John Kraft - VP of IR Phil Heasley - CEO Scott Behrens - CFO.

George Sutton - Craig Hallum Brett Huff - Stephens David Eller - Wells Fargo Wayne Johnson - Raymond James.

Good morning. My name is Hyde, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Reports Quarter Two Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. John Kraf, Vice President Investor Relations, you may begin your conference..

Thanks Hyde, 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 to both statements on the first and final pages of our presentation deck today, a copy of which is available on our website as well as with the SEC.

On this morning's call is Phil Heasley, our CEO and Scott Behrens, our CFO. With that, I'll turn the call over to Phil..

Thank you, John, and good morning, everyone. I am pleased to report our second quarter results. Q2 was another strong quarter for ACI and continued affirmation of our universal payment strategy. And second quarter new bookings were up 11% over last year.

Second quarter revenue up $241 million was up 10% over last year, we also generated $44 million in EBITDA which was a 105% increase over last year.

In the quarter in second quarter we continued to sign some important contracts across the range of solutions and geography and made substantial progress with large and transformational universal payments opportunities.

In our fast-growing e-commerce platform, we continued to expand our end points and global connectivity with new partnerships including Alipay the world's largest online and mobile payment platform, we also signed a large on demand contract with another top European retailer for our UP retail payments offering.

In our bill payment platform segment, we signed several contracts including a large U.S. based online loan originator for our UP payment bill payments solution. Lastly, we continue to sign new immediate payment contracts with both the Mexican and international, financial institutions.

One notable contract was signed with a large financial institution in Asia for both ACI's immediate payment solution as well as our universal online banker cash management solutions, this customer will use ACIs universal payments to orchestrate their overall payments business.

Looking ahead our pipeline is substantial, the number of customers is leveraging the power of UP continues to grow. In summary 2017 has been strong, we are well prepared to achieve our financial targets for the year we remain commitment to our longer-term growth goals.

With that, let me turn it over to Scott who will provide you with much more detail the second quarter of 2017. Thank you..

Thanks Phil, and good morning, everyone. I first plan to go through the highlights of the second quarter and then provide a reminder of 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.

I still say Q2 was another strong quarter for us with new bookings up 11% over the prior year quarter, these strong bookings contributed to solid growth in our backlog with 12 months and 16 months backlog drawing 18 million and 24 million respectively during the quarter.

Q2 revenue was $241 million up 10% over the prior year quarter, this strong growth combined with our relatively fixed cost structure helped us deliver very strong 105% growth in adjusted EBITDA.

We ended the quarter with $95 million in cash and a debt balance of 705 [ph] million which is down from 753-million-year end and we have 78 million remaining on our share buyback authorization. Turning next to slide seven.

With our full year outlook, we are reaffirming our full year guidance for the full year 2017 we continue to expect revenue to be in a range of $1 billion to $1.025 billion. We continue to expect adjusted EBITDA to be in a range of $250 million to $255 million and we expect new bookings growth to be in high single-digits.

And for Q3 we expect revenue to be in a range of $210 million to $225 million. So overall, we are very pleased with the Q2 performance with strong growth in new bookings revenue and EBITDA, this follows a strong Q1 performance allowing us to reaffirm our full year guidance.

So that concludes my prepared remarks, operator we are ready to open the line for questions at this time..

[Operator Instructions] Your first question comes from the line of George Sutton from Craig Hallum. Please go ahead..

So, I wanted to understand a little bit more when Phil when you say pipeline is sustainable I wanted to look at that in the context of some of the UP success that you have had as folks have begun to go live what that is doing relative to the velocity of that pipeline?.

We can discuss the pipeline for a long time because we have the retailer segment we have the bill payer segment, which we don’t talk as much about those as we do the core banking, the bank statements but they are growing very well more and more as ecommerce becomes more global and these guys have platforms that deliver real time product around the world, they are finding it more and more difficult to have 15, 18 different relationships in order to execute their payments.

So, they are getting out in front of the market place and figuring out how to -- in effect build the layer on top of those 18 layers to control their destiny. And that’s going very, very well. And you couple that with -- I talked about Alipay and what not, that people in terms of wanting global reach they do it through global connectivity right now.

And our PAY.ON product which is built into that UP platform as a multipurpose solution not just a connectivity solution is being very well received around the world. We are having some very good conversations.

And at that point it starts melting, it starts crossing over because the financial institutions, the financial intermediaries they have the same kinds of needs as the retailers do as that point as each one is trying figure out how to globalize their solution.

And quite honestly how you pay you pay ubiquitous versus access the payment ubiquitous, so they want as many different payment methods to make sense and the more and more that are real time, the more that match their business model the more they want to take in.

So, we are ending up having conversations all around the world just very good and some are very large and many of them are more medium to large.

And they are just progressing very well because I think everyone has consultants and as they are -- everyone's getting consulted towards solutions we are being looked on that in a rather favorable life, we are very proud of that at this point.

I don’t if that answers your questions I can't get specific about customers or anything like that that would be disingenuous, but that’s the best attempt I can make to answer that question..

And let me also ask you in this context and this will be my follow up. So, the faster payments paper summary just came out I was just curious what do you think that does to some of the velocity of your pipeline and now that there is at least some sense of a time date set? I'm just curious your takeaways from that updated paper..

Well, we feel good about it, but we view Immediate Payments as global phenomena. It's amazing how much of the world is involved in this. We're working Immediate Payments on every continent that has payments to speak so. It's good to see the U.S. catching up because the U.S. has actually been way behind and I think for a lot of reasons.

But they've been way behind in terms of this and I think that's very positive as the U.S. represents really important market both inbound and outbound as it relates to the Immediate Payment offerings..

Your next question comes from the line of Brett Huff from Stephens. Please go ahead..

Good morning, Phil, Scott and John. Thanks for taking my questions and congrats on a nice quarter. Two questions for you, one I think this is for Scott, you had a nice speed on revenue and profit in 2Q but didn't raise guidance.

Should we imply that you all just maybe got some revenue sooner than you expected or how should we interpret those two facts is that the right interpretation?.

Well, if you look relative to last year obviously we had a disproportionate amount of our revenue set in the fourth quarter and our margin set in the fourth quarter. So, you look at it on a year-over-year basis. Yeah, we had a very strong first half, but it's essentially deep risks what we have to do to deliver on the second half of the year.

So, lot of opportunities gives us options but we're comfortable with where we are at in the guidance that we have out there..

Okay. That's helpful. And then can you just walk us through the -- how the existing UP deals as they have been implemented or being implemented, how is that revenue recognition starting to develop? As I understand that there is a brand-new UP deal, it takes a long time to recognize that revenue because of the brand-new implementation.

But if they are using the special sort of contractual method that you guys have developed that sort of implies that they are going to move volume over time to a new switch that is UP enabled, that revenue recognition can happen sooner.

Are you seeing people move those volumes if those are already sort of those contracts are enforced?.

Yeah, I'll take that [indiscernible] I mean I wouldn't say there is a way that customers are adopting and implementing UP. I mean there is certainly a lot of the UP, upside is going to come from adding volumes. And so certain customers that will impact us as those volumes come and as they consume that incremental capacity.

Others on the other hand can be sold and we can begin recognizing that revenue right away especially if it's on [indiscernible] if we deliver the software and they are going to install themselves and they purchase the capacity. So, I wouldn't say there is a way.

A lot of the upside in the UP strategy is ultimately going to be in their increased consumption, their increased use and their higher transaction. And so, the real values when they get it installed and they begin to put the weather its consolidating volumes on to their switching or they put alternative payment type volumes through UP.

That's really where the power of it comes to us, once installed it's really the incremental volume growth..

So, let me add a little tiny bit on to that.

Our RPS program which is basically our renewal program where we are giving the option to the customers to pick up both classic and using UP technology bridging the new high-speed EPS switch on to it which allows them to migrate versus convert, does that when we first do these deals we are then commit for to certain incremental volume and we will see some of the value in terms of that incremental volume.

What we are really doing is giving them the ability over that next five-year period to both move existing volume, from one side to the other and then we are giving them the ability to take other real-time payments and not try to force them into an old closed system that classic was and I will tell you that this year we have almost 90 some percent adoption rate of RPS versus just a pure renewal so that part is going very well.

Most of the opportunity for us we had a little bit ad contract signing of over the increased level of yield over the next five years but then our big opportunity comes as they start not so much converting but putting on other it becomes very efficient for them to put other programs on and one way if I was a third-party and I will want to see how well that was doing, it will correlate directly with as Linux servers become more and more and more the main stay, there are other more expensive servers that you are going to see their volumes going down because in the old world, we were probably 20% of the total costs hardware middleware, software, other software was 80%, in the new environment its much of a software play giving them the ability to say 50%, 60% of those other three categories, so the yield is very large for our customers which I think left to that yield and then the incremental volume comes as a natural consequence of it being the payments of platform.

Is that overly confusing?.

No that make sense, thank you and then if I can speak one more in, can you just give us sort of a quick overview of what exactly you all are doing for Alipay..

We are presenting Alipay as a global end point for whoever wants to use it. I can’t say any more, right I can’t say any more than that..

So, we should think if it is another payment type in the payment gateway, is that fair?.

Well yeah it was another, it's now globally available end point. For those people using our solutions..

Okay great, thank you..

Very important to them, they have a 135 million people, they owe it, not a big piece of their population less than 10% or whatever, but they have a 135 million people that are travelling around the world and they need access to their payment devices their payment method..

Your next question comes from the line of David Eller from Wells Fargo. Please go ahead..

Good morning, thank you for taking my questions. You mentioned you are making progress on the bill pay segment with the large U.S.

originator online loans and also if you can talk a little bit more about the bill pay business, if I recall correctly that was historically more domestic focused and maybe if you could just talk about opportunities you have there and whether there are opportunities to expand internationally?.

We are in the EBPP business we are not in the classic bill pay business where you go have your monthly journal and you do your bills, that’s not our business. Our business is connecting -- again its payments its connecting people who need to satisfy a payment with the end point that they need to take place.

We have actually gotten very, very good feedback and we built quite a book of business around with financials and financial intermediates that are in.

The loan type businesses that really need flexibility and looking more -- they are looking more and more at the value of direct connections and whereas they are ready fairly well connected with the financial institutions in terms of the origination and maintenance of the loans satisfaction of the payment it's something that they are looking for more agility and more options and what not and that’s working out very well for us.

We have put I think we have worked four years now on improving the platforms that we purchased and we have a little bit probably another year and a half or so to go before we would think about going internet. We want to really build what we have as best of class and then we will think about internationalizing it.

What a lot of people think about as I think EBPP may end up being one of the main payment types. We think of bill payment as a gateway. The combination of Immediate Payments and bill pay -- bill pay may lend up actually begin the payment type that M&A stand up the growth of immediate payments..

And then Scott I think this one is for you, you didn’t mention the BHMI lawsuit, is that matter now settled, that last appeal, is that probably the last we should hear about that lawsuit?.

Generally, yes, I mean that was taken to the state spring court and that judgment is final. And we will make that cash payment here in the third quarter..

And then last one for me.

We haven’t really seen an announcement on that M&A front and sometime and I wondered if you could talk about if you are still actually pursuing M&A opportunities for what pipeline looks like? And maybe what part of the portfolio you could look at?.

I wouldn’t necessarily say what we would be looking at but I think we are always generally looking at being opportunistic. But yes, we haven’t made an acquisition now for what's going on for almost two years.

But again, we be opportunistic probably in two areas, I wouldn't say there is necessarily any holes or gaps in our capabilities but certainly areas where we could get scale if we would be able to provide scale of top of our global infrastructure, those would-be situations but not as much holes in our capabilities..

Your next question comes from the line of Paul [Condro] from Credit Suisse. Please go ahead..

Thanks. Good morning, guys. Just got a couple of questions on the expenses. So, if you take the [indiscernible] amount of G&A you had a nice kind of tick down in the second quarter.

So, I wonder if you can talk about relative to the $130 million in 2016 how you think that G&A trends for the rest of this year?.

Well, yes and we had said this after in Q1 because we had seen G&A spike up a little bit. But, it's at the time I expected it to drop and level out through the rest of the year and that's really what we're seeing.

So, I don't see anything in particular within the G&A area for the rest of the year which should again be lower and level out throughout the rest of the year..

Okay.

And then also I guess on R&D I know that you have big investment here last year but R&D has come down now last couple of quarters, so should we think of that as kind of the new run rate or is there anything caused that to move up?.

I wouldn't say anything in particular that would drive it to move up, yeah, we made, we have invested pretty heavily in our product capabilities over the last couple of years. But we've also we also moved resource to, both same technical resources can be used for implementation work platform build things like that.

So, it's not necessarily that we have reduced our overall investment in R&D. It's that some of those same technical resources are doing everything. And nothing that would indicate that we would see some unusual spike at a later date..

Okay, thanks. And then, Phil I just wanted to ask you, a bit more of a broader question just for PSP too if you could talk a little bit about the conversation you're having with your partners, I mean it sounds like there is still not a lot of clarity on what those regs [ph] are going to require banks to do and how banks are going to do it.

And so, one just kind of what are you hearing? And two, are there any risks to the whole timeline that's kind of been laid out? Thanks..

I don't want to sit here and say there is going to be a risk to the timeline because then I am kind of commenting about other people's [indiscernible]. I think it's like any change I think there is confusion and there is certain level of questioning right, which can be interpreted.

I don't understand or it's hard to understand can mean several things if you're trying to participate in a mandate or you're trying to manage its outcome.

We're comfortable, we're not uncomfortable with the dates, I guess put it that way and we're seeing this around the rest of the -- we're seeing this as initiating issue around the rest of the world. Actually, something is making us feel very good about our business.

Our NFRs, our nonfunctional requirements are always being about scalability, availability and throughput, we don't build things first small or medium volumes. We build things for high volumes.

And so, we see a lot of these mandates going through the rest of the world now and immediate payments and other things, we're finding that scaling is becoming difficult in a lot of these implementations and that very nicely plays into our space because we're up into solution in terms of scaling it up.

But, I don't want to really enter the fray in terms of the realism and the timeline so not hope you can appreciate that..

Yes, thanks. Yeah, I understood guys. thanks..

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

Hi, yes good morning. So, we have had a lot of discussion on this call and prior calls on the demand for the UP solution and the core payment engine that goes with it and there is no -- there doesn’t seem to be any question that there is a long runway of opportunity for ACI in that regard.

So, my question is really on the competitive side, have you seen or are hearing about development of any competing products that could provide a similar solution in either at the banks, the transaction processors or the retailers that you guys serve?.

Well, Wayne, that will depend what we were -- on the front side we have lots competitors, I don’t think that market place has settled itself down to -- we maybe in the top three or four but there is properly 15 or 18 viable players in terms of that.

On the bill pay side, we certainly have formidable competitors and we are kind of niche on the EBPP side but we obviously plenty of competition, we see plenty of competition there.

On the retail side, on the retailer side, I think the transformation that’s going to take place there is going either people’s businesses are going to become obsolete or they are going to have figure out how to try to work their way towards being more competitive with what leads you.

So, I expect some level of competition there, but in terms of our core capabilities, I still think our biggest competitor would be someone deciding for whatever reason they want to build that capability themselves and they are willing to put the 3 to 5 or 4 to 6 years into whatever it would take for themselves and I think has to be some overarching strategic reason why that makes sense from the plumbing of the industry but that’s the best answer I can give you..

And there are no further questions in the queue..

Well thanks everybody, we look forward to chatting in the coming weeks..

This concludes today's conference call. You may now disconnect..