ACI Worldwide Inc

NASDAQ:ACIW

Earnings Call Analysis

Company Eyes Accelerated Growth in 2024

The company reported a successful 2023 with the Biller segment leading the charge, exhibiting a 9% revenue increase and a 60% rise in segment adjusted EBITDA compared to Q4 the previous year. Overall revenue climbed 5% reaching $1.45 billion, while adjusted EBITDA improved by 10% to $395 million. Operating cash flow jumped by 19% to $169 million. Net leverage ratio improved to 2.2x, and the company managed its debt wisely, ending the year with $164 million in cash. Share buybacks continued, with a remaining $110 million authorization. Looking ahead, the company aims to boost revenue growth to 7-9% in 2024, forecasting revenues between $1.547 billion and $1.576 billion, with adjusted EBITDA estimated at $418 million to $428 million.

Robust Revenue and EBITDA Growth in Q4 Leading Full Year Performance

The company experienced a solid growth trajectory with Q4 2023 revenue reaching $477 million, a 5% increase from the previous year's quarter. The recurring revenue notably grew by 7%, underscoring the company's ability to generate consistent, reliable income streams. Adjusted EBITDA for Q4 stood at $210 million, marking an impressive 8% rise compared to Q4 2022. The growth momentum is reflected in the full year's performance, with total revenue hitting $1.45 billion, a 5% year-over-year boost, and adjusted EBITDA leaping to $395 million, up 10%. Additionally, the operating cash flow surged 19% to $169 million for the full year.

Segment Highlights Indicate Diversified Strengths

The bank segment reported a modest 3% revenue growth and a 1% increase in segment adjusted EBITDA, relative to the same quarter in the previous year. Meanwhile, the merchant segment posted a 4% revenue uptick with its adjusted EBITDA rising by 2%. The most notable performance came from the Biller segment, which experienced a remarkable 9% revenue increase and a substantial 60% jump in adjusted EBITDA compared to Q4 2022.

Solid Balance Sheet with Strong Capital Allocation Strategy

The company concluded 2023 with a healthy balance sheet featuring $164 million in cash and a total debt of approximately $1 billion. The net debt leverage ratio improved to 2.2x, dipping below the targeted 2.5x. The company also completed a refinancing of its credit facility, ensuring financial flexibility for the coming years. It remains committed to shareholder returns, having repurchased shares worth $90 million and poised to continue significant buybacks, with $110 million still authorized for this purpose.

Positive Outlook for 2024 with Focus on Revenue and EBITDA

For 2024, the company sets an ambitious target, projecting to accelerate revenue growth to 7-9%. The guidance for Q1 2024 estimates revenue to be between $300 million to $310 million, with EBITDA forecasted in the range of $25 million to $35 million. This confidence in growth is supported by a robust diluted share count at approximately $108 million, excluding any future buybacks.

Bank Segment Set to Rebound and Merchant Segment To Lead Growth

The bank business is forecasted to return to average growth rates seen over the last three years, bouncing back from a slower 2023. In contrast, the merchant business, having ended 2023 on a stronger note, is expected to operate at the higher end of the company's overall growth projection for 2024.

Pioneering in Real-Time Payments and Fraud Detection

International markets contributed significantly to the impressive 23% revenue growth of the company's real-time payments solutions in 2023. The company anticipates maintaining healthy double-digit growth for both real-time payments and fraud detection offerings, leveraging its reputable bank customer base for cross-selling opportunities.

Innovative Applications of AI Boosting Productivity Across Operations

The strategic use of artificial intelligence (AI) across fraud detection, customer service, and software development is enhancing productivity, with particular milestones like achieving 10x productivity in creating microservices-based on existing software logic. AI is positioning the company to rapidly adapt to industry changes and consumer demands, including supporting transactions in cryptocurrencies like Bitcoin.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Kat, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Inc. Fourth Quarter and Full Year Ended 2023 financial results. [Operator Instructions] I would now like to turn the conference over to John Kraft. Please go ahead.

[John Kraft, executive]

Thank you, and good morning, everyone. On today's call, we will discuss the company's fourth quarter and full year 2023 results. We will also discuss our financial outlook for the rest of 2024, and we'll take your questions at the end. The slides accompanying this call and webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call.

Today's call is subject to safe harbor and forward-looking statements like all of our events. You can find the full text of both statements in our presentation deck and earnings press release, both of which are available on our website and with the SEC. On this morning's call is Tom Warsop, our President and CEO; and Scott Behrens, our CFO.

Before we begin, we wanted to make sure that everyone was aware of our upcoming Analyst Day, which will be held in New York City on March 12. Please reach out if you haven't received an invitation. With that, I'll turn the call over to Tom.

[Thomas Warsop, executive]

Good morning, and thank you for joining our call. I'm going to start with some high-level thoughts on my first year as CEO, and I'll provide some comments about our 2023 performance. I'll finish by reiterating my confidence in our ability to take advantage of strong market opportunities in 2024 and beyond. As usual, I'll hand it over to Scott, and he'll discuss financial results in more detail and our outlook for 2024 and we'll open the line for questions after that.

As you probably know, I've been the CEO first on an interim basis. And then since June of last year on a longer-term basis. And during that time, I've made it a point to personally visit as many customers, partners and fellow ACI team members as possible. In that year, I've met in person more than 70% of our employees and all of our top 10 customers in more than 15 countries across 5 continents.

And following those visits, I'm even more convinced that ACI is a company with world-class solutions, talented employees and a customer base unmatched in the industry. Our market position, combined with the substantial opportunities for expansion and growth in industry with a near continual change puts us in a position to accelerate our growth and help customers achieve and exceed their strategic objectives.

More on the future in a moment, I'm going to start with 2023. We had a solid performance. We exited the year strong, and that has set us up to accelerate our growth this year. We delivered results in line with or above our expectations and with the guidance we provided to you this time last year. We saw strength in our Biller segment with revenue growth of 9% and EBITDA growth of 32% in 2023.

We went live with the first 2 of several phases of the implementation of a large new builder customer that we signed in 2022, more phases of that program go live in 2024, and they're on track. We also signed a large new utility customer that is on track to go live and begin ramping in the middle of 2024, and we continue to make incremental progress with our interchange improvement program.

Our banking segment saw a notable strength in cross-sales of our anti-fraud and real-time payment solutions, and those saw a revenue growth of 35% and 24%, respectively, in 2023. Our anti-fraud solution utilizes artificial intelligence and proprietary access to ACI generated big data to truly lead in the category.

So we continue to be excited about our opportunities in real-time payments. To illustrate our continued success in this area around the world, we signed up 3 new central infrastructures in the quarter including El Banco de la Republica de Colombia; and the Nepal clearinghouse. We're now supporting 9 central infrastructures globally along with more than 25 national and regional real-time payment scapes.

And lastly, in our Merchant segment, though we had a bit of a slow start to 2023, we exited the year with a strong Q4 rate of growth, and we expect growth to accelerate in 2024. We remain excited about leveraging our best-in-class payments expertise to help our clients offer the optimal payment choices to their consumers while providing a safe, secure payment processing environment.

Our proprietary AI-driven fraud management tools are helping to protect our billers and merchants from fraudulent transactions. Perhaps most importantly, our sales pipeline is strong and growing. And we expect to see particularly strong demand in our banking segment. As I mentioned on our last call, the maturation of real-time payments around the world is driving an intense analysis of payments technology infrastructures by banks everywhere.

When these institutions think about which firms to work with, to address this critical need, ACI is virtually always on the list and near the top. Because of our history, market presence and proven expertise, we are a usual suspect. The fact that many of the largest financial institutions in the world already rely on our proven software means we're the only choice for a lower risk, high reliability modernization.

ACI's reliability and scalability are unquestioned, and we are seeing significant demand for our solutions, including our payments hub across the globe. Speaking of our payments hub, we're engineering it to support on-premise cloud and SaaS delivery models making us a great choice for large and mid-tier financial institutions alike.

Mid-tier or super regional sized customers in the past that often did not have the established infrastructure to take advantage of ACI's highly reliable and scalable software, our newer solutions, cloud enablement and SaaS offerings have made this possible. You'll hear more about this at Analyst Day, but I want to reiterate, this is a net new opportunity for us.

It substantially increases the size of our historic addressable market. And it presents an opportunity to bolster our already accelerating growth rate. Our Biller segment, we saw a significant turn on in 2023, we'll see further growth in 2024 and as we get a full year benefit of customer go-lives we saw in 2023 as well as the go-lives of additional large customers sold during last year.

This revenue growth, combined with continued success in our interchange improvement program, will continue to deliver margin improvement. In our Merchant segment, our investments are paying off. We saw Q4 deliver the strongest rate of quarterly growth of the year, and we expect that momentum to carry into 2024. In fact, we signed a significant new customer in the fuel store segment in the first week of the year, a great way to start.

Overall, I'm pleased with where we are as a company. We have a strong balance sheet, we have leverage below our long-term target, and we're accelerating our top line as we've long promised. We're managing our expenses well. We have a strong team. We have a strategy in place that positions us well to accelerate growth in 2024 and beyond.

I'm also happy to announce that today, we've appointed 2 new members who are already strong Board of Directors. Katrinca McCallum, who spent many years at SaaS software company at Red Hat, most recently as Vice President of Customer and Product Experience and Juan Beneathus, the former President of GoFundMe and General Manager of Braintree, which is now part of PayPal.

Katrinca and Juan will provide great support as we expand our SaaS businesses and drive accelerated productivity through more use of generative AI, large learning models and machine learning, things both of them have overseen before. Before I turn it over to Scott, I want to remind you of our upcoming Analyst Day.

As John mentioned, we're hosting an event in New York City on March 12. We invite you to attend in person or online as we discuss our business segments and exciting global opportunities. With that, I'm going to turn it over to Scott to discuss financials and guidance. Scott?

[Scott Behrens, executive]

Thanks, Tom, and good morning, everyone. I first plan to go over our financial results for 2023. I'll then provide our outlook for 2024. We'll then open the line for questions. I'll be starting my comments on Slide 4 with key takeaways from the fourth quarter. Q4 2023 revenue was $477 million, up 5% from Q4 2022. And we continue to see solid growth in our underlying recurring revenue, which was up 7% compared to Q4 2022.

Adjusted EBITDA was $210 million, up 8% from Q4 2022. Our EBITDA growth contributed to strong cash flow growth in Q4 2023 with cash flow from operating activities of $86 million, more than double Q4 2022. As we look at the segment results, our bank segment revenue increased 3% and Bank segment adjusted EBITDA was up 1% compared to Q4 2022.

Our merchant segment revenue increased 4% and segment adjusted EBITDA increased 2% versus Q4 2022. And during the year, we saw improvement in the segment as expected with revenue growth accelerating as we exited the year. Our Biller segment saw the biggest improvement year-over-year with revenue increasing 9% and segment adjusted EBITDA increasing 60% versus Q4 2022.

The growth in revenue and profitability in this segment is driven by both new customer go-lives as well as notable progress with our interchange improvement program. Turning next to Slide 5 with key takeaways for the full year 2023. Revenue for the full year was $1.45 billion, up 5% from 2022, adjusted EBITDA was $395 million, up 10%.

Cash flow from operating activities was $169 million, up 19% from 2022. We ended 2023 with $164 million in cash on hand and total debt outstanding of approximately $1 billion. Our net debt leverage ratio was 2.2x, that is down from 2.6x at the beginning of the year and is below our long-term target of 2.5x. Also of note here in February, we completed the refinancing of our credit facility that was set to expire in April of 2025 with a new 5-year credit facility on substantially the same economic terms as our existing facility.

We repurchased approximately 1 million shares for $28 million in Q4 2023 and have further purchased an additional 2 million shares for $62 million so far here in 2024, which in total represents approximately 2.8% of our shares outstanding. And we currently have $110 million remaining on our repurchase authorization.

During 2024, we expect to continue to deploy a significant portion of our cash flow to share buybacks. And finally, turning to Slide 6 with our outlook for 2024, we expect to accelerate revenue growth to 7% to 9% in 2024 with revenue in the range of $1.547 billion to $1.576 billion. We expect 2024 adjusted EBITDA to be in the range of $418 million to $428 million.

And to help with your modeling, you'll find a few additional guidance assumptions on Slide 7. Net interest expense is expected to approximate $50 million to $65 million. Depreciation and amortization is expected to approximate $115 million to $120 million. Noncash share-based compensation expense is expected to approximate $30 million to $35 million.

Our effective tax rate should approximate 25%. And lastly, our diluted share count should be around $108 million which excludes future share buyback activity. We expect our revenue phasing by quarter to follow our historical seasonality with Q1 2024 revenue to be in a range of $300 million to $310 million, and EBITDA to be in a range of $25 million to $35 million.

So in summary, we're very pleased with the 2023 results, which delivered revenue and EBITDA in the mid- to high end of our guidance ranges that we provided to you at this time last year. That strong EBITDA growth and the result in strong cash flow generation was used in part to pay down debt, resulting in our lowest leverage ratio in 5 years.

And finally, we exited the year strong and see that momentum carrying into 2024. And in particular, the strength we're seeing in the underlying recurring revenue base of the business, which was up 7% in 2023, combined with the visibility and predictability of the license renewals next year and the maturity of the sales and implementation pipeline sets us up well to deliver our 7% to 9% growth in 2020.

We are pleased that this growth rate is in line with the long-range outlook we provided at our last Analyst Day in 2021 and demonstrates our ability to deliver results and look forward to sharing more about our new long-term outlook at our Investor Day in a couple of weeks. With that, we'll now open up the line for questions. Operator?

[Operator]

[Operator Instructions]

And your first question comes from the line of Jorn Heckmann with D.A. Davidson.

[Peter Heckmann, analyst]

I wanted to see if you could give a little bit more color or interpretation on your bookings numbers. You see getting both ARR and licenses and services bookings. And when we look at those, certainly down year-over-year on the ARR side, following a relatively stronger year in 2022, how should we interpret the ARR bookings and now the license and service bookings in terms of incorporating that in the model?

I mean, historically, with this -- that and total bookings, directionally -- kind of extrapolating that into when do those start to have an impact? And how concerned should we be with the down bookings for the year?

[Scott Behrens, executive]

Yes. Thanks, Pete. This is Scott. Yes, we've talked about this now for a number of quarters. The one aspect of the ARR metric is it doesn't really capture the booking success that we have in the bank business, which is predominantly on-premise. And so we've been talking about our license and service sales. We put that into the bookings table this quarter. That is up, whether you're looking at the quarter-over-quarter, year-over-year is up in the 16% to 17% range.

And that's really where we've been seeing our success. So it's more of a function of which segment we're seeing success in bookings in 2023, and that's coming from banks. Really, if you look at banks over the last 3 years in terms of revenue growth, it's been coming out of code, but if you exclude Dragonfly, our digital banking sale, revenue of the banks has been really our strongest segment. It's been up 8% to 9% on a constant currency basis.

And so we're continuing to see that strong bookings growth in the bank segment in license and services in '23. The only other thing I'd point out is if you recall in 2022 on the ARR side, we did have our largest Biller deal that we've ever sold was in the 2022 comps. So it's -- and that sort of deal size did not recur in 2023.

[Thomas Warsop, executive]

Yes. I think that was the only point I would have I'll just reiterate the point Scott just made. So 2022 is a little bit of an anomaly in that way. And you mentioned that, Pete. When you signed 2 of the largest deals we've ever had in the history of that business, and those showed up in the 2022 ARR numbers, we did not expect to repeat that in 2023.

And of course, we didn't. But total bookings were very strong, and we're very confident in the guidance that Scott just presented to you.

[Peter Heckmann, analyst]

Great. That's appreciate that. And then in terms of interchange, you had said in the press release that you do expect net adjusted EBITDA margins for the year to expand a bit. So would that imply that interchange is maybe going to grow at about the same rate or maybe even a little bit faster than total revenue?

[Scott Behrens, executive]

I wouldn't necessary -- I would say, generally in line with. I think we still have some room for improvement there. Obviously, we had a big improvement between '22 and '23 in terms of all the initiatives that we've put in place, but there's still more to go. So I would say it's in line with or less than the total rate of revenue growth in that Biller segment.

[Thomas Warsop, executive]

Yes. I mean I think it's fair to say though, we -- as Scott said, we had a big improvement in 2023. We don't have enough room to repeat that, but we do expect to see continued improvement and expansion of margin.

[Operator]

Our next question comes from the line of Jeff Cantwell with Seaport Beasrich.

[Jeffrey Cantwell, analyst]

Can you talk about the guidance you gave for 2024 and your revenue growth of 7% to 9%, which looks pretty good. And maybe playing, how you're thinking about revenue growth by segment. Can you break that out for us?

And then specifically on your banking segment, what opportunities are you seeing there right now with clients? Maybe you could give us some flavor for what we should expect to see there in 2024. And maybe tell us about your pipeline.

[Scott Behrens, executive]

Yes. On the 2024 growth, I think if you look at relative to 2023, the Biller segment grew 9% in 2023, but that growth really was a function of, call it, 3 things. One is just your same-store sales growth. Second is the go-live and ramping of net new client business. And the third piece was some of the repricing elements of dealing with the interchanges we had in 2022.

So you go to 2024, 2 of those 3 elements are still going to be there. There may be some repricing elements left. But Billers should fall back into, call it, that within the 7% to 9% growth rate that we're talking about in terms of total company. The bank business which has -- in the last 3-year CAGR has been about 8-plus percent. 2024 will kind of look like it would be back to kind of mean reversion. This year was only a couple, 2% or 3%. But next year, we'll be back within that kind of 3-year average.

And then merchant which was a drag essentially on growth in 2023. And as we talked about, exited the year stronger and that exit rate will carry into next year, would expect the merchant business really to be at the high end of our consolidated growth rate. So they all line up pretty much within that 7% to 9% growth, but a little bit different dynamics by each of the segments.

[Thomas Warsop, executive]

Yes. And then on the -- I think your question was about banks, the bank segment and opportunities in pipeline. So we're seeing a number of different types of opportunities, and it depends on which region of the world you're in, but I'll give you kind of a flavor for it. So in -- we continue to see price increases as we renew with our existing customers. So -- and those are based on -- primarily on 2 things: volumes. So they need to buy more capacity from us than they did the last time, and then price increases related to the inflation that has happened between the last renewal and this one.

So that's one driver. But -- and that's in our more developed markets. And then we look at places like Latin America and Asia, and we see new opportunities with financial institutions. And those are -- many of those are driven by what I mentioned in my comments earlier, the understanding that real-time payments volumes are coming.

And it depends on which country you're in whether you -- these financial institutions have seen those volumes ramp yet or not. But everyone knows they're coming and they're thinking about how do I make sure that my payments infrastructure can handle that increase of volume because these are, to a large extent, those real-time payments are cannibalizing cash transactions.

And so those -- a bank in Latin America doesn't -- not a lot they have to do with the cash transaction, but as it moves to real-time payments, that changes, and they need to make sure they're ready for the for the volume, and they're making sure that they are. They're trying to make sure they are. And that's when that opportunity comes for us to talk to them.

They want to continue to take advantage of our proven scalability, reliability. And then -- so if they don't have it, they're looking to talk to us about it. If they do already have some of our software, they're asking for our help to make sure the rest of their infrastructure, can handle that increased volume. So those are some flavors of it. The pipeline is very strong.

It's growing and that dynamic about being ready for the ramp in volume that they know is coming eventually. That's one of the key drivers.

[Jeffrey Cantwell, analyst]

Okay. That's great. And my follow-up on that, on real-time payments is one of the biggest questions we'll be getting inbound about your opportunity is there's so much focus on FedNow, but my understanding is for your footprint. It's much broader than that globally. So would you mind -- I don't want to preempt your Analyst Day too much here, but today. But would you mind mapping out where you see the most significant opportunities for real-time payments is it Europe, is it Asia, LatAm, et cetera? How would you characterize that?

[Scott Behrens, executive]

Well, I don't -- I'm not trying to be flipping on this, but it's all of the above because -- and we're -- I think you probably know this, but just so we're all on the same page, largest real-time payment markets today in the world are India, that's the largest by far, Brazil and China. Those are the 3 largest real-time payment markets in the world.

And the rest of the world is, to some extent, playing catch-up, but the European Central Bank has mandated the availability and support of real-time payments across the Eurozone. So you've got -- I mean you have real-time payments in Europe, of course, but that is -- it's getting a lot more attention. And then Latin America is an up and comer outside of Brazil. It's still a relatively small volumes with real-time payments, but that's changing.

And I mentioned, we signed the Central Bank of Colombia in terms of supporting the -- their real-time payments central infrastructure that's just one example in Latin America, but I think that you will continue to see significant growth in the focus on and volumes of real-time payments in Latin America, also in Asia, and certainly in Europe.

So lots of opportunity. You mentioned Fed Now. I mean, Fed now is still a new thing. It's only a few months in. And the Fed has not published specific volumes yet. But we expected them to be pretty small at the beginning, and they are. But we're getting new institutions signing on at an increasing rate. And I don't have the exact number from the Fed in front of me, but the number of institutions has grown a lot since that started.

And what's really interesting, too, is the clearinghouses, real-time payments transactions have benefited from all the marketing that the Fed has done around FedNow. So we are starting to see increased volumes. I think it's going to take -- continue to take a while before the volumes are extremely large.

But again, to me, the most interesting thing is the discussions that the anticipation of real-time payment volume increase is generating for us. And that's really good for us. It puts us in a position to help our customers deal with one of the biggest issues they're wrestling with right now.

[Thomas Warsop, executive]

Yes. The only other thing I'd add to that is, just in terms of a metric, our real-time payments solution revenue growth in 2023 was 23% over 2022 and very little -- I mean, very little of that, if any, right now is coming from FedNow. So there's really no -- there's not a real contingency on our 2024 outlook or our longer-term outlook on or where we're predicting a tipping point on FedNow specifically, really a lot of our growth historically in the near term is coming from international markets.

[Operator]

And our next question comes from the line of Charles Nabhan E with Stephens, Inc.

[Charles Nabhan, analyst]

As we think through the model for banking in '24, I was hoping you could comment on the renewal schedule. I think you said in the past that it was it would be a little more evenly distributed relative to '23. And I know third quarter was a big quarter for -- you had the big renewal there. But anything you could say around the cadence as we think through the model for banking would be helpful.

[Scott Behrens, executive]

Yes, Chuck, I would look at just I would phase the bank revenue in your modeling for '24 pretty consistent with 2023. We're always going to have kind of that second half and predominantly fourth quarter renewal timing. So if you model it consistent with 2023, that should set you up well for 2024 timing.

[Charles Nabhan, analyst]

Got it. And as a follow-up, I wanted to drill into the Biller segment a little bit and get a sense for what verticals specifically are driving the growth from both the new bookings and a same-store standpoint.

[John Kraft, executive]

Yes. I don't know that there's a single vertical that drove it. I think the biggest growth because of the new sales that we've mentioned, where the utilities and telecommunications segments. But we've seen good growth across the verticals that we support, but those would be the 2 largest.

[Charles Nabhan, analyst]

Got it. And if I could sneak one more in on capital allocation. You're in a pretty good spot from a balance sheet standpoint. You had mentioned that your -- the priority is buybacks. However, you do have that flexibility. So I was wondering if you could comment on M&A and if your appetite towards potential targets that would potentially accelerate your go-to-market in certain areas across your businesses? Anything you could say there would be helpful.

[Scott Behrens, executive]

Well, I mean, I think we would always be opportunistic. But obviously, the -- it's been a number of years since we have done an acquisition. We did make the divestiture of our digital banking business in 2022. I would say just -- I would look at 2024 at this point, very similar to '23 and that the balanced approach of both buybacks and delevering is really the target capital allocation. I would just say, I think we'd always be opportunistic if there was something accretive, but the balance this year is targeted to share buyback and delevering.

[Operator]

Our next question comes from the line of Joe Vafi with Canaccord Genuity.

[Pallav Saini, analyst]

This is Paul Fanny on for Joe. First off, Tom, you touched on GenAI and large language models in your remarks. Can you give us some examples of how you're using GenAI currently? And what are some near-term opportunities for you there? And I have a follow-up.

[Thomas Warsop, executive]

Sure.

Sure. 3 primary use cases for us with GenAI and LLMs. So first of all, it's fraud detection and prevention, which I've mentioned before. I'm sure you've -- you've heard a lot about it. We've been using AI for over a decade in our fraud detection and prevention solutions. And we have patents and proprietary methods of creating algorithms and training models.

And we have excellent products there and part of the reason is the use of AI and the continued use of AI. So that's use case number one. Use case number 2 is customer service. And so as an example, we have -- we haven't completed this for all products, but for some of our products, we have loaded into CoPilot. We use Microsoft's CoPilot for a secure environment. But we've loaded every piece of documentation we have for several of our products, our solutions.

And that includes FAQs, Wickes, inquiries from customers and the answers all of it. And we've then trained the model, and we are now able to get very good productivity from our customer service representatives, the people that handle inquiries about our software products, people that deal with outages or issues that our customers are having.

We're able to get them productive in a fraction of the time that it used to take us with longer-term training. And ultimately, we're going to make that same kind of knowledge base with the AI, on top of it available directly to our customers so that they can get answers to questions faster and it improves the productivity of our team. So that's number two, customer service.

Number three, probably predictably for a software company is software development. And we have employed generative AI with our developers. And what we've been able to do -- so I'll just give you one example. We have several, but here is the one that I find the most interesting is we have created a way to extract logic from proven software. So some people call that legacy, I have banned the use of the word legacy inside of ACI.

But our proven software, we've taken functionality out of it and created micro services in a matter of minutes. We create a micro service in a matter of minutes. And we do that by using generative AI. And then we include a human in the loop, of course, because AI, you can't just trust the output of a bot. And so we create these micro services and then we have our team tweak them and check validity.

So we're getting about 80% roughly accuracy in these micro services and then we're taking that to 100% or as close as possible with our team members. And so that -- we're getting probably -- overall, we're getting at least 30% productivity improvement by using AI. And in the case of these micro services, we're seeing 10x or more, 10x, not 10% more productivity from our team.

So I don't know that we'll get that every time on every application, but it's pretty exciting stuff, and it's allowing us to move very rapidly. So those are the 3 primary use cases.

[Pallav Saini, analyst]

That's great. And my follow-up is on digital assets. Are you providing any products and services on the crypto side right now? And how are you thinking about this space if you -- and if you see any opportunities given some of the recent developments like the spot bitcoin, ETF.

[Thomas Warsop, executive]

Yes. Thanks. I was just before I walked in here, I was watching the founder of one of those ETFs talking about the explosion that we've seen. But to answer your question, so many of our products are perfectly happy to facilitate a transaction in Bitcoin. It doesn't really matter very much to us, what the medium is, whether it's dollars or pounds or bitcoin or central bank digital currency, and it doesn't really matter to our applications.

And we have absolutely built in the ability to use crypto where it makes sense. So we're fine with all of that. I don't -- I wish I was smart enough to tell you what all the impacts of the Bitcoin ETFs are. I might not be here right now. I might be on the beach somewhere. But I don't know. But we're going to obviously continue. We're a very important player in the payments ecosystem. Digital commerce, to a large extent, relies on ACI, we're going to make sure that our products can support whatever medium and mechanisms, consumers and commercial customers want to use.

[Operator]

[Operator Instructions]

Our next question comes from the line of are Santen with Craig Howden.

[Unknown Analyst]

This is James on for George. Nice results. So the recurring revenue growth in the bank segment over the last couple of quarters have been pretty encouraging. Could you talk about what's driving the strength there? And then last quarter, you also mentioned moving down market. Could we sort of get an update on those efforts?

And then lastly, would you be able to sort of quantify what you think is a sustainable growth rate for the real-time payment solutions over the next couple of years?

[Scott Behrens, executive]

Yes. I think on the -- what's driving on the bank side, recurring revenues, it's really just -- it's the maintenance on the license software. And so that is -- that's both a function of price. It's -- those have built in CPI inflationary mechanisms and then just the go-lives of new customers. So that's on the main probably the bigger growth year-over-year in bank recurring revenues coming from the SaaS business. So that's go-lives and ramping of customers that we've sold in bank SaaS.

And bank SaaS, it's not a significant component of the overall bank business, but had nice growth in 2023.

[Thomas Warsop, executive]

Yes. And then you asked about mid-tier and -- we have -- we've been primarily focused on pipeline development for the mid-tier. We've got a lot of conversations going, but that isn't -- it hasn't really shown up much yet. That's a future opportunity.

And those conversations I was mentioning earlier about modernization, many of those are with this mid-tier. And just to reiterate and remind everybody, when we talk about mid-tier, we're talking about USD 50 million to USD 250 billion in assets. So these are still very large financial institutions. But historically, our sort of sweet spot has been $250 billion and up, the mega banks.

And this -- so we're -- we call it mid-tier, not everybody might call that mid-tier, but it's a little bit smaller, and that's where they are -- they tend to be more interested in SaaS and/or cloud models than the mega banks, and that's why that -- the development of those infrastructures and capabilities, Scott just referenced the growth that we've seen there. that's why that is so important.

And it's generating great conversation, great pipeline expansion, and we have signed several of those customers, and that's what's driving that growth Scott was just mentioning?

[Scott Behrens, executive]

Yes. And I would say if I look at the -- our expectation going forward in terms of what real-time growth is going to be, it should be a healthy double-digit growth, very similar to our fraud detection software capabilities. I mean, we have -- those are natural cross-sells to the existing customer base.

And as you know, we have blue-chip bank customer base that has been with us for a long time and the natural cross-sell of new products to that same customer base is typically like going to be in real-time payments and broad protection. So both those areas should have healthy double-digit growth in the future.

[John Kraft, executive]

Yes. And just a final point on that. Scott mentioned the natural cross-sell absolutely right. and real-time payments in fraud are -- I mean those things go together extraordinarily well. So we often package the 2 together. So it's a great, great offering, great couple of offerings.

[Unknown Analyst]

Great. Last one for me. Can you just touch on the competitive landscape and Biller and Merchant -- and any changes you've seen there sort of just given the momentum you've seen in adding new logos?

[Scott Behrens, executive]

Sure. So I wouldn't say that I've seen a lot of change in that. We tend to see some of the same competitors. I think we've -- so if I -- let me start with Biller, very strong year, obviously, last year in Biller and some of the wins that we've talked about before.

One of the reasons that I think we've seen the success is if you think back a couple of years, we were still digesting the Speedpay acquisition from Western Union, and we finished that, I don't know, end of '21-ish. And so we were able to turn our full attention to running the business and growing it, and that's definitely worked well, and we expect that to continue to work well.

So I think that's the primary driver in Biller. On the Merchant side, again, kind of the same thing. I wouldn't say there's a big change I think we did have a bit of a slow start, as we mentioned, in '23, finished the year pretty strong, and we're seeing very good signs that that's going to continue into '24. And so we should see better growth this year. And that has primarily to do with the business that's already been sold and is ramping up.

So very good visibility in that business. And our sweet spot there tends to be the really large -- a little bit like the banking example I gave, they tend to be very large global retailers that are looking for consistent experience, very predictable, very positive experience for their consumer, whether it's in the store, online, whatever channel the consumer wants to use.

And the reason it tends to be global is they don't want a bundled solution from an acquirer typically because they can't -- there is no acquirer that can handle them everywhere. And so they want that consistent experience and we can do that because we are able to work with any acquirer and make that experience at the till or online, very positive and consistent across the board. So that is our sweet spot target market. We're very good at it, and we're continuing to see success there.

[Operator]

There are no further questions at this time. Mr. John Kraft, I turn the call over to you.

[John Kraft, executive]

Well, thanks, everyone, for joining us today. We appreciate your time and look forward to catching up in the coming weeks as well as at our Analyst Day. Have a great day. Thanks, everybody.

[Operator]

Thank you. This concludes today's conference. You may now disconnect.