Ladies and gentlemen, thank you for standing by. My name is Kat, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Inc. Fourth Quarter and Full Year Ended 2023 Financial Results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the conference over to John Kraft. Please go ahead.

Thank you, and good morning, everyone. On today's call, we will discuss the company's fourth quarter and full year 2023 results. We will also discuss our financial outlook for the rest of 2024, and we'll take your questions at the end. The slides accompanying this call and webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. Today's call is subject to safe harbor and forward-looking statements like all of our events. You can find the full text of both statements in our presentation deck and earnings press release, both of which are available on our website and with the SEC. On this morning's call is Tom Warsop, our President and CEO, and Scott Behrens, our CFO. Before we begin, we wanted to make sure that everyone was aware of our upcoming Analyst Day, which will be held in New York City on March 12. Please reach out if you haven't received an invitation. With that, I'll turn the call over to Tom.

Good morning, and thank you for joining our call. I'm going to start with some high-level thoughts on my first year as CEO, and I'll provide some comments about our 2023 performance. I'll finish by reiterating my confidence in our ability to take advantage of strong market opportunities in 2024 and beyond. As you probably know, I've been the CEO first on an interim basis, and then since June of last year, on a longer-term basis. During that time, I've made it a point to personally visit as many customers, partners, and fellow ACI team members as possible. In that year, I've met in person more than 70% of our employees and all of our top 10 customers in more than 15 countries across five continents. Following those visits, I'm even more convinced that ACI is a company with world-class solutions, talented employees, and a customer base unmatched in the industry. Our market position, combined with the substantial opportunities for expansion and growth in an industry with near continual change, puts us in a position to accelerate our growth and help customers achieve and exceed their strategic objectives. Now, regarding 2023, we had a solid performance. We exited the year strong, setting us up to accelerate our growth this year. We delivered results in line with or above our expectations and with the guidance we provided to you this time last year. We saw strength in our Biller segment with revenue growth of 9% and EBITDA growth of 32% in 2023. We went live with the first two of several phases of the implementation of a large new Biller customer that we signed in 2022. More phases of that program go live in 2024, and they're on track. We also signed a large new utility customer that is on track to go live and begin ramping in the middle of 2024, and we continue to make incremental progress with our interchange improvement program. Our banking segment saw notable strength in cross-sales of our anti-fraud and real-time payment solutions, with revenue growth of 35% and 24%, respectively, in 2023. Our anti-fraud solution utilizes artificial intelligence and proprietary access to ACI-generated big data to lead the category. We continue to be excited about our opportunities in real-time payments. To illustrate our continued success in this area globally, we signed up three new central infrastructures in the quarter, including El Banco de la Republica de Colombia and the Nepal Clearing House. We're now supporting nine central infrastructures globally, along with more than 25 national and regional real-time payment schemes. In our Merchant segment, though we had a slow start to 2023, we exited the year with a strong Q4 rate of growth, and we expect acceleration in 2024. We remain excited about leveraging our best-in-class payments expertise to help our clients offer optimal payment choices to their consumers while providing a safe and secure payment processing environment. Our proprietary AI-driven fraud management tools are helping to protect our billers and merchants from fraudulent transactions. Our sales pipeline is strong and growing, and we expect particularly strong demand in our banking segment. The maturation of real-time payments globally is driving an intense analysis of payments technology infrastructures by banks everywhere. ACI is virtually always on the list and near the top when these institutions think about which firms to work with to address this critical need. Our history, market presence, and proven expertise mean we're the top choice for low-risk, high-reliability modernization. ACI's reliability and scalability are unquestioned, and we are seeing significant demand for our solutions, including our payments hub across the globe. We are engineering it to support on-premise, cloud, and SaaS delivery models, making us an excellent choice for large and mid-tier financial institutions alike. You'll hear more about this at Analyst Day, but I want to reiterate, this is a net new opportunity for us, substantially increasing the size of our historic addressable market and presenting an opportunity to bolster our already accelerating growth rate. Our Biller segment, which saw a significant turnaround in 2023, will see further growth in 2024 as we gain a full year benefit from customer go-lives in 2023 and the go-lives of additional large customers sold during last year. This revenue growth, combined with continued success in our interchange improvement program, will lead to ongoing margin improvement. In our Merchant segment, our investments are paying off. We saw Q4 deliver the strongest rate of quarterly growth of the year, and we expect that momentum to carry into 2024. We signed a significant new customer in the fuel store segment in the first week of the year, a great way to start. Overall, I am pleased with where we are as a company. We have a strong balance sheet, leverage below our long-term target, and we're accelerating our top line as we've long promised. We're managing our expenses well. We have a strong team and a strategy in place that positions us well to accelerate growth in 2024 and beyond. I'm also happy to announce that today, we've appointed two new members to our already strong Board of Directors: Katrinka McCallum, who spent many years at the SaaS software company Red Hat, most recently as Vice President of Customer and Product Experience, and Juan Benitez, the former President of GoFundMe and General Manager of Braintree, which is now part of PayPal. Katrinka and Juan will provide great support as we expand our SaaS businesses and drive accelerated productivity through more use of Generative AI, large learning models, and machine learning, areas both have overseen before. Before I turn it over to Scott, I want to remind you of our upcoming Analyst Day. As John mentioned, we're hosting an event in New York City on March 12. We invite you to attend in person or online as we discuss our business segments and exciting global opportunities. With that, I'm going to turn it over to Scott to discuss financials and guidance.

Thanks, Tom, and good morning, everyone. I first plan to go over our financial results for 2023. I'll then provide our outlook for 2024. We'll open the line for questions after. Starting with Slide 4, Q4 2023 revenue was $477 million, up 5% from Q4 2022. We continue to see solid growth in our underlying recurring revenue, which was up 7% compared to Q4 2022. Adjusted EBITDA was $210 million, up 8% from Q4 2022. Our EBITDA growth contributed to strong cash flow growth in Q4 2023 with cash flow from operating activities of $86 million, more than double Q4 2022. Our bank segment revenue increased 3%, and bank segment adjusted EBITDA was up 1% compared to Q4 2022. Our Merchant segment revenue increased 4%, and segment adjusted EBITDA grew 2% versus Q4 2022. We saw improvement in this segment as expected, with revenue growth accelerating as we exited the year. Our Biller segment saw the biggest improvement year-over-year with revenue increasing 9% and adjusted EBITDA increasing 60% compared to Q4 2022. The growth in revenue and profitability in this segment is driven by both new customer go-lives as well as notable progress with our interchange improvement program. Turning to Slide 5 with key takeaways for the full year 2023, revenue for the full year was $1.45 billion, up 5% from 2022. Adjusted EBITDA was $395 million, up 10% from 2022, and cash flow from operating activities was $169 million, up 19% from 2022. We ended 2023 with $164 million in cash on hand and total debt outstanding of approximately $1 billion. Our net debt leverage ratio was 2.2 times, down from 2.6 times at the beginning of the year and below our long-term target of 2.5 times. Also of note, in February, we completed the refinancing of our credit facility that was set to expire in April of 2025, with a new five-year credit facility on substantially the same economic terms as our existing facility. We repurchased approximately 1 million shares for $28 million in Q4 of 2023 and have purchased an additional 2 million shares for $62 million so far in 2024, representing about 2.8% of our shares outstanding. We currently have $110 million remaining on our repurchase authorization. During 2024, we expect to continue to deploy a significant portion of our cash flow to share buybacks. Regarding our outlook for 2024, we expect to accelerate revenue growth to 7% to 9% in 2024, with revenue in the range of $1.547 billion to $1.576 billion. We expect 2024 adjusted EBITDA to be in the range of $418 million to $428 million. Net interest expense is expected to approximate $50 million to $65 million. Depreciation and amortization is anticipated to be around $115 million to $120 million. Non-cash share-based compensation expense is expected to approximate $30 million to $35 million. Our effective tax rate should approximate 25%. Finally, our diluted share count should be around 108 million, excluding future share buyback activity. We expect our revenue phasing by quarter to follow historical seasonality, with Q1 2024 revenue projected to be in the range of $300 million to $310 million and EBITDA anticipated to be in the range of $25 million to $35 million. In summary, we're very pleased with the 2023 results, delivering revenue and EBITDA in the mid to high end of our guidance ranges. That strong EBITDA growth and the resulting strong cash flow generation were used in part to pay down debt, resulting in our lowest leverage ratio in five years. We exited the year strong and see that momentum carrying into 2024, particularly in the underlying recurring revenue base of the business, which was up 7% in 2023, combined with the visibility and predictability of the license renewals next year and the maturity of the sales and implementation pipeline. We anticipate delivering our forecasted growth of 7% to 9% in 2024, which aligns with the long-range outlook shared at our last Analyst Day in 2021. We look forward to sharing more about our new long-term outlook at our Investor Day in a couple of weeks. With that, we will now open up the line for questions.

And your first question comes from Peter Heckmann with D.A. Davidson. Please go ahead. Your line is open.

Thank you. Good morning, everyone. I wanted to see if you could give a little more color or interpretation on your bookings numbers. You mentioned both ARR and licenses and services bookings. When we look at those, clearly down year-over-year on the ARR side, following a relatively stronger year in 2022, how should we interpret the ARR bookings and now the license and service bookings concerning our model? Historically, total bookings had some value. The ARR bookings are harder to extrapolate into when those start to impact, and how concerned should we be with the down bookings for the year?

Yeah. Thanks, Pete. This is Scott. We've talked about this for a number of quarters. The ARR metric doesn't capture the booking success we have in the bank business, which is predominantly on-premise. We included our license and service sales in the bookings table this quarter, which is up approximately 16% to 17% year-over-year. That's really where we've been seeing our success, and it's more a function of which segment we're seeing success in bookings in 2023, and that's coming from banks. If you exclude Dragonfly, our digital banking sale, revenue from banks has been our strongest segment, up 8% to 9% on a constant currency basis. We continue to see strong bookings growth in the bank segment in license and services in '23. Regarding ARR in 2022, it was influenced by our largest Biller deal that we've ever sold, so it was an anomaly.

I would just reiterate what Scott just made as a point. 2022 is an anomaly in that regard, as we signed two of the largest deals we've ever had in the history of that business. Those showed up in the 2022 ARR numbers, and we did not expect to repeat that in 2023. Total bookings were strong, and we're very confident in the guidance that Scott just presented.

Great. That's good to hear. I appreciate that. Then in terms of interchange, you mentioned in the press release that you do expect net adjusted EBITDA margins for the year to expand a bit. Would that imply that interchange may grow at about the same rate or perhaps even a little faster than total revenue?

I wouldn't necessarily say that. I would say, generally, it will be in line with revenue growth. We do have room for improvement, with a substantial improvement between '22 and '23 due to initiatives we've put in place, but there's still more to go. I would say it will align with or be less than our total rate of revenue growth in that Biller segment.

It's fair to say, as Scott mentioned, we had a big improvement in 2023. We may not have enough room to repeat that, but we expect to see continuous improvement and margin expansion.

Okay, that's fair. I’ll get back in the queue. Thanks.

Thanks.

Thank you. Our next question comes from the line of Jeff Cantwell with Seaport Research. Please go ahead.

Hey, thanks, guys. Can you talk about the guidance you gave for 2024 and your revenue growth of 7% to 9%, which looks pretty good? Can you explain how you're thinking about revenue growth by segment? Can you break that out for us? Specifically, in your banking segment, what opportunities are you seeing right now with clients? Could you give us some flavor for what we should expect to see there in 2024? And tell us about your pipeline.

Looking at relative growth in 2023, the Biller segment grew 9%, which was due to three factors: same-store sales growth; go-live and ramping of new client business; and some repricing elements related to interchange in 2022. In 2024, two of those three elements will still apply. The bank business, which has had a three-year CAGR of about 8+%, should revert to that mean reversion. This year was only about 2% to 3%, but next year should be back to our three-year average. The Merchant segment, which dragged growth down in 2023, exited the year stronger, and we expect the merchant business to align with the high end of our consolidated growth rate.

Regarding the bank segment and opportunities in the pipeline, we see various opportunities depending on the region. In developed markets, price increases during renewals are based primarily on volumes and inflation. In places like Latin America and Asia, we're seeing new opportunities with financial institutions. The anticipation of real-time payments volumes drives demand for payments infrastructure. Our reliable and scalable solutions are appealing to those looking to modernize.

Okay, that's great. A follow-up on real-time payments: one of the biggest questions we receive is about your opportunity as there's a focus on FedNow. But globally, your footprint is much broader. Could you outline where the most significant opportunities for real-time payments are? Is it Europe, Asia, Latin America, etc.? How would you characterize that?

The largest real-time payment markets today are India, Brazil, and China. The rest of the world is playing catch-up. The European Central Bank is mandating real-time payments across the Eurozone, which is gaining attention. Latin America is emerging rapidly, including the Central Bank of Colombia's real-time payments infrastructure. As for FedNow, while it’s still new, volumes are increasing. It's interesting to see how it influences the landscape.

Our real-time payments revenue growth in 2023 was 23% over 2022, with very little coming from FedNow. Our growth outlook isn't contingent on FedNow but rather driven by international markets.

Okay, great. Appreciate all the color. Thank you.

And our next question comes from the line of Charles Nabhan with Stephens Inc. Please go ahead.

Hi, good morning, guys, and thank you for taking my question. As we think through the model for banking in '24, could you comment on the renewal schedule? I think you said it would be a little more evenly distributed compared to '23. I know third quarter was a big quarter for renewals, but anything you could say around the cadence as we consider the model for banking would be helpful.

Chuck, I would phase the bank revenue in your modeling for '24 in line with '23. We always have the second half and predominantly fourth-quarter renewal timing. If you model it consistently with 2023, that should set you up well for 2024 timing.

Got it. And as a follow-up, I wanted to get a sense for the Biller segment's growth drivers, specifically which verticals are driving it from both new bookings and a same-store standpoint.

There's not a single vertical driving it. The biggest growth has been from utilities and telecommunications segments. We've seen good growth across all verticals we support, but those are the two largest.

Got it. I have one last question on capital allocation. Your balance sheet appears strong, and while you mentioned that buybacks are the priority, do you have interest in M&A and any appetite toward potential targets that could accelerate your go-to-market strategies?

We would always be opportunistic, but it's been a number of years since we've done an acquisition. Given our balance sheet, we will keep a balanced approach primarily focused on share buybacks and de-levering, but we would consider any opportunities if they arise.

Got it. I appreciate all the color.

Thank you. Our next question comes from the line of Joe Vafi with Canaccord Genuity. Please go ahead.

Good morning. This is Pallav Saini on for Joe. Thanks for taking our questions. To start, Tom, you touched on GenAI and large language models in your remarks. Could you give us some examples of how you're currently using GenAI and what some near-term opportunities are?

Absolutely. We have three main use cases for GenAI and LLMs: First, fraud detection and prevention. We've been using AI for over a decade in our solutions with patented methods for creating algorithms and training models. Second, in customer service, we've loaded all documentation for several products into Microsoft's Copilot for a secure environment, enhancing productivity for our customer service representatives and providing faster answers to customers. Third, in software development, we've utilized generative AI to extract logic from our proven software, creating microservices in minutes. We're achieving at least a 30% productivity improvement and in some instances, up to 10x productivity increases from our development team.

That’s great color, thank you. On digital assets, are you providing any products and services around the crypto space, and how are you thinking about opportunities given recent developments like the spot Bitcoin ETFs?

Many of our products can facilitate transactions in Bitcoin and other mediums without difficulty. While I can't predict the complete impact of the Bitcoin ETFs, we will continue to ensure our products support any mediums consumers and commercial customers want to use.

Our next question comes from George Sutton with Craig-Hallum. Please go ahead.

Hey, guys. This is James on for George. Nice results. The recurring revenue growth in the bank segment over the last couple of quarters has been encouraging. Could you talk about what's driving strength there? Additionally, last quarter, you mentioned moving down market. Could we get an update on those efforts? Lastly, can you quantify a sustainable growth rate for real-time payment solutions over the next couple of years?

The recurring revenues come from maintenance on the license software, which is both price-driven and results from the go-lives of new customers. The SaaS business also saw nice growth in 2023. We're focusing on pipeline development for mid-tier banks, generating good conversations, though we haven't yet made headway on that front. Regarding sustainable growth rates for real-time payments, we anticipate healthy double-digit growth, similar to our fraud detection offerings.

Correct. We often package both real-time payments and fraud solutions together due to their complementary nature. This is a strong combination for customer offerings.

Great. Last one for me: can you touch on the competitive landscape in Biller and Merchant segments and any changes you've noted?

In terms of competition, there hasn't been a significant change. We faced some challenges while digesting the Speedpay acquisition, but now that is complete, we can focus on growth and expect it to continue. On the Merchant side, while we had a slow start in '23, we finished strong, and we expect that success to carry into '24. Our sweet spot is large global retailers needing a consistent experience across channels. We excel at providing that.

There are no further questions at this time. Mr. John Kraft, I turn the call over to you.

Well, thanks, everyone, for joining us today. We appreciate your time and look forward to catching up in the coming weeks as well as at our Analyst Day. Have a great day.

Thanks, everybody.

Thank you. This concludes today's conference. You may now disconnect.