ACI Worldwide(ACIW) - 2019 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION The first part presents the unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements (unaudited) The unaudited condensed consolidated financial statements for Q1 2019 show a net loss of $26.0 million, increased from $19.4 million in the prior year, with total assets slightly decreasing to $2.11 billion Condensed Consolidated Balance Sheets As of March 31, 2019, total assets were $2.11 billion, slightly down from $2.12 billion at year-end 2018, reflecting the adoption of ASC 842 and a decrease in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $2,114,142 | $2,122,455 | | Cash and cash equivalents | $176,173 | $148,502 | | Goodwill | $909,691 | $909,691 | | Operating lease right-of-use assets | $60,978 | $— | | Total Liabilities | $1,081,558 | $1,074,224 | | Long-term debt | $645,784 | $650,989 | | Operating lease liabilities | $50,636 | $— | | Total Stockholders' Equity | $1,032,584 | $1,048,231 | - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, recognizing $63.3 million in Right-of-Use (ROU) assets and $68.6 million in operating lease liabilities upon adoption[22] Condensed Consolidated Statements of Operations For Q1 2019, total revenues decreased 2% to $205.9 million, leading to a wider operating loss of $28.1 million and a net loss of $26.0 million Q1 2019 vs Q1 2018 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Total Revenues | $205,855 | $209,310 | | Operating Loss | $(28,093) | $(16,704) | | Net Loss | $(25,963) | $(19,428) | | Diluted Loss Per Share | $(0.22) | $(0.17) | - Revenue from Software as a service (SaaS) and platform as a service (PaaS) grew to $108.6 million from $104.3 million year-over-year, while License revenue declined significantly to $21.1 million from $28.0 million[8] Condensed Consolidated Statements of Cash Flows Net cash from operating activities was $42.4 million in Q1 2019, a slight decrease from the prior year, with investing and financing activities using $9.8 million and $5.4 million respectively Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash flows from operating activities | $42,427 | $45,136 | | Net cash flows from investing activities | $(9,828) | $(12,589) | | Net cash flows from financing activities | $(5,361) | $(29,695) | | Net increase in cash | $27,671 | $4,571 | - Financing activities in Q1 2019 included $5.9 million in term loan repayments and $0.6 million in common stock repurchases, compared to $5.2 million in term loan repayments and $31.1 million in stock repurchases in Q1 2018[12] Notes to Condensed Consolidated Financial Statements The notes detail the $750 million Speedpay acquisition post-quarter, revenue allocated to remaining performance obligations, total debt, segment performance, and ASC 842 adoption - On May 9, 2019, the company acquired Speedpay from Western Union for $750.0 million in cash to increase the scale of its On Demand platform business[30] - To fund the Speedpay acquisition, the company amended its credit agreement to borrow up to $500.0 million in a new term loan and drew $250.0 million on its Revolving Credit Facility[32] - As of March 31, 2019, revenue allocated to remaining performance obligations was $628.3 million, with approximately 46% expected to be recognized over the next 12 months[29] Segment Revenue and Adjusted EBITDA (in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Revenue | | | | ACI On Premise | $96,007 | $105,030 | | ACI On Demand | $109,848 | $104,280 | | Segment Adjusted EBITDA | | | | ACI On Premise | $28,268 | $38,898 | | ACI On Demand | $(262) | $(4,233) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 2% revenue decrease in Q1 2019, driven by a license revenue decline offset by SaaS/PaaS growth, increased operating expenses including Speedpay transaction costs, and strong liquidity - Total revenue decreased by $3.5 million (2%) in Q1 2019 vs Q1 2018. Excluding a $3.7 million negative impact from foreign currency, revenue was flat year-over-year[126] - The company acquired Speedpay for $750 million on May 9, 2019, to increase the scale of its On Demand platform business and accelerate innovation[117] 60-Month Backlog Estimate (in millions) | Category | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | ACI On Premise | $1,861 | $1,875 | | ACI On Demand | $2,290 | $2,299 | | Total | $4,151 | $4,174 | - Total liquidity as of March 31, 2019 was $676.2 million, consisting of $176.2 million in cash and $500.0 million available under the revolving credit facility[164] Results of Operations Q1 2019 saw 4% growth in SaaS and PaaS revenue, a 25% decline in license revenue due to deal timing, and a 4% increase in operating expenses, including $4.7 million for Speedpay acquisition costs - SaaS and PaaS revenue increased $4.3 million (4%) due to new customers and increased transaction volumes from existing customers[128] - License revenue decreased $7.0 million (25%), primarily driven by the timing and relative size of license and capacity events compared to the prior year[132][133] - Cost of revenue increased $7.6 million (7%), primarily due to a $5.1 million increase in payment card interchange and processing fees and a $2.5 million increase in third-party royalty expenses[142] - General and administrative expense increased $2.9 million (10%), which included $4.7 million of transaction-related expenses for the planned acquisition of Speedpay[148] Segment Results ACI On Premise Adjusted EBITDA decreased by $10.6 million due to lower license revenue, while ACI On Demand Adjusted EBITDA improved by $4.0 million from increased revenue despite higher processing fees - ACI On Premise Segment Adjusted EBITDA decreased by $10.6 million, mainly due to a $9.0 million revenue decrease from the timing and size of license and capacity events[161] - ACI On Demand Segment Adjusted EBITDA increased by $4.0 million, driven by a $5.6 million revenue increase, partially offset by a $5.1 million increase in payment card interchange and processing fees[162] Liquidity and Capital Resources Total liquidity increased to $676.2 million as of March 31, 2019, driven by operating cash flow, with $679.0 million in total debt outstanding and $0.6 million in stock repurchases - Net cash from operating activities was $42.4 million for Q1 2019, compared to $45.1 million in Q1 2018[166][167] - As of March 31, 2019, total debt outstanding was approximately $679.0 million, comprising $279.0 million under the Term Credit Facility and $400.0 million in Senior Notes[171][179] - During Q1 2019, the company repurchased 23,802 shares for $0.6 million. The remaining authorization under the stock repurchase program was approximately $176.0 million[172] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency exchange rates and interest rates, with a hypothetical 10% interest rate change impacting annual interest expense by approximately $1.2 million - The company is exposed to foreign currency risk as it conducts business globally, with the U.S. dollar being the single largest currency for revenue contracts[178] - The company's Credit Facility has a floating interest rate. A hypothetical 10% increase or decrease in effective interest rates would change annual interest expense by approximately $1.2 million[179] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2019, with internal control changes made to accommodate the adoption of the new lease accounting standard, ASC 842 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of March 31, 2019[180] - Changes were made to internal controls over financial reporting due to the adoption of ASC 842, Leases, on January 1, 2019, including modifications to contract review processes and implementation of a new lease accounting system[181] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to materially affect its financial condition or results of operations - The company states it is not currently party to any legal proceedings that would likely have a material adverse effect on its financials[183] Item 1A. Risk Factors No material changes have been reported to the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended December 31, 2018 - No material changes to the risk factors from the company's 2018 Form 10-K have been reported[184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2019, the company repurchased 23,802 shares for $0.6 million, with approximately $176.0 million remaining authorized under the stock repurchase program Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Jan 2019 | 23,802 | $26.50 | $175,956,000 | | Feb 2019 | 84,152 (1) | $31.18 | $175,956,000 | | Mar 2019 | — | — | $175,956,000 | | Total | 107,954 | $30.15 | $175,956,000 | - Note (1): 84,152 shares were withheld to pay employee payroll taxes on vested RSAs and RSUs and were not part of the publicly announced repurchase program[185] - As of March 31, 2019, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $176.0 million[186] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Stock Purchase Agreement for Speedpay, certifications by the CEO and CFO, and XBRL data files - Exhibits filed include the Stock Purchase Agreement dated February 28, 2019, an amendment to the Credit Agreement dated April 5, 2019, and Sarbanes-Oxley certifications[190][191]