookings to revenue.

The focus there is going to be to equalize our booking ability with our ramping ability of the revenue. And so that -- you combine those 2 pieces there, and it says that as bookings -- we -- for several years, we had to drive bookings to build the backlog to produce revenue growth. Now bookings are a little bit subordinate to backlog and revenue conversion in terms of going forward.

One other answer was that -- another answer to your question is that, we've actually booked quite a bit because first 10 -- Scott may have the exact number, but we got disoriented as well as a lot of other people from a bookings standpoint. And 10 days into September, we had end up booking a lot of stuff that didn't book in the third quarter. And some of those deals were from Texas and other places that it was just not feasible to get it done with all the craziness going on at that point. But we're not hiding behind that because the differential between booking and revenue with us is on average over a year, right? So we don't view that 10 days or 20 days as a big deal, George.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [10]

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Understand. I think you meant October versus September, just to be clear.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [11]

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No, no, no. We didn't book in September -- at the end of September when we had a little -- we were shut with the hurricane and well -- and it'll end up booking in the first 10 -- do you know the number, Scott?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [12]

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Yes. Well it did -- I think it was $40 million-ish

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [13]

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$40 million-ish.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [14]

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Got you. Okay, great. And then relative to this Asian switch that you mentioned with 40 banks that ultimately would attach, can you just give us a sense of the addressable market there? What that could mean?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [15]

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The addressable market initially is Asia, and I'm not going to -- I can't be any more -- so think of it is as ASEAN, Hong Kong and PRC. Pacific will probably join into it because there's lots of business between -- this is mostly a B2B mechanism. So there's a lot of business between specific and -- but the initial participants, without being overly descriptive, are going to be the major players, with ASEAN, Hong Kong and PRC.

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Operator [16]

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Your next question comes from line of Peter Heckmann from D.A. Davidson.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [17]

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Phil, could you try and help us follow on, on that last question. I just -- we continue to hear a lot of commentary about progress and we continue to hear about deals being signed, but if I am looking at it correctly, new bookings on a trailing 4 quarter basis are down something like 15%, backlogs have been down 4 quarters in a row.

Help us figure out where is the tangible evidence that things are working here. And that you can start to drive towards that multiyear growth goals that you've put out. I mean, as George said, we're looking at something like 40% to 50% bookings needed in the fourth quarter to get to your high single-digit bookings guidance. And so forgive me if I don't have complete faith, I need more evidence that we're actually getting there.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [18]

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Well, faith -- ambivalent as always, there's nothing wrong with that. If you look at our -- I think one thing that should make most people comfortable, if you look at our -- we publish in your package, the average term of our contracts that sit in backlog. And if you notice that over the last year, when we told you we were going to move from -- we were going to move right up to renewal date, that the average -- I think we've gone from 22 to 29 months, right?

So what you see is that we are now through 1 year -- we're -- we've put it in there quarterly, we're now through 1 year of pushing out the renewal. And whether you renew at 48 months or you renew at 60 months, that doesn't change the slope of your growth, it just says that the average term per contract lands up getting much closer to it.

And there's an awful lot of -- there's 2 reasons, you can judge us as doing it appropriately or not appropriately, but this fourth quarter is the last quarter of this current GAAP world that we have to live in from a -- which makes how we deal with renewals in ILFs very different than it's going to be next year. And our dependency on ILF as part of the renewal lands up going much, much more in our favor.

So if you are like us and you are more value-oriented than just trying to maximize your current quarter, what you would do is, you'd push out to the end of your contracts and whatnot. And I think that somewhat masks our growth in revenue because we are telling you about these RPS renewals that are coming in at 25% to 30% above the replaced -- the contracts they are replacing, yet we are probably 20% -- 15% to 25% lower in ILF as a percent of new contract in terms of the renewals.

So what we're doing is, we're really guaranteeing that growth in revenue, growth in EBITDA going forward, by the way we're shaping ourselves into the new accounting structure. And the accounting structure is only important to us because it will -- gives us more leeway in negotiating these renewals. So yes, it does make that a -- that does make that a spike, doesn't change -- it doesn't change our commitments to growth in revenue and it doesn't change our commitments in growth to EBITDA. It actually somewhat makes that less risky from 1 to 2 years, 3 years out. Does make sense what I told you?

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [19]

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I understand some of the things that you're saying. I -- and I understand ACI is a phenomenal cash flow machine with high retention, I'm just not seeing any evidence that the company can actually accelerate their revenue growth rate.

And I may be dense in terms of some of the bookings or backlog metrics, but I'm just not seeing the evidence that we are going to see an acceleration in top line growth. And so if that's the case, well, that's fine, and you can pay a high dividend and pay down debt, but I think what the market is trying to figure out is, can you accelerate growth to that target range of mid-single digits within the next 4 to 6 quarters?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [20]

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Scott?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [21]

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I think the only thing I'd to add to that. Because you're looking at the comps versus last year, I think we have -- last year was a bit anomalous in a couple different ways. We had a preponderance of our revenue and EBITDA that we had to deliver in the fourth quarter. But we were ahead on bookings, had a -- especially had a stronger first half last year.

This year essentially flipped. 2 to 3 quarters were up 8% in revenue, 63% in EBITDA, 94% cash flow. So we flipped. But the bookings -- a lot of our bookings this year are going to come in our, what is traditionally strong fourth quarter. But less of that bookings will be required to convert to revenue in the year in order to hit our targets. So that -- the fourth quarter bookings is what's going to drive this year's backlog growth.

So I wouldn't hold us to a rolling 4 quarter, and if you do, I'd take a look at the rolling 4 quarter revenue and EBITDA as well, very strong growth. But I would look at fourth quarter bookings as being -- it's going to go into the backlog and it's going to drive this year's backlog growth. So again, less -- less dependence on those bookings to actually drive this year's revenue and EBITDA, which is a very good place to be right now. Most of those bookings would go in and drive that backlog growth and drive that future value.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [22]

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Okay, okay. And then if you humor me, just a few comments on 606 and if you've had any further ideas about how that might change your recognition of revenue and expenses directionally?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [23]

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Yes, and it's -- on the -- pretty much on that, it's going to impact the on-premise side of the business. Maybe if I -- first, it was really not going to impact -- really will not impact our on-demand business, won't impact things like bookings, cash flow. It will impact the on-premise business. It's the same as it is any on-premise software company. The subscription licensees under the new standard are going to be required to be recognized up front. And the -- the sales commissions are going to be required to be deferred.

So it's a -- it's sort of an odd standard that says you accelerate your revenue and you defer your costs. But we're no different, and we've put some pretty extensive disclosures in our SEC filings. But what you'll see is on -- what we call out as the monthly license fee revenue, that will no longer be spread over the term of the arrangement that will be accelerated as this -- but pretty much similar to -- same impact of any on-premise software company.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [24]

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Okay. So the practical effect will be to reduce -- basically to inject some additional volatility to quarter-to-quarter results?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [25]

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Yes, it does because if you think about it theoretically, if we had with 5-year terms -- if we had perfect distribution and 20% of the value of the portfolio renewed every year, 20% of those customers that pay subscription, you really would not see much change year-over-year, but it will introduce volatility in that. The imperfection in that distribution will mean that when you have years with higher portfolio renewal rates, you're going to get a higher percentage of that pull-forward revenue. In years where you have a smaller percentage of that portfolio renew, you'll get less. So it will add to quarterly, but it will also add the annual volatility a little bit.

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Operator [26]

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Your next question comes from the line of Wayne Johnson from Raymond James.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [27]

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Well done on the margins. So my follow-up is -- I have a couple of follow-ups in that regard. So can you confirm, please, Phil, if you want to take this, just where do we stand in the wind down of all those data centers? I thought it was 22. Is that pretty much complete and through the system and we're seeing that impact with lower OpEx?

And then the same is true. Follow-up question on expenses is confirming that the low-margin inherited contracts from prior acquisitions that those have completely rolled off, they're completely expired here in terms of their impact on the company and there should be a lower OpEx level here going forward?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [28]

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We started out with -- if you add all the acquisitions up, we had 28 customer data centers. We now have 4. But in order to get there, we had to close 26. And we are virtually done. We have a couple more customers to move, not even data centers, we have a couple more customers to move.

And that -- this has been a fun 4 years of continuous effort. And we have some people that we came pretty close to burning out in the -- on the process as well as very significant investments in the cyber and encryption and that side of the business. The big interesting projects that we inherited from S1 are I think -- Scott, they -- I think we just got acceptance from the last 2 of those, and those 2 are -- that group is behind us also, Wayne.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [29]

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Okay. That's helpful. And can you remind me how did -- how fast did the SaaS business grow in the most recent quarter?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [30]

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Up 3% on the quarter.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [31]

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About 3%. And so -- and I apologize if I'm not thinking about this correctly, but I thought that, that was supposed to be one of the faster distribution channels that ACI was offering. So before I get into kind of a follow-up on the prior 2 analyst questions on the backlog, which I think -- and conversion of that, which I think is very valid. Can we just talk a little bit about this, the SaaS side, please? What's happening there?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [32]

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I would say, Wayne, there is seasonality to that business. That business is a lot more driven by transaction volume directly. So the quarter is up 3%, the year is up 6%. And so I think if we look at our mix of business, the SaaS is going to be growing at the higher end of our growth rates, with the on-prem at the lower end of our growth rates. But -- so year-to-date, we are up 6%.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [33]

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Okay. And then can we -- on the -- earlier in the year, I think, there was an announcement about Jack Henry and utilizing ACI. Can you give an update on where we stand on that particular project?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [34]

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We have a series of immediate payment projects around the world. And that's -- when I was referencing before, we're -- there is over a year of lag between booking that business and that business beginning to show up in revenue. So those businesses are not -- the immediate payments of those businesses have not gone live yet.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [35]

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Right. Okay. And so -- and where -- but is work ongoing? Has work started? I'm just trying to frame in my mind on -- go ahead.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [36]

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We are very -- I mean, some of the smaller -- we can't give you the names of customers, but some of the smaller deals are up and running at this point, and several of the big deals are close to being up and running. So we are well progressed. Don't expect revenue this year, but we expect revenue next year from those deals.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [37]

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And to -- essentially, and it sounds like a big project. So essentially, to onboard all these banks, I think you said it was 10,000 financial institutions, if memory serves, what would be the timeline for that?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [38]

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No. We just have to -- we have to facilitate. We facilitate financial intermediary, they facilitate -- they then go downstream to their banks.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [39]

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Totally understood. So -- and I appreciate that color, but how long do you think this is going to take them to do that as well? So it's a two-part question, I suppose.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [40]

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Once we're connected to them, they have the connectivity to their people.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [41]

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Okay. So going back to the prior 2 analyst questions, I think that what investors like to see and I think what they were getting at and what I'm interested in is kind of like the mathematical staircase. So how do we get comfortable that the fourth quarter is going to deliver kind of the knockout blow here in terms of signing contracts to get to the numbers that you need to hit in order to annualize at that high single-digit rate for new bookings?

So historically, fourth quarter has always been the seasonal highpoint for you guys. And so that's -- I think that's kind of the spirit of the questions, and I had the same question myself. So at the risk of kind of rehashing here, if there is any more color you can provide on that, I think investors would appreciate it as well.

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [42]

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Yes, I'd just reiterate what I said. I think if we look at on a comparable basis, you look at our key metrics, we're delivering substantially higher growth in revenue, EBITDA and cash flow for first 9 months versus last year. The bookings will come in the fourth quarter, but this year's -- we're -- the bookings for the first 9 months were more correlated to delivering this year's revenue than the deals we have for the fourth quarter. So the position we are in is we don't -- we can deliver that sales bookings without having to convert a lot of that to revenue this year, it will go into backlog and it'll drive future year growth.

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Operator [43]

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Your next question come from the line of Paul Condra from Crédit Suisse.

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Paul Condra, Crédit Suisse AG, Research Division - Research Analyst [44]

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Phil, I just wanted to ask about when you say some of the clients that you have that are running RPS now or UP, and they are putting some new transactions through. Can you just talk about that a bit? Like, what's a new transaction relative to an existing transaction that they're migrating from an old system? Is there something different about it?

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [45]

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Yes. So think of it this way. If you're ABC bank, you're a great big bank, and you are buying from us 500 million transactions a month, and it covers 40, 45, 50 different transaction types, and a lot of those transaction types are closed within their financial institutional or they're coming in, in existing markets.

But now they are doing some new digital stuff and they're working with [syntax] or they're working with this and that. And they've put a little specialty switch in place, and it's got -- it's getting up to the point where it has 4 million to 5 million transactions a month or whatnot.

And say, you're paying us you $0.001, $0.002 a transaction to do that. And you're paying $0.01 to $0.03 a transaction on that small switch. The economics of -- and that switch can do 30, 50 transactions per second and eps can do 2,000 transactions per second. The -- moving that in has a huge cost of goods sold impact on those transactions. And as everyone is watching on the digital side of things as digital is becoming more and more real, the ability to support a penny rate times the cost of goods sold is becoming very difficult because pricing is actually going down, not going up. On -- this is the disruptive technology, that's flowing through.

So if I have 5 or 6 or I have 10 or 15 of these little switches, and I have both the -- I have to manage them as they were skunkworks or they were viewed that they were open and whatnot. So I'm going to take complexity out of my data center, I can move right to the Linux environment. I can get -- I can make it a 1 customer or a combined set of options because we offer the orchestration that says, how do you want to do this.

Now our new offering on the wholesale side says that we are now going to offer -- you can do a wire transfer or you can do an immediate payment and you can decide at the point of transaction how to do it by having the UP orchestration. On top of it, it's the same kind of situation. So it could be pay me later, it could be a whole host of different -- whole host of new and different digital kinds of offerings.

If you're in the merchant retailer space, which is a little bit a field, your ability to start doing omnichannel against the single switch so that card-present and card-not-present transactions land up having a current common customer, the customer becomes the denominator and not the type of transaction becomes the denominator. There's a lot of incentive for you to move that volume over.

So our old systems -- of the 1.6 trillion transactions that we think our systems are relevant to, we're able -- we're touching about 35%, 40% of those transactions today. So we still have 60%, 65% eligibility for the rest of those without expanding -- that's without expanding our future function, that's just giving new more efficient capability. Does that answer your question?

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Paul Condra, Crédit Suisse AG, Research Division - Research Analyst [46]

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Yes, that helps. I mean, I'm just trying to understand when you say new, if you mean, like, net new transactions from the perspective of a bank or they're taking transactions from somewhere else and putting them through different...

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [47]

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So we have a major Midwest bank that we're working with right now, and they probably have 8 or 9 different systems. And you can't just say, okay, at midnight on such a date we're going to convert over, payments have to stay up 100% of the time. So you go type by type by type and type, and you move it over.

And virtually every one of our customers has that capability in both the financial intermediary segment as well as the financial institution segment. And every retailer that wants to go to omnichannel, they have to do this because they have to marry their card-present and their card-not-present capabilities together.

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Paul Condra, Crédit Suisse AG, Research Division - Research Analyst [48]

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Got it. And The Clearing House announced this new real-time payments trail and they kind of put out a road map. And I'm just curious if you had a view on that or if there is any kind of implications for your business.

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Philip G. Heasley, ACI Worldwide, Inc. - CEO, President and Director [49]

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Well we're -- that's a major business line of ours. We are connecting people not only in United States, but all over the world. We have immediate or instant whatever they want to call it, what part of the world. There's 40 countries in the world that are doing similar things. And that's very basically saying that ACH is not going to stay a batch transaction and it's not going to stay a pull, it's going to become much more of a push. And we're building that capability. That big switch that we're talking about in Asia, that's exactly what that -- that's exactly what it is. That's like The Clearing House switch in the United States.

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Paul Condra, Crédit Suisse AG, Research Division - Research Analyst [50]

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Okay. And then, Scott, I guess on the G&A, the $25 million. Is that a good run rate to think about, like, looking at 2018? Or is there any reason that's going to change much?

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Scott W. Behrens, ACI Worldwide, Inc. - CFO and Senior EVP [51]

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No, I think that's a good number for a run rate.

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Operator [52]

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This concludes the question-and-answer session for today. John Kraft, the floor is yours for any closing remarks.

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John Kraft, ACI Worldwide, Inc. - VP of IR & Strategic Analysis [53]

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Thanks, everybody, for calling in. We look forward to seeing everybody here in Naples on the 14th and upcoming conferences. Have a good day.

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Operator [54]

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Thank you, ladies and gentlemen. This concludes the ACI Worldwide reports third quarter conference call. We thank you for your participation. And you may now disconnect.