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ACI Worldwide, Inc. Reports Financial Results for Quarter Ended December 31, 2007

Tuesday, February 19, 2008

We are pleased with our December quarterly performance. All of our operating metrics- sales, operating free cash flow, backlog, revenue and deferred revenue - demonstrated the type of performance we expect from our products and also validated our strategic shift away from selling shorter tenured product and into selling comprehensive multi-product solutions.” Heasley stated, “2007 was a challenging transitional year with legacy issues and, yet, it was extremely gratifying to see the business perform so well in the fourth quarter of the calendar year. I believe that our organic performance and the new IBM alliance will both position ACI to grow strongly in 2008 and beyond.”    

Notable new business during the quarter included:

Saudi Arabia: a significant Saudi bank subscribed to Base24-eps/pos, AKDS, ACI Commerce Gateway, Smart Chip Manager, Payments Manager Transaction Warehouse, ACI Web Access services, Simulation Services for Enterprise Testing, Monitoring/Management system.
Thailand:  a major Thai bank subscribed to Base 24-atm and card, PRM risk manager, ACI Communication Services, Golden Gate and Vision Plus AO.
EMEA processor: Base 24-atm/pos, Smart Chip Manager, Card Management System, PRM Merchant, Debit, ACI Web Access services.
United Kingdom:  ACI Datawise sold to a governmental police authority.
United States: ACI Enterprise Security, Web Access, Retail Commerce Server and ACI Enterprise Banker on Demand were sold to multiple US clients in the quarter ranging from credit unions to commercial banks, and retailers.
17 new customers signed up for 37 products, including new users of Base 24-eps, ACI Enterprise Banker, ACI Retail Commerce Server, Smart Chip Manager and Payments Manager Transaction Warehouse.
19 new applications added to 16 existing customer relationships ranging from ACI Retail Commerce Server to Proactive Risk Manager for Enterprise Services, and Simulation Services for Enterprise Testing.

FINANCIAL SUMMARY

Operating Free Cash Flow

Operating free cash flow for the quarter was $21.1 million compared to $6.7 million for the December 2006 quarter.  On an annual basis, operating free cash flow grew 33% to end the year at $52.5 million versus $39.3 million in calendar 2006. Operating free cash flow for both the quarter and year ended December 2007 includes a net figure of approximately $9.3 million related to the receipt of cash from IBM Corporation exclusive of the amount paid for warrants in ACI shares.

Backlog

As of December 31, 2007, our estimated 60-month backlog was $1.380 billion compared to backlog of $1.341 billion, and $1.242 billion as of September 30, 2007 and December 30, 2006, respectively. The 2007 year-end figure represented a rise of $39 million on a sequential basis and $138 million on a year over year basis.  As of December 31, 2007, our 12-month backlog was $336 million, as compared to $329 million as of September 30, 2007, and $292 million as of December 31, 2006. 

As previously disclosed in our Form 10-K for the fiscal year ended September 30, 2007, we have recently completed a comprehensive review of the assumptions used and data required in computing our backlog estimates. The results above reflect the impact of this review on all periods.  Revenue was $101.3 million in the quarter ended December 31, 2007, an increase of $8.0 million or 9% over the prior-year period revenue of $93.3 million.  The year over year quarterly increase was largely attributable to an increase of $5.1 million in license fees received; of which 80% originated in the United Kingdom and Scandinavia with the remainder in the United States. The remaining $2.9 million in revenue increase on a year-over-year quarterly basis was derived primarily from maintenance revenue growth. Sequentially, our deferred revenue increased by $15.5 million to $142.8 million compared to a sequential increase of $1.5 million to $100.9 million in the December 2006 quarter.  The increase reflects the business’ emphasis on selling longer term products and services to both new and existing customers, thereby resulting in lengthier revenue recognition cycles.   Revenue for calendar year 2007 was $374.2 million, an increase of $18.1 million or 5% compared to revenue of $356.1 million in calendar 2006.  The growth in revenue is attributed to $48.0 million in acquisition-related revenue, primarily due to a $38.8 million contribution by P&H Solutions in the Americas in calendar 2007 compared to a P&H Solutions contribution of $7.4 million in calendar 2006.  Organic revenue decreased by $17.8 million due to a reduction in non-recurring fees. Deferred revenue grew 41% or $41.9 million on a year over year basis as compared to a 2006 deferred revenue increase of 1% or $0.7 million.  The growth in deferred revenue, much like the quarterly performance of deferred revenue, is a reflection of the fact that we now sell longer term products and services to both new and existing customers which has the effect of prolonging the revenue recognition timeframe.      

Operating expenses were $98.4 million in the December 2007 quarter compared to $88.3 million in the December 2006 quarter. Organic expenses rose $10.0 million year over year excluding the impact of acquisitions and other non-recurring items.  This is primarily due to increased research and development costs incurred in the Base 24-epsTM and ACI On Demand product lines ($3 million), higher commissions paid as a result of higher sales ($2 million), and timing associated with professional fees ($3 million). Deferred expenses increased $2.9 million from the previous sequential quarter compared to a rise of $2.0 million in the prior year sequential quarter.  Operating expenses for calendar year 2007 were $373.9 million, an increase of $62.0 million, or 20%, compared to expense of $311.9 million in calendar year 2006. The increase in operating expense year over year resulted primarily from $45.2 million of expense related to acquisitions, $5.4 million related to non-recurring employee costs, and $9.2 million related to the historical stock options review and settlement of vested options.  Deferred expense during calendar 2007 increased $5.5 million as compared to deferred expense growth of $0.7 million during calendar 2006.   

Net Income (Loss) and Diluted Earnings Per Share

The Company reported a net loss of $2.0 million for the quarter compared to net income of $2.6 million during the same period last year.  Calendar year 2007 net loss was $13.8 million compared to net income of $42.8 million in calendar 2006.Earnings per share for the quarter ended December 2007 was ($0.06) per diluted share compared to $0.07 per diluted share during the same period last year. Earnings per share for the year ended December 31, 2007 was ($0.38) as compared to $1.13 in the prior year period ended December 31, 2006.  2008 Guidance

ACI anticipates operating free cash flow (“OFCF”) of approximately $65 million in calendar 2008 versus $52.5 million OFCF achieved in calendar 2007. This number includes approximately $24 million of capital spending and financing anticipated in 2008 versus $9.8 million of capital spending and financing in calendar year 2007. The higher rate of capital spending is influenced by several factors, including investments in facilities, retail and wholesale software optimization as well as the IBM relationship. Combined revenue and 60-month backlog growth is expected to reach approximately $200 million in 2008 as compared to calendar year 2007 growth of $157 million.    

A key factor driving the growth of both of these metrics is an increase in new product and new client sales anticipated for 2008.  

Table 1: Reconciliation of Operating Free Cash Flow
 Quarter Ended December 31,
 
(millions)
 2007
 2006
 
Net cash provided by operating activities
 $12.1
 ($0.6)
 
One-time items:
 
 
 
   Net after-tax cash payments associated with P&H
 0.0
 5.9
 
   Net after-tax cash payments associated with class action settlement
 0.0
 5.3
 
   Net after-tax cash payments associated with stock option
 0.0
 1.2
 
   Net after-tax cash payments associated with Restructuring and Other Emp. Related Actions
 2.7
 0.0
 
   Net after-tax cash payments associated with cancellation of corp. jet lease
 0.8
 0.0
 
Less capital expenditures
 (3.9)
 (5.1)
 
Net Proceeds from IBM Alliance
 9.3
 0.0
 
Operating Free Cash Flow
 $21.1
 $6.7