ACI Worldwide, Inc. (NasdaqGS:ACIW), a leading international provider of software for electronic payment systems, today announced preliminary financial results for the period ending September 30, 2007.
The financial information presented in this press release is preliminary and subject to completion of our financial close and audit. The Company is substantially complete with its close; however, there are some open issues with income taxes that will delay the filing of our SEC Form 10-K. We will hold a conference call on December 17, 2007, at 4:30 p.m. EST to discuss this information.
On December 16, 2007, we signed a definitive agreement with IBM that formalized a new strategic alliance. Pursuant to the agreement, we will deploy a new generation of ACI software integrated and optimized on IBM's System z platform, to enhance the security and resiliency of payments operations for global financial clients. IBM will assist ACI with software enablement and marketing and provide sales incentives on IBM products and services. ACI plans to use IBM data centers globally to host its integrated software in an on-demand environment. Joint sales and technical teams will sell ACI's solutions on System z and support migrations to IBM platforms. IBM will receive warrants to purchase up to 8% of ACI's outstanding shares, half exercisable at $27.50/share and the balance at $33.00/share.
"We are delighted to launch this transformational alliance with IBM. The partnership provides ACI with an opportunity to extend our reach among the world's top 2,000 banks, where System z is the leading platform, and helps IBM expand their footprint in the payments arena. It also helps us exploit the global opportunity for ACI's on-demand initiative by working with IBM to utilize their proven data centers to host our software. We are especially pleased to share and build upon best-of-breed practices with a proven industry leader," said ACI Chief Executive Officer Philip G. Heasley.
"In terms of the operating business, we had a very strong sales quarter as evidenced by our growing backlog. In addition, our deferred revenue continues to grow," Heasley added.
Notable new business during thehering the quarter included:China: Proactive Risk Manager sale to a bank for debit and credit card fraud detection.Thailand: Our largest Asian contract to date comprised of BASE24-eps and ACI Payments Manager for a services company.Russia: A BASE24-atm product sale at a large bank.United Kingdom: Signed a significant contract with a large financial services firm for BASE24-eps(tm), ACI Payments Manager, ACI Communication Services, and our Automated Key Distribution System.United States: Licensed BASE24-eps(tm), ACI Payments Manager, ACI Claims Manager, and Relate (a third-party product) to a large credit card company.Twelve new customers signed, including new users of ACI Enterprise Banker, ACI Data Wise and Proactive Risk Manager.Twenty-nine new applications added to existing customer relationships ranging from ACI Retail Commerce Server to Proactive Risk Manager for Enterprise Services, and Simulation Services for Enterprise Testing.
PRELIMINARY FINANCIAL SUMMARY
The financial information enclosed herein is preliminary and subject to completion of our financial close and audit. The Company is currently reviewing certain tax deductions previously taken on its US federal tax returns for fiscal years September 30, 2004 through 2006. The Company is still evaluating the impact to its financial statements, if any, from this analysis.
The Company's preliminary operating free cash flow estimate is approximately $1.6 million compared to $12.5 million for the September 2006 quarter. The decline in our estimated operating free cash flow was primarily due to a $13 million reduction in upfront fees related to capacity and licensing in the September 2007 quarter as compared to the same quarter in the year prior.
As of September 30, 2007, our estimated 60-month backlog was $1.302 billion, compared to $1.270 billion as of June 30, 2007, and compared to $1.226 billion as of September 30, 2006. The sequential growth of $32 million in our 60-month backlog was comprised primarily of ACI EMEA growth of $23 million and Americas growth of $7 million. As of September 30, 2007, our 12-month backlog was $330 million, as compared to $316 million for the quarter ended June 30, 2007, and $289 million for the quarter ended September 30, 2006.
Revenue was estimated at approximately $84.7 million in the quarter ended September 2007, a decrease of approximately 4 percent over the prior-year period revenue of $88.2 million. The decrease was largely attributable to capacity revenue of $8.5 million in the September 2006 quarter as compared to $3.1 million in the September 2007 quarter as well as $18.1 million in non-recurring license fees booked in the September 2006 quarter as compared to $9.5 million in non-recurring license fees booked in the current quarter. Sequentially, our deferred revenue increased by $4.5 million compared to a sequential increase of $4.0 million in the September 2006 quarter while our year-over-year deferred revenue rose by $27.9 million, reflecting the business' emphasis on selling longer term products and services to both new and existing customers resulting in lengthier revenue recognition cycles.
Operating expenses were estimated at $92.6 million in the September 2007 quarter compared to $85.7 million in the September 2006 quarter. The change in operating expenses was due to the following factors: organic operating expenses for the quarter grew $1.8 million on a year-over-year basis when adjusted for the expense of $8.5 million in the September 2006 quarter pertaining to settlement of a lawsuit, a further $9.0 million of current year quarterly expenses were related to acquisitions, $(1.5) million related to the review of historical stock option practices and vested share option settlement, and $3.1 million related to non-recurring employee costs.
Other expense for the quarter was approximately $2.5 million, compared to other income of $1.3 million in the September 2006 quarter. The increase in other expense resulted from the following factors: FAS 133 non-cash charge of $2.1 million for loss on a derivative instrument; reduction of cash and cash equivalents due to funding of share repurchase program, which also impacted interest income received; and interest expense paid on the outstanding credit facility. This was partially offset by a gain on foreign exchange.
We anticipate that we will incur a pretax loss of approximately $10.4 million. However, we are not yet complete with our financial closing process in the area of income taxes. As such, net income and earnings per share metrics are not available.
Total shares outstanding were 35.7 million as of September 30, 2007, as compared to 37.3 million shares outstanding as of September 30, 2006. Shares repurchased in the quarter totaled 992,814 shares at an average price of $27.13 or $26.9 million. Year to date as of November 23, we have repurchased 1,622,386 shares at an average price of $27.67.
Certain amounts previously expected to move from backlog to revenue in calendar year 2007 are now expected to remain in backlog until calendar year 2008. Thus, it is anticipated that backlog will be higher and revenue lower than previous guidance. In addition, certain transactions that were assumed to contribute to operating free cash flow in calendar year 2007 are anticipated to close prior to year end but the receipt of cash will be delayed until 2008. Given the circumstances described above, in addition to the incomplete nature of our income taxes as of September 30, 2007 quarter close and the pending accounting impact of the IBM alliance, previous financial guidance is rescinded.
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