Executive Summary / Key Takeaways

• ACI Worldwide delivered a robust start to 2025 with 25% revenue growth and 95% adjusted EBITDA growth in Q1, significantly exceeding expectations and positioning the company strongly against its full-year targets.
• The strategic reorganization into Payment Software and Biller segments is yielding early benefits, driving new pipeline opportunities and operational synergies, particularly within the Payment Software segment which saw 42% revenue growth in Q1.
• The upcoming cloud-native payments hub, Connetic, represents a significant technological differentiator, expanding ACI's addressable market and offering customers a lower-risk path to modernization, with initial pilots expected in early Q2 2025.
• ACI maintains a strong financial position with a low net debt leverage ratio of 1.2x and healthy cash flow generation, providing flexibility for strategic investments and capital returns, including ongoing share repurchases.
• While facing competition from larger, financially stronger players like Visa (V) and Mastercard (MA), ACI's focus on mission-critical, specialized software and targeted innovation, particularly in real-time payments and fraud management, underpins its competitive moat and supports its outlook for continued growth.

ACI Worldwide (NASDAQ: ACIW) stands as an enduring force in the global electronic payments landscape, boasting nearly five decades of trusted expertise. The company has built its foundation on providing mission-critical software solutions that power intelligent payments orchestration in real time for a diverse customer base spanning banks, merchants, and billers worldwide. This deep history and embedded position within the payments infrastructure of some of the world's largest financial institutions and corporations provide a significant competitive advantage, making ACIW a "usual suspect" when these entities consider modernizing or enhancing their payment capabilities.

The electronic payments industry is dynamic, characterized by increasing digital transaction volumes, the accelerating adoption of real-time payments globally, the shift towards cloud technology, the growing threat of sophisticated fraud, and the evolution of omni-commerce and open banking. Against this backdrop, ACIW has sharpened its strategic focus, aiming to leverage its foundational strengths to drive profitable growth and enhance shareholder value. A key strategic pivot, effective in the first quarter of 2025, involved reorganizing its reporting structure by combining the former Banks and Merchants segments into a unified Payment Software unit, while maintaining the Biller segment separately. This move acknowledges the similar underlying technology serving these customer sets, aiming for greater synergy, simplified operations, and accelerated progress under a dedicated general manager structure.

Central to ACIW's forward strategy and technological differentiation is the development of its next-generation payments hub solution, now officially named Connetic. This cloud-native platform is designed to offer enhanced capabilities such as automated decisioning, straight-through processing, decline transaction reduction, and AI-driven analytics. Connetic is not merely an upgrade; it's intended to expand ACIW's addressable market significantly, reaching beyond traditional large banks to include mid-sized and smaller institutions, non-bank financial firms, payment technology providers, and even global retailers. By offering a lower-risk modernization journey, allowing customers to migrate volumes onto the platform at their own pace, Connetic complements ACIW's existing proven solutions and positions the company to capitalize on the industry's technical inflection point towards cloud adoption. Development is on track, with version 1.0 released in April 2025 and initial pilot implementations expected in early Q2 2025. Management reports high customer interest, with demand to be early adopters.

This strategic focus and technological roadmap are translating into tangible results. ACIW kicked off 2025 with a remarkably strong first quarter, reporting total revenue of $394.6 million, a significant 25% increase compared to the same period in 2024. This outperformance was primarily driven by net new business and better-than-expected transaction volumes, rather than early renewals, highlighting strong sales execution. Adjusted EBITDA saw an even more dramatic increase, surging 95% year-over-year to $94 million, demonstrating the inherent operating leverage in ACIW's software model.

Breaking down the performance by the new segments reveals the impact of the strategic reorganization. The Payment Software segment, encompassing the former Bank and Merchant businesses, saw revenue soar 42% to $200.7 million in Q1 2025, with adjusted EBITDA more than doubling to $106.6 million. This growth was fueled by increases in license and services revenues, including significant new logo wins and competitive takeaways, such as the largest ever in the Asia Pacific region and another in Latin America, both leveraging ACIW's issuing and acquiring solutions. Management notes that the segment combination is already generating new pipeline opportunities and improving geographic coverage efficiency.

The Biller segment also contributed positively, with revenue increasing 11% to $193.8 million in Q1 2025. While adjusted EBITDA saw a more modest 1% increase to $30.9 million, this segment's performance was driven by new customer go-lives and higher transaction volumes, particularly within its nondiscretionary verticals like utilities and government (including contributions from tax partners). Management remains optimistic about the Biller segment, citing continued bookings momentum and a growing qualified new bookings pipeline, with new ARR bookings up about 40% over Q1 2024. The recent partnership with Ingo Payments and Speedpay to offer digital disbursements is seen as a key opportunity to expand into the money movement space, complementing the core bill payment business.

Looking at the consolidated financial picture, ACIW's performance in Q1 2025 builds on a strong 2024, where the company achieved 10% revenue growth and 18% adjusted EBITDA growth, expanding its adjusted EBITDA margin by over 300 basis points to 41%. Cash flow generation has been robust, with operating cash flow more than doubling in 2024 to $359 million and remaining healthy at $78.2 million in Q1 2025. This financial strength is reflected in a low net debt leverage ratio of 1.2x as of March 31, 2025, well below the company's stated target of 2x. This strong balance sheet and cash flow provide significant financial flexibility for strategic investments, managing debt obligations (total debt was approximately $853.1 million as of March 31, 2025), and returning capital to shareholders through its stock repurchase program, which had about $358.1 million remaining authorized.

In the competitive arena, ACIW operates alongside formidable players like Fidelity National Information Services (FIS) (FIS), Mastercard, and Visa. While ACIW holds a smaller market share (estimated 5-7%) compared to the network giants like Visa (25-30%) and Mastercard (20-25%) or diversified players like FIS (10-15% in overlapping segments), its strength lies in its specialized, mission-critical software. ACIW's platforms are known for their reliability, scalability, and performance, handling trillions of dollars daily for the world's largest financial institutions.

Quantitatively, ACIW's technology offers specific advantages. Its real-time payments platform provides 24x7 processing with potentially faster speeds (20-30% faster than some alternatives based on industry benchmarks) and its fraud management tools can offer better detection rates (up to 15-20% better) in real-time scenarios, differentiating it in security-focused markets. The upcoming Connetic platform targets further improvements, aiming for increased speed and lower costs. While ACIW's financial metrics like net margin (10-15% TTM) and ROE (8-10% TTM) trail the exceptional profitability of network players like Visa (54.27% net margin TTM, 50-60% ROE TTM) and Mastercard (45.71% net margin TTM, 188.47% ROE TTM), its operating margins (21.37% TTM) and EBITDA margins (26.52% TTM) demonstrate solid profitability for a software provider.

ACIW's R&D investment (10-12% of revenue) is higher than FIS (7-9%), enabling quicker adaptation to trends like real-time payments, although its smaller scale can lead to higher operating costs per unit compared to larger rivals. The company strategically leverages opportunities when competitors make missteps or discontinue support for products, as seen in the recent Asia Pacific competitive win.

Looking ahead, ACIW has raised its full-year 2025 revenue guidance to a range of $1.69 billion to $1.72 billion, representing 7% to 9% growth over 2024 on an FX-adjusted basis, in line with its long-term targets. Full-year adjusted EBITDA guidance is maintained at $480 million to $495 million. For the second quarter of 2025, the company expects revenue between $375 million and $385 million and adjusted EBITDA between $55 million and $65 million. Management anticipates approximately 46% of full-year revenue to be recognized in the first half, a higher weighting than in 2024, reflecting the success of efforts to sign new contracts earlier in the year. The underlying base recurring revenue is expected to grow around 8% year-over-year, with variability in quarterly revenue primarily driven by the timing of license fees. Real-time payments and fraud detection are projected to be the highest-growing segments, with full double-digit growth expected.

Despite the positive outlook, risks remain. While ACIW believes it is fairly insulated from broader macroeconomic and geopolitical uncertainties due to the mission-critical nature of its systems and focus on nondiscretionary payments, unforeseen economic downturns could still impact customer spending. Foreign currency fluctuations can affect reported revenues and margins, although local currency expenses provide a natural hedge in some regions. The effective tax rate can fluctuate quarterly due to various factors. Execution risk exists for new strategic initiatives, particularly the successful development, launch, and adoption of the Connetic platform, although progress to date is encouraging. Competition is intense, and larger rivals possess greater financial resources and scale.

Conclusion

ACI Worldwide has demonstrated a strong start to 2025, underpinned by strategic reorganization, successful sales execution, and the promising development of its next-generation technology. The combination of proven, mission-critical platforms and the forward-looking Connetic payments hub positions ACIW to capitalize on key industry trends like real-time payments, cloud adoption, and the need for advanced fraud management. While operating in a competitive landscape dominated by larger players, ACIW's specialized software expertise and targeted innovation provide a durable competitive moat. The company's solid financial health and disciplined capital allocation further support its ability to pursue growth opportunities. The raised revenue guidance and maintained EBITDA outlook signal management's confidence in the trajectory, suggesting that ACIW is effectively orchestrating its path towards continued profitable growth and enhanced shareholder value, driven by its technological leadership and strategic focus.