Ladies and gentlemen, thank you for standing by, and welcome to the ACI Second Quarter Earnings Conference Call. Thank you. Please go ahead, sir.

Thank you for joining today's call. As always, we will be making safe harbor and forward-looking statements. You can find the full details on the first and last pages of our presentation deck, which is available on our website and with the SEC. Joining us today are Odilon Almeida, our CEO, and Scott Behrens, our CFO. I would also like to mention that management will be participating in several upcoming events: the Wells Fargo Virtual Fifth Annual Technology Services Forum on August 11, the Canaccord 40th Annual Growth Conference on August 12, and the Second Annual Needham Virtual Fintech and Digital Transformation one-on-one conference on August 19. Now, I will turn the call over to Odilon.

Thank you, John, and good morning, everyone. Thank you for joining us for our second quarter 2020 earnings conference call. On our last earnings call in May, COVID-19 and its unprecedented global impact on people and economies was top of mind and a central focus of our discussion. Now in August, we find ourselves in slightly different circumstances but with many of the same challenges. I hope you and your families are staying safe and well. At ACI, we remain committed to doing everything we can to ensure the health, safety, and wellbeing of our employees as we seamlessly support our customers. On today's call, I will begin with our second quarter financial results. Importantly, I'd also like to share in more detail my vision for profitable revenue growth and long-term value creation. We are living in a different world compared to even 3 or 4 months ago. While different parts of the globe are experiencing different stages and levels of severity of the pandemic, undoubtedly, there are ways in which our world has changed permanently. As it relates to ACI, the pandemic has heightened awareness and accelerated widespread acceptance of the essential role digital payment systems play in our modern economy. Starting with the second quarter. New sales bookings were $136 million, up 6% from Q2 last year. We saw particular strength in our Merchant business, signing 2 larger PSP contracts, R2 in Europe and HyperPay in the Middle East, which allow these partners to offer Merchant acquiring eCommerce services to their customers in new geographies. Another area of continued strength in the quarter was real-time. We signed a long-term support agreement with our customer, Rabobank, who was looking to expand its existing real-time payment offering by supporting batch payments. Another existing customer, one of the largest interbank switches in Indonesia, has selected ACI to orchestrate all their alternative payments, including QR, Alipay, and other real-time offerings. Despite our revenues being impacted by COVID-19, our EBITDA increased by 42% compared to Q2 2019, with margin expansion increasing to 35%, up from 25% last year. Our efforts to improve operational discipline are working, and we continue to focus on maximizing profitability while advancing our pipeline of deals to position ACI for future continuous profitable growth. As I mentioned last quarter, we are fortunate to have a resilient business model with significant recurring revenue, reliable cash flows, and high customer retention, all of which are helping us weather the COVID-19 related uncertainty. On our first quarter call, I shared with you my background and experience in realigning operations toward revenue growth, margin expansion, and value creation. I also spoke about the time I devoted to speaking with ACI's customers, employees, and leaders. Since that time, I have also been getting feedback from our investors. These conversations have made clear to me that ACI has a strong portfolio of customers and software-led payment solutions, and importantly, the human capital and talent to succeed. On the last earnings call, I communicated my initial and high-level perspectives on ACI's growth potential and the 3 pillars of our strategy, which will position the company for continuous profitable growth. Today, I'm pleased to share additional details on our progress. Over the last few months, we have engaged our best internal experts and industry-leading consultants to help us review our business and identify opportunities for efficiency gains and growth optimization. These small consultant teams have worked with me on several similar efforts over many years. We have a playbook with a proven track record. Although our work is not complete, we have identified key initiatives to support the 3 pillars of our strategy that will drive value creation opportunities for ACI. Our first pillar, Fit for Growth, is a refining and realignment of the organizational structure and operating model to better position the company for organic growth. This involves reviewing the organizational model and geographic footprint and designing an agile and nimble organization that is better at creating and sustaining continuous profitable organic growth. We are also designing a best-in-class global sales organization and culture. This initiative focuses on execution and will strengthen accountability, enhance transparency, and reduce the duplicative costs throughout the company. We are very close to hiring a Chief Revenue Officer and a Chief Human Resources Officer to complete the leadership team. Our second pillar is called Focused on Growth. We will design an organic growth strategy that puts a disciplined focus on areas where we can optimize growth. We are reviewing our current solutions to identify the best opportunities to invest operating and capital expenditures going forward. We are focused on a smaller set of growth-rich software-led solutions, supported by differentiated innovation in specific geographies and market segments. We will ensure all of our priority solutions are cloud-first in terms of architecture, deployment, and operations. We will prioritize investments that have the best market opportunities, generate the highest revenue growth and cash flows, and yield the highest ROI. This will become a core discipline here at ACI. Importantly, this investment will come from cost discipline and reallocation, not incremental spending. Our third pillar is Step Change Value Creation through M&A. We have continued to pursue accretive M&A to drive step change value creation for our shareholders and further expedite our growth. Executing on our 3-pillar strategy will encompass cost rationalization, which is already well underway. As we previously discussed, we actioned approximately $20 million in annual cash cost reductions in early 2020. During Q2, we further increased this amount by approximately $30 million in cost reductions related to COVID-19 by reducing the use of contractors, T&E expenses, and other non-HR expenses for the rest of 2020. In addition, as part of our new strategy work, we are identifying additional cash cost savings by flattening our organizational structure, eliminating duplicative costs across our new organization, and reducing our global facilities footprint. A good part of the savings will be reinvested behind growth, and we assure value maximization to our shareholders. Additionally, we are reviewing our capital allocation. Our short-term priority is to continue to deleverage the business. In Q2, we paid down $40 million, and our net debt ratio has declined to 3.3x as of Q2 2020. In the medium term, we will also reallocate free cash flow to invest in our business, return capital to our shareholders through share buybacks, and undertake accretive M&A. We plan to provide an update on our progress implementing these initiatives on our Q3 earnings call. We also expect a full discussion during an Investor Day we are targeting for November 2020. A new ACI is underway and will be fully launched by January 2021. We understand there is much work to do. But as I have said before, I strongly believe we have the right team to succeed. There is a sense of urgency as well as optimism throughout the management team as we execute our new strategy to reposition the business for long-term value creation. To conclude, driving revenue growth is in my DNA and will be in the new ACI DNA, too. We have a clear vision. ACI is well positioned to capitalize on the emerging trends in digital payments and specifically, real-time payments. But we have plenty of room to improve in operational and go-to-market discipline and execution. I have no doubt that by executing on our 3-pillar strategy, leveraging our go-to-market experience, and benefiting from a new cutting-edge sales process and culture, we will generate continuous profitable growth and significant value creation. I will now hand the call to Scott to discuss the company's Q2 results.

Thanks, Odilon, and good morning, everyone. I first plan to go through our results for the second quarter and then provide some high-level commentary regarding our expense reduction initiatives and outlook for the rest of 2020. 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 $136 million, up 6% from Q2 last year as we continue to see strong growth in real-time payments as well as our Bill Pay solution. We ended the quarter with a 12-month backlog of $1.1 billion and a 60-month backlog of $5.8 billion. Q2 revenue came in at $300 million, up 2% from Q2 last year on a constant currency basis. The growth was driven primarily by having a full quarter of Speedpay revenue in 2020 versus a partial quarter in 2019. Excluding the impact of the incremental Speedpay revenue, revenue declined on a constant currency basis by roughly 10%, primarily driven by the impact of COVID-19. Looking at our On-Demand business which saw a 15% decline, excluding Speedpay, the largest portion of the decline is related to the shift in tax payments from Q2 to Q3 as a result of the IRS and many of the state tax deadlines moving out 90 days this year. Aside from the government tax payments, we have seen year-over-year declines in other biller segments as a result of COVID-19, but those transaction declines have been offset by higher transactions from our secure eCommerce solution. We saw less of an impact from COVID-19 in Q2 in our On-Premise business, which declined 2% compared to Q2 last year. Declines in nonrecurring license and service revenues were partially offset by higher recurring maintenance revenue. We saw total recurring revenue grow 4% compared to Q2 last year and now comprised of 78% of total revenue versus 75% of total revenue in Q2 last year. And despite the challenges related to COVID-19, we continue to focus on maximizing profitability. Our efforts to improve our operational discipline helped generate significant profitability growth in the quarter with adjusted EBITDA of $78 million, up 42% from Q2 last year. Consolidated net adjusted EBITDA margin expanded to 35%, up from 25% last year, which represents nearly 1,000 basis points of improvement. It's important to note that this growth is not just a result of the incremental Speedpay contribution, as EBITDA also grew on an organic basis, improving 25% compared to Q2 last year. We saw profitability improvement in both our On-Demand and our On-Premise businesses on an organic basis. Turning next to Slide 8, starting with debt and liquidity. The solid growth in EBITDA delivered strong cash flow from operating activities of $68 million in the quarter, up more than 370% from Q2 last year. And we have significant liquidity as we ended the quarter with $129 million in cash and $300 million available on our revolver. We also paid down $40 million of debt during the quarter. Our current debt balance is $1.3 billion, which represents a net debt leverage ratio of 3.3x. Turning next to our outlook for the rest of 2020, as previously announced, given the uncertainties around COVID-19, we've temporarily suspended our financial guidance for the rest of the year. So I won't give you full financial ranges, but I will say again that while revenues have been impacted by COVID-19, we are very focused on maximizing profitability and cash flow. As Odilon mentioned, we've actioned approximately $30 million in cost reductions in response to COVID-19 by reducing the use of contractors, T&E expenses, and other non-HR expenses for the rest of 2020. This is in addition to the approximately $20 million in annual and ongoing cash cost reductions that we implemented as we entered 2020 pre-COVID. Furthermore, as part of our new strategy work, the team here is identifying additional cash cost savings by flattening our organizational structure, eliminating duplicative costs across our new organization, and reducing our global facilities footprint. We anticipate that a good portion of the savings will be reinvested behind growth initiatives. Odilon, I, and the rest of the management team are heavily engaged in this review, and we plan to provide more details at our November Investor Day. That concludes my prepared remarks. Operator, we are ready to open the line to questions at this time.

Your first question is from Peter Heckmann of Davidson.

Scott, could you give us a little bit more color on the Bill Pay? I think I missed a comment there. Did you actually talk about how Bill Pay did and maybe your estimate of what type of volumes might have pushed into the third quarter?

The biggest factor contributing to the decline in Bill Pay year-over-year was the shift in tax payments. While I didn't specifically mention transaction volume, the decrease in Q2 related to government tax payments was approximately $16 million.

Okay, okay. Yes. That's helpful. And have you seen that volumes then to have a commensurate uptick in July?

A good portion of that came back in July, but not all of it. I mean, obviously, we're going to have to see how the rest of the quarter goes and all the way through the extension timing to see if we get that all back. But a good portion came back in July.

Great. I noticed that capitalized software is up about 40% year-to-date. How are you considering that for the full year? What are some of the projects included in the capitalized development part?

The only area where we do this is in segments of our On-Demand business and across the platforms. We are currently undergoing platform consolidation, particularly on the Bill Pay side, where we are expanding the front end we acquired through Speedpay, which is designed for next-generation use. We are continuously developing that front end. Therefore, I wouldn't interpret Q2 as an indicator of future trends, as certain projects have progressed more in the last 90 days than others, particularly those focused internally.

You next question comes from the line of Mayank Tandon of Needham.

This is actually Kyle Peterson on for Mayank. Just wanted to start out on gross margins. It looks like they were definitely one of the big drivers of the profitability upside this quarter. Just wanted to see how much of that was organic improvement versus Speedpay fully lapping and then try to get any flavor as to how much of that might be sustainable to keep expanding on the gross margin side in the back half of the year?

Yes, when we consider the organic business alone, we achieved a 25% year-over-year increase in EBITDA, with contributions from nearly all our cost lines, positively impacting gross margin. We experienced margin improvements in both the On-Premise and AOD businesses, which highlights the scale of our operations and cost structure. There were two significant cost reductions this year. Initially, we eliminated approximately $20 million annually in operational efficiencies, which are more permanent adjustments to our cost structure and will persist beyond this year and through COVID. Additionally, in response to COVID, we implemented an extra $30 million in cost savings in late first quarter and early second quarter. These reductions are more temporary, including travel expenses and canceled trade shows, and we scaled back on contractors. As conditions normalize, these costs will likely return along with growth. However, looking solely at our organic business, there is a demonstrated improvement in profitability, reflected in the 25% increase in the quarter, partly resulting from the $20 million we eliminated earlier in the year.

That's helpful. Continuing with the $30 million in additional COVID-related cost savings, how much of that was reflected in the Q2 run rate? And how much of that will begin to impact Q3? Is it approximately evenly split, or is it mostly already included in the current run rate?

I believe Q2 serves as a strong indicator. It includes the full amount that we took out earlier in the year, and we acted on the $30 million swiftly. Looking at the year, Q2 had the most significant impact because many activities, like travel and various trade shows, largely paused. Thus, we experienced much of that benefit in our profit and loss statement during Q2. As we enter Q3 and Q4, we will see travel costs begin to rise again. However, Q2 really reflects the total cost benefits over a 90-day period. Regarding your interest in gross margin, it's important to remember that the biller sector has interchange costs tied to that revenue. Consequently, when I mentioned a $16 million decline in tax-related revenue during Q2, it carries a considerable interchange cost. Therefore, this impacts our cost of goods sold, leading to less of an effect on net revenue and EBITDA as those tax payments get deferred.

Okay, that's helpful. I have one last question before I step back. The services revenue came in a bit later than we expected. Is there something unusual happening, or is it just lower demand during COVID? I'm trying to understand when we might see signs of stabilization.

I wouldn't say anything in particular is noisy. We were able to continue projects over the last 90 days. If you look at our new bookings, we had more new bookings in the quarter for On Demand. However, we actually saw a decline in On Premise, which is where we typically see sales related to services work. There has been a noticeable drop-off in the On Premise business in terms of services sales, and that will affect Q2. It could have a greater impact in the second half, but nothing beyond that. There hasn’t been a change in what we’re doing with our services portfolio. I would attribute some of this to COVID and some to just lower sales in the quarter.

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

So we attended an interesting webinar you guys hosted about real-time payments with one of the key themes really being that real-time is going to be accelerated. When does this become a revenue driver in your view in the U.S.? Does it remain sort of a European-centric factor? And how would you quantify the near-term addressable market?

Well, maybe I'll take that, and then Odilon can add some color. Obviously, the biggest growth we've seen in real-time is outside the U.S., but that's both on new logos as well as add-ons to selling our real-time capability to our existing customer base. As we mentioned, we had an Asian customer that purchased real-time this quarter, that was revenue in the quarter, that was an On Premise sale. So that converts pretty quickly. But most of the growth has come from overseas. Our U.S. banks are — we're selling that in addition when we — especially when we go on with renewals. But in terms of a real tipping point in the U.S., I'm not sure when that will be. But certainly, a lot of our growth and the 20-plus percent growth that we've seen over the last few years, a lot of that's really coming from overseas.

I think just to complement, Scott. I think also, we saw bookings are growing 60% plus, right? So that shows you the trend. We are very much focused on real-time payments, and that will be one of our pillars. It will continue to be one of our pillars of growth. It already represents more than 10% of our revenue. So it's significant. And also the other place that you can expect a lot of growth is emerging markets outside of U.S. and Europe. So I think very much real time around the globe and specifically, emerging markets.

Just to clarify, did you say bookings for real time grew 60%? Or are you saying...

Yes, 60%.

Yes, 60%. Yes, in a quarter.

And then quick follow-up. So you picked up on Visa Mastercard and some others expanding Click to Pay to 18 new countries. Can you talk about that a bit, sort of how are you involved? And could that be a meaningful volume and revenue opportunity?

Well, we wouldn't speak to anything in particular with any of our customers or any of our partners in terms of — obviously, we're heavily involved both going direct in real-time initiatives and also working via our partnership with Mastercard already and the VocaLink partnership that we have.

Yes, I think you can expect a lot of activity always behind real-time payments and that we may compare with alliances, that we may compare just going by ourselves, but it will be a clear area of focus for us.

Your next question comes from the line of Brett Huff of Stephens Inc.

Two questions from me. I'll ask them both, and then I'll get off. One is really good bookings quarter. Surprisingly to us, just given that we had seen some banks kind of pause spending. I think you said you had a couple of merchant deals in there, but wondering if you could give us an update on what banks you're looking at buying and kind of their tenure of how they're thinking about spending? And then number two, I think you highlighted a little bit some of your initiatives that you're going to start working on. I think sales execution and maybe sales reorganization was one of them. Can you just tell us a little bit more about that and kind of when we should maybe start seeing some of the fruits of that?

Maybe, Odilon, I'll take the first one. The new bookings growth in the quarter up 6% year-over-year. In a COVID quarter, that's probably pretty good. Q2 is not typically our strongest bookings quarter in fairness. But like I said, we had a lot more growth. We had high growth in the On-Demand business. We actually saw a decline in the On-Premise business. But the growth we saw was actually — most of it really wasn't from banks. Our 2 biggest net new logos, one was a biller customer, and the other was our secure eCommerce solution, so Merchant solution. Then our biggest add-on was in real time. So a lot of the growth we saw in the quarter was from billers, merchants, and then as Odilon mentioned, the real-time was up 65%.

Yes. I think Brett, we did see, as Scott said, some impact on On Premise, no bookings. So clearly, there are some clients that are delaying the decision yet. So that's consistent with what you heard before. Just our On Demand business did wonderfully. And that's what offset on the total bookings part. So — and we would expect that, that trend on the On Premise will continue as far as it's a timing issue only because our products are, as you know, mission-critical. So it's a question of time when we're going to be able to sign those clients. But yes, there is some impact on that that's consistent with what you have been seeing. So I think that's the first question. The second one on the execution, I'm just going to give you some data that we are working with our consultants and internal team today. In sales, for example, in the sales organization, we are going to centralize the sales organization. We are hiring a Chief Revenue Officer. I think we are going to have an announcement as soon as next week about the name of that Chief Revenue Officer. And by centralizing that, just to give you an idea of how agile or nimble we're going to be, you can expect 3 levels of management between the CEO and the sales representative around the globe. So that gives an idea about the kind of change that we're going to be doing and how agile we're going to be. And together with that, we are revising everything. We're revising how we build compensation, how we manage the pipeline, how we evaluate the pipeline, detail by detail, all that. So you can expect, again, a very nimble, agile organization with decision power really in the field. And we have a strong process behind it.

Your next question is a follow-up from the line of Peter Heckmann of Davidson.

I just wanted to see if you could provide us any insight into the ongoing process of some of the larger contract expansions in the pipeline and if you have any thoughts on timing there?

Yes. I mean, I think we said earlier this year that we were just to be clear, we weren't expecting any of those or forecast any of those in this year's guidance. But obviously, we continue to have conversations with our customers and even net new logos on large new opportunities. So nothing that I would say we're expecting here before the end of the year.

Okay. I guess, one of my understanding was that when a customer goes through a large merger, they need to renegotiate the contract with ACI before they can consolidate their payment operations, is that not the case?

No, that's generally not the case because the license is tailored to the specific contracting user and the designated uses. If they were to extend that use to other divisions or acquired businesses, then it would require a new contract. It's worth noting, and we mentioned this earlier in the year, that one of the large mergers actually renewed their contract earlier than expected. They completed their renewal in the first half of this year for what was set to renew next year. So they have committed to using our technology for the next five years, but this isn't an expanded deal; it's simply a recommitment to what they are currently using.

Okay. All right. And then, Odilon, just a question for you. I mean, do you see kind of the mix, the customer mix shifting at all in your outlook in terms of where you see opportunities from U.S. banks, global banks, emerging markets, increasing importance of the Merchant channel? Can you talk a little bit about how you see that maybe relatively more of the sales coming from which of those verticals over the next three years?

Yes. No, thanks for the question. You can expect a much more focused organization going forward. So we have some pillars to accelerate significantly. One of the pillars will be real-time payment, and that will continue to be accelerated. Part of it is already the 60% plus growth in bookings that we have referred to. And we are going to continue to push that big time. I think the other area of focus definitely that you're going to be seeing is emerging markets. We are defining a concept called Fighting Units that is the intersection between geography, product, and segment. And you're going to have around 20 Fighting Units around the globe that we're going to be investing heavily behind. If you put all of that together, I can anticipate that real-time payments, overall, it's going to be an area of focus, and emerging markets, specifically, will be also an area of focus.

Your next question comes from the line of Joseph Vafi of Canaccord.

I want to follow up on the real-time deals this quarter, specifically with the Indonesian bank and Rabo. How competitive are these situations for attracting new customers, particularly in real-time payments? Additionally, do you anticipate any mergers and acquisitions occurring before, during, or after the ongoing organizational changes? Will M&A happen after the changes are finalized, or might we see some activity while optimization is still in progress?

I will begin with the last point, and then I will hand it over to Scott. We are constantly evaluating mergers and acquisitions. There are deals coming to us regularly, and we are always considering them. However, my current priority is organic growth. It’s important for us to start demonstrating this organic growth, and M&A might be possible if a particularly advantageous opportunity arises. But for now, my main focus and that of the organization is to position the company for sustained profitable growth. Scott?

Yes. I think when it comes to real-time, we have the relationships with the largest banks in the world and have had for a long time with our retail payment engine. So in a lot of cases, we're natural to provide the real-time capability. So a lot of our success is coming just selling into that existing base, whether it's a new application or expanding on some of the real-time capabilities that we already have. So on the net new logo, that's probably going to be more in what I'd call a more central infrastructure, where they can either procure it as licensed software, which is really our model, or if they want somebody to operate it, that's typically going to be provided by somebody else. And so I would say it's probably more competitive in the central infrastructures. But in terms of the connectivity to those central infrastructures, we're just a natural fit with our existing large bank customer base throughout the world.

And there are no further questions at this time. I will now turn the floor back over to John for any closing or additional comments.

Well, thanks, everybody, for dialing in and your interest. We look forward to catching up in the following weeks. Have a good day.

Thank you. That does conclude today's conference call. You may now disconnect.