ACI Worldwide Revenue Growth Rate To Decline While Operating Results Worsen (NASDAQ:ACIW)

A Quick Take On ACI Worldwide

ACI Worldwide, Inc. (NASDAQ:ACIW) provides a range of payment processing services for clients worldwide.

I previously wrote about ACIW with a Hold outlook.

ACIW’s revenue growth is declining to barely positive, earnings results are worsening, and macroeconomic conditions are questionable.

I reiterate my Neutral [Hold] rating on ACIW for the near term.

ACI Worldwide Overview And Market

Established in 1975, ACI, a Coral Gables, Florida-based company, specializes in offering software and digital payment solutions to banks, billers, and merchants worldwide.

The firm’s President and CEO, Tom Warsop, has been with the company since 2015 and previously held the position of Group President at Fiserv.

ACI’s primary offerings encompass:

– Merchant acquiring.

– Digital payment issuance.

– Enterprise payments.

– Real-time low-value and high-value transactions.

– SWIFT messaging.

– Omni-channel payment processing.

– Fraud management.

– Third-party software.

ACI acquires clients through a combination of channel partners and its dedicated sales team.

With a varied client base of over 80,000, ranging from large corporations to middle-market and smaller businesses, ACI offers a wide range of software and services to meet their needs.

Per a 2019 market research report, the payment processing services industry is predicted to reach $62.3 billion by 2024 with an estimated CAGR of 9.9% from 2019 to 2024.

The primary drivers of this growth are the increasing number of merchants seeking comprehensive payment processing solutions and the entry of new market players with innovative technologies.

Key competitors in this space include:

– PayPal.

– Global Payments.

– Block.

– Visa.

– Jack Henry & Associates.

– Paysafe Group.

– Naspers Limited.

– Others.

ACI Worldwide Recent Financial Trends

• Total revenue by quarter has declined seasonally per the chart below; Operating income by quarter has varied but trended lower:

• Gross profit margin by quarter has trended lower in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter have varied with no discernible trend:

• Earnings per share (Diluted) have fluctuated with significantly negative results in recent quarters:

(All data in the above charts is GAAP).

In the past 12 months, ACIW’s stock price has risen 8.81% vs. that of the Global X FinTech ETF’s (FINX) fall of 7.58%:

For balance sheet results, the firm ended the quarter with $132.4 million in cash and equivalents and $1.1 billion in total debt, of which $86.8 million was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash flow was an impressive $119.1 million, during which capital expenditures were $14.0 million. The company paid $25.7 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For ACI Worldwide

Below is a table of relevant capitalization and valuation figures for the company:

Click to enlarge

(Source – Seeking Alpha).

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Based on the DCF, the firm’s shares would be valued at approximately $18.40 versus the current price of $23.36, indicating they are potentially currently overvalued.

Commentary On ACI Worldwide

In its last earnings call (Source – Seeking Alpha), covering Q2 2023’s results, management highlighted the firm result being ahead of previous guidance.

ACIW’s Biller segment ‘is continuing to see real traction’, with another ‘very large’ Biller client signed just after the end of the quarter.

The company was one of the first to process payments on the newly-live FedNow instant payments network, and management sees opportunities in this area.

However, total revenue for Q2 2023 fell 5.0% year-over-year and gross profit margin dropped by 3.4%.

Selling and G&A expenses as a percentage of revenue declined by 1.3% YoY, a positive signal, but operating income decreased by 23.3%.

The company’s financial position is moderate, with ample liquidity but significant long-term debt. Free cash flow generation is substantial.

Looking ahead, 2023 full-year revenue consensus estimates indicate potential growth of only 2.0% over 2022.

If achieved, this would represent a decline in revenue growth rate versus 2022’s already low growth rate of 3.74% over 2021.

Given the firm’s worsening earnings results, drop in revenue growth, and troubling macroeconomic environment, my outlook on ACIW remains unchanged at Neutral [Hold].