ACI Worldwide(ACIW) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for ACI Worldwide, Inc Item 1 Financial Statements (unaudited) This section presents ACI Worldwide's unaudited condensed consolidated financial statements and detailed notes for Q3 2019 and FY 2018 Condensed Consolidated Balance Sheets This table presents the Company's financial position, detailing assets, liabilities, and stockholders' equity as of September 30, 2019, and December 31, 2018 | ASSETS (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:----------------------|:-------------|:-------------| | Cash and cash equivalents | $121,581 | $148,502 | | Receivables, net | $325,333 | $348,182 | | Settlement assets | $498,101 | $32,256 | | Total current assets | $1,004,890 | $566,477 | | Goodwill | $1,278,265 | $909,691 | | Intangible assets, net | $363,346 | $168,127 | | TOTAL ASSETS | $3,340,756 | $2,122,455 | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:----------------------------------------------------|:-------------|:-------------| | Settlement liabilities | $477,064 | $31,605 | | Deferred revenue (current) | $76,731 | $104,843 | | Total current liabilities | $734,880 | $296,620 | | Long-term debt | $1,373,555 | $650,989 | | Total liabilities | $2,281,819 | $1,074,224 | | Total stockholders' equity | $1,058,937 | $1,048,231 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $3,340,756 | $2,122,455 | Condensed Consolidated Statements of Operations This table presents the Company's revenues, operating income, and net income (loss) for the three and nine months ended September 30, 2019 and 2018 | (in thousands, except per share amounts) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Revenues | | | | | | SaaS and PaaS | $192,952 | $104,519 | $474,008 | $322,399 | | License | $92,058 | $68,964 | $165,677 | $142,565 | | Maintenance | $52,638 | $54,373 | $159,671 | $166,080 | | Services | $17,253 | $17,669 | $59,018 | $58,786 | | Total revenues | $354,901 | $245,525 | $858,374 | $689,830 | | Operating income | $55,318 | $28,359 | $21,343 | $9,497 | | Net income (loss) | $31,814 | $15,233 | $11,576 | ($18,769) | | Basic EPS | $0.27 | $0.13 | $0.10 | ($0.16) | | Diluted EPS | $0.27 | $0.13 | $0.10 | ($0.16) | Condensed Consolidated Statements of Comprehensive Income (Loss) This table presents the Company's net income (loss) and other comprehensive loss components for the three and nine months ended September 30, 2019 and 2018 | (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:---------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) | $31,814 | $15,233 | $11,576 | ($18,769) | | Other comprehensive loss: | | | | | | Foreign currency translation adjustments | ($1,610) | ($3,862) | ($2,019) | ($11,110) | | Total other comprehensive loss | ($1,610) | ($3,862) | ($2,019) | ($11,110) | | Comprehensive income (loss) | $30,204 | $11,371 | $9,557 | ($29,879) | Condensed Consolidated Statements of Stockholders' Equity This table details changes in stockholders' equity, including net income, stock-based compensation, and share repurchases, from December 31, 2018, to September 30, 2019 | (in thousands) | Balance as of Dec 31, 2018 | Net Income | Other Comprehensive Loss | Stock-based Compensation | Shares Issued/Forfeited, net | Repurchase of Common Stock | Repurchase of Restricted Share Awards for Tax Withholdings | Balance as of Sep 30, 2019 | |:---------------|:---------------------------|:-----------|:-------------------------|:-------------------------|:-----------------------------|:---------------------------|:-----------------------------------------------------------|:---------------------------| | Common Stock | $702 | — | — | — | — | — | — | $702 | | Additional Paid-in Capital | $632,235 | — | — | $30,328 | ($1,910) | — | — | $660,653 | | Retained Earnings | $863,768 | $11,576 | — | — | — | — | — | $875,344 | | Treasury Stock | ($355,857) | — | — | — | $11,170 | ($35,617) | ($2,822) | ($383,126) | | Accumulated Other Comprehensive Loss | ($92,617) | — | ($2,019) | — | — | — | — | ($94,636) | | Total | $1,048,231 | $11,576| ($2,019) | $30,328 | $9,260 | ($35,617) | ($2,822) | $1,058,937 | Condensed Consolidated Statements of Cash Flows This table summarizes cash flows from operating, investing, and financing activities for the nine months ended September 30, 2019 and 2018 | (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:---------------|:-------------------------------|:-------------------------------| | Net cash flows from operating activities | $88,938 | $100,462 | | Net cash flows from investing activities | ($813,046) | ($39,777) | | Net cash flows from financing activities | $695,699 | ($53,301) | | Net increase (decrease) in cash and cash equivalents | ($26,921) | $6,632 | | Cash and cash equivalents, beginning of period | $148,502 | $69,710 | | Cash and cash equivalents, end of period | $121,581 | $76,342 | Notes to Condensed Consolidated Financial Statements 1. Condensed Consolidated Financial Statements This note details the basis of financial statement presentation, reclassifications, settlement accounts, goodwill, and the adoption of new accounting standards - The Company reclassified $32.3 million from other current assets to settlement assets and $31.6 million from other current liabilities to settlement liabilities as of December 31, 2018[12] Other Current Liabilities (in thousands) | Other Current Liabilities (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:-----------------------------------------|:-------------|:-------------| | Operating lease liabilities | $15,112 | — | | Vendor financed licenses | $8,217 | $3,551 | | Royalties payable | $6,643 | $11,318 | | Accrued interest | $3,606 | $8,407 | | Other | $36,101 | $38,412 | | Total other current liabilities | $69,679 | $61,688 | - Off-balance sheet settlement funds amounted to $326.1 million as of September 30, 2019, up from $256.5 million as of December 31, 2018[18] Goodwill (in thousands) | Goodwill (in thousands) | ACI On Demand | ACI On Premise | Total | |:------------------------|:--------------|:---------------|:------| | Balance, Dec 31, 2018 | $183,783 | $725,908 | $909,691 | | Goodwill from acquisitions | $368,574 | — | $368,574 | | Balance, Sep 30, 2019 | $552,357 | $725,908 | $1,278,265 | - The Company invested $18.3 million for a 30% non-controlling financial interest in a payment technology and services company in India on July 23, 2019, accounted for using the equity method[24] - The Company adopted ASC 842 (Leases) on January 1, 2019, recognizing ROU assets of $63.3 million and operating lease liabilities of $68.6 million[27] 2. Revenue This note outlines revenue recognition policies, details total and deferred revenue, and reports on remaining performance obligations Total Receivables, net (in thousands) | Total Receivables, net (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:--------------------------------------|:-------------|:-------------| | Billed receivables, net | $183,290 | $235,363 | | Accrued receivables, net | $332,369 | $301,829 | | Total receivables, net | $515,659 | $537,192 | Deferred Revenue (in thousands) | Deferred Revenue (in thousands) | Amount | |:--------------------------------|:-------| | Balance, Dec 31, 2018 | $156,135 | | Deferral of revenue | $121,310 | | Recognition of deferred revenue | ($139,070) | | Foreign currency translation | ($1,154) | | Balance, Sep 30, 2019 | $137,221 | - Revenue allocated to remaining performance obligations was $618.5 million as of September 30, 2019, with approximately 46% expected to be recognized over the next 12 months[36] 3. Acquisition This note details the Speedpay acquisition, including its funding, financial contributions, preliminary purchase price allocation, and pro forma financial impacts - On May 9, 2019, the Company acquired Speedpay for $754.1 million in cash, expanding its On Demand platform business and market segments[38] - The acquisition was funded by an additional $500.0 million senior secured term loan and a $250.0 million draw on the Revolving Credit Facility, plus cash on hand[39] Speedpay Contribution (in thousands) | Speedpay Contribution (in thousands) | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | |:-------------------------------------|:--------------------------------|:-------------------------------| | Revenue | $87,700 | $137,100 | | Operating Income | $7,500 | $15,200 | Preliminary Purchase Price Allocation (in thousands) | Preliminary Purchase Price Allocation (in thousands) | Amount | Average Useful Lives | |:-----------------------------------------------------|:------------|:---------------------| | Total assets acquired | $980,672 | | | Total liabilities acquired | $226,615 | | | Net assets acquired | $754,057 | | | Goodwill | $365,928 | | | Software | $113,600 | 7 years | | Customer relationships | $208,500 | 15 years | | Trademarks | $10,900 | 5 years | Unaudited Pro Forma Financial Information (in thousands, except per share data) | Unaudited Pro Forma Financial Information (in thousands, except per share data) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:--------------------------------------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Pro forma revenue | $354,901 | $330,983 | $983,037 | $957,673 | | Pro forma net income | $32,513 | $20,379 | $26,517 | $3,418 | | Pro forma income per share (Basic) | $0.28 | $0.18 | $0.23 | $0.03 | | Pro forma income per share (Diluted) | $0.27 | $0.17 | $0.22 | $0.03 | 4. Debt This note details the Company's debt structure, including term loans, revolving credit, senior notes, interest rates, and compliance with covenants - As of September 30, 2019, the Company had $265.0 million outstanding under its Revolving Credit Facility, $765.8 million under Term Loans, and $400.0 million in Senior Notes[50] - The Credit Agreement was amended on April 5, 2019, to allow for an additional $500.0 million senior secured term loan, extend maturity dates to April 5, 2024, and adjust leverage ratio covenants[51] - The interest rate for the Credit Facility was 4.29% as of September 30, 2019, with applicable margins ranging from 1.25% to 2.25% for LIBOR rate borrowings[53] - The Company issued $400.0 million of 5.750% Senior Notes due 2026 on August 21, 2018[60] Total Debt (in thousands) | Total Debt (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:--------------------------|:-------------|:-------------| | Term loans | $765,798 | $284,959 | | Revolving credit facility | $265,000 | — | | 5.750% Senior notes, due August 2026 | $400,000 | $400,000 | | Debt issuance costs | ($23,124) | ($13,203) | | Total debt | $1,407,674 | $671,756 | | Less: current portion | $38,950 | $23,747 | | Less: current portion of debt issuance costs | ($4,831) | ($2,980) | | Total long-term debt | $1,373,555 | $650,989 | - The Company was in compliance with all financial debt covenants as of September 30, 2019[63] 5. Stock-Based Compensation Plans This note details the Company's stock-based compensation plans, including activity, fair value assumptions, and unrecognized costs for various award types - Shares issued under the 2017 Employee Stock Purchase Plan totaled 92,765 for the nine months ended September 30, 2019, compared to 112,549 in the same period of 2018[68] Stock Option Activity | Stock Option Activity | Number of Shares | Weighted Average Exercise Price ($) | |:----------------------|:-----------------|:------------------------------------| | Outstanding as of Dec 31, 2018 | 4,864,836 | $17.76 | | Exercised | (419,928) | $15.90 | | Forfeited | (3,496) | $17.89 | | Outstanding as of Sep 30, 2019 | 4,441,412 | $17.93 | | Exercisable as of Sep 30, 2019 | 3,897,260 | $17.61 | - The total intrinsic value of stock options exercised was $6.9 million for the nine months ended September 30, 2019, down from $13.6 million in 2018[68] - Unrecognized compensation costs as of September 30, 2019, include $23.9 million for RSUs, $23.2 million for TSRs, $2.4 million for LTIP performance shares, $0.8 million for RSAs, and $0.5 million for stock options[77] Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Expense | $9,300 | $6,500 | $30,300 | $20,600 | | Corresponding tax benefits | $1,500 | $1,500 | $5,500 | $3,600 | 6. Software and Other Intangible Assets This note details the Company's software and other intangible assets, including net book values, accumulated amortization, and related expenses Software Net Book Value (in thousands) | Software Net Book Value (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:---------------------------------------|:-------------|:-------------| | Total software net book value | $235,900 | $137,200 | | Software for resale | $18,500 | $27,500 | | Software acquired or developed for internal use | $217,400 | $109,700 | Software Amortization Expense (in thousands) | Software Amortization Expense (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:---------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Software for resale | $2,800 | $2,600 | $8,800 | $9,600 | | Software for internal use | $15,700 | $10,200 | $39,400 | $31,000 | Other Intangible Assets (in thousands) | Other Intangible Assets (in thousands) | Gross Carrying Amount (Sep 30, 2019) | Accumulated Amortization (Sep 30, 2019) | Net Balance (Sep 30, 2019) | Gross Carrying Amount (Dec 31, 2018) | Accumulated Amortization (Dec 31, 2018) | Net Balance (Dec 31, 2018) | |:---------------------------------------|:-------------------------------------|:----------------------------------------|:---------------------------|:-------------------------------------|:----------------------------------------|:---------------------------| | Customer relationships | $502,682 | ($149,946) | $352,736 | $297,991 | ($131,187) | $166,804 | | Trademarks and tradenames | $27,052 | ($16,442) | $10,610 | $16,348 | ($15,025) | $1,323 | | Total other intangible assets | $529,734 | ($166,388) | $363,346 | $314,339 | ($146,212) | $168,127 | Other Intangible Assets Amortization Expense (in thousands) | Other Intangible Assets Amortization Expense (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:------------------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Expense | $9,400 | $4,700 | $22,500 | $14,400 | 7. Corporate Restructuring and Other Organizational Changes This note provides a summary of the Company's facility closures liability, indicating the balance at the beginning and end of the period, amounts paid, and foreign currency adjustments - The restructuring liability for facility closures was $2.9 million as of September 30, 2019, with $1.4 million in other current liabilities and $1.5 million in operating lease liabilities[86] 8. Common Stock and Treasury Stock This note details the Company's stock repurchase program, including the number of shares repurchased, the total amount spent, and the remaining authorization. It highlights the board's approval for repurchases and the use of a Rule 10b5-1 plan - The Company repurchased 1,228,102 shares for $35.6 million during the nine months ended September 30, 2019[88] - As of September 30, 2019, $141.0 million remained authorized for purchase under the stock repurchase program[88] 9. Earnings (Loss) Per Share This note reconciles the weighted average share amounts used to compute basic and diluted earnings (loss) per share, detailing the dilutive effect of stock options and RSUs Weighted Average Common Shares Outstanding (in thousands) | Weighted Average Common Shares Outstanding (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:----------------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Basic weighted average shares outstanding | 116,169 | 115,889 | 116,337 | 115,615 | | Add: Dilutive effect of stock options and RSUs | 2,138 | 1,603 | 2,123 | — | | Diluted weighted average shares outstanding | 118,307 | 117,492 | 118,460 | 115,615 | - The diluted EPS computation excluded 2.1 million and 1.2 million anti-dilutive options/shares for the three months ended September 30, 2019 and 2018, respectively[90] 10. Other, Net This note clarifies that 'Other, net' primarily consists of foreign currency transaction losses for both the three and nine months ended September 30, 2019 and 2018 Foreign Currency Transaction Losses (in thousands) | Foreign Currency Transaction Losses (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:---------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Other, net | ($2,369) | ($1,304) | ($2,879) | ($3,036) | 11. Segment Information This note provides financial performance data for ACI On Premise and ACI On Demand segments, including revenue and Adjusted EBITDA, and disaggregates revenue by solution category - ACI On Premise serves customers managing software on-site, offering control and flexibility[95] - ACI On Demand provides cloud-based solutions (SaaS/PaaS) for banks, merchants, and corporates[96] Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:-------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | ACI On Premise | $161,949 | $141,006 | $383,075 | $367,431 | | ACI On Demand | $192,952 | $104,519 | $475,299 | $322,399 | | Total revenue | $354,901 | $245,525 | $858,374 | $689,830 | Segment Adjusted EBITDA (in thousands) | Segment Adjusted EBITDA (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:---------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | ACI On Premise | $99,553 | $77,819 | $184,890 | $171,477 | | ACI On Demand | $18,561 | $3,270 | $35,639 | ($4,327) | - ACI On Premise Segment Adjusted EBITDA increased by $21.7 million (three months) and $13.4 million (nine months) primarily due to revenue increases[217][218] - ACI On Demand Segment Adjusted EBITDA increased by $15.3 million (three months) and $40.0 million (nine months), with Speedpay acquisition contributing $16.2 million and $28.2 million, respectively[219][220] Revenue by Primary Solution Categories (in thousands) | Revenue by Primary Solution Categories (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:------------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Bill Payments | $154,285 | $64,134 | $348,592 | $204,673 | | Digital Channels | $15,271 | $16,826 | $61,240 | $58,060 | | Merchant Payments | $23,273 | $25,753 | $73,213 | $65,094 | | Payments Intelligence | $22,382 | $16,842 | $53,778 | $56,040 | | Real-Time Payments | $20,223 | $24,244 | $58,271 | $54,560 | | Retail Payments | $119,467 | $97,726 | $263,280 | $251,403 | | Total | $354,901 | $245,525 | $858,374 | $689,830 | 12. Income Taxes This note details effective tax rates, factors influencing them, including foreign earnings, uncertain tax positions, and the impact of the Speedpay acquisition Effective Tax Rate | Effective Tax Rate | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2018 | |:-------------------|:--------------------------------|:-------------------------------|:--------------------------------|:-------------------------------| | Rate | 14% | 163% | 12% | (11)% | - The effective tax rate for the nine months ended September 30, 2019, was positively impacted by state income tax benefits on a domestic loss and the release of an $18.5 million valuation allowance against U.S. foreign tax credit deferred tax assets, following the Speedpay acquisition[108] - Unrecognized tax benefits for uncertain tax positions were $24.4 million as of September 30, 2019, with a potential decrease of $0.3 million within the next 12 months[111][112] 13. Leases This note outlines the Company's accounting for operating leases under ASC 842, detailing lease costs, ROU assets, liabilities, and maturity schedules Lease Cost (in thousands) | Lease Cost (in thousands) | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | |:--------------------------|:--------------------------------|:-------------------------------| | Operating lease cost | $4,491 | $12,814 | | Variable lease cost | $966 | $2,712 | | Sublease income | ($105) | ($385) | | Total lease cost | $5,352 | $15,141 | Supplemental Balance Sheet Information (in thousands) | Supplemental Balance Sheet Information (in thousands) | Sep 30, 2019 | |:------------------------------------------------------|:-------------| | Operating lease right-of-use assets | $60,280 | | Other current liabilities (operating lease liabilities) | $15,112 | | Operating lease liabilities | $48,281 | | Total operating lease liabilities | $63,393 | | Weighted average remaining operating lease term (years) | 6.59 | | Weighted average operating lease discount rate | 4.03% | Maturities on Lease Liabilities (in thousands) | Maturities on Lease Liabilities (in thousands) | Total Lease Payments | |:-----------------------------------------------|:---------------------| | Remainder of 2019 | $4,060 | | 2020 | $17,153 | | 2021 | $12,565 | | 2022 | $9,649 | | 2023 | $7,455 | | Thereafter | $21,351 | | Total lease payments | $72,233 | | Less: imputed interest | $8,840 | | Total lease liability | $63,393 | Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operational results, key trends, Speedpay acquisition impact, liquidity, and critical accounting estimates Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including increased competition, performance of strategic products, demand for products, financial services industry consolidations, customer retention, project delays, product defects, compliance, security breaches, intellectual property litigation, future acquisitions, debt restrictions, and stock price volatility[122][124][125] Overview This overview describes ACI Worldwide's global electronic payments business and key trends influencing its strategies and operations - ACI Worldwide, Inc. powers electronic payments for over 5,100 organizations globally, processing approximately $14 trillion daily[129] - Key trends impacting strategies and operations include increasing electronic payment transaction volumes, adoption of real-time payments, increasing competition, adoption of cloud technology, electronic payments fraud and compliance, adoption of smartcard technology, SEPA, PSD2, financial institution consolidation, global vendor sourcing, electronic payments convergence, mobile banking and payments, and electronic bill payment and presentment (EBPP)[133][134][135][136][137][138][139][141][142][143][144][145][146] Acquisition This section details the May 2019 acquisition of Speedpay for $754.1 million, expanding ACI's On Demand platform and market reach - On May 9, 2019, ACI acquired Speedpay for $754.1 million in cash, expanding its On Demand platform business and market reach across various sectors[150] - The acquisition was financed by an additional $500.0 million senior secured term loan and a $250.0 million draw on the Revolving Credit Facility[151] Backlog This section defines backlog components and provides a 60-month estimate, including the impact of the Speedpay acquisition - Backlog is comprised of Committed Backlog (contracted but unrecognized revenue) and Renewal Backlog (estimated future revenues from assumed contract renewals)[152] 60-Month Backlog Estimate (in millions) | 60-Month Backlog Estimate (in millions) | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2018 | |:----------------------------------------|:-------------|:-------------|:-------------|:-------------| | ACI On Premise | $1,925 | $1,880 | $1,861 | $1,875 | | ACI On Demand | $3,756 | $3,813 | $2,290 | $2,299 | | Total | $5,681 | $5,693 | $4,151 | $4,174 | - The September 30, 2019, backlog estimate includes approximately $1.5 billion from the Speedpay acquisition[157] Backlog Components (in millions) | Backlog Components (in millions) | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | |:---------------------------------|:-------------|:-------------|:-------------| | Committed | $2,003 | $2,105 | $1,861 | | Renewal | $3,678 | $3,588 | $2,290 | | Total | $5,681 | $5,693 | $4,151 | Results of Operations Three Month Period Ended September 30, 2019, Compared to the Three Month Period Ended September 30, 2018 Total revenue increased by 45% to $354.9 million, largely driven by the Speedpay acquisition. Operating expenses also rose by 38%, primarily due to Speedpay and related integration costs. Net income saw a significant increase of 109% to $31.8 million | (in thousands) | Sep 30, 2019 | Sep 30, 2018 | Change vs 2018 | % Change vs 2018 | |:---------------|:-------------|:-------------|:---------------|:-----------------| | Total revenues | $354,901 | $245,525 | $109,376 | 45% | | Operating income | $55,318 | $28,359 | $26,959 | 95% | | Net income | $31,814 | $15,233 | $16,581 | 109% | - Total revenue increased by $109.4 million (45%), with $87.7 million (36%) attributable to the Speedpay acquisition[162] - SaaS and PaaS revenue increased by $88.4 million (85%), with $87.7 million (84%) from Speedpay[166] - License revenue increased by $23.1 million (33%), primarily due to timing and size of license and capacity events[169][170] - Total operating expenses increased by $82.4 million (38%), with $80.2 million (37%) from Speedpay and $0.9 million from acquisition-related costs[176] - Cost of revenue increased by $71.7 million (70%), with $65.8 million (64%) from Speedpay, and a $5.5 million increase in payment card interchange and processing fees[179] - Depreciation and amortization increased by $10.3 million (49%), with $8.3 million (40%) from Speedpay[187] - Interest expense increased by $6.4 million (51%) due to higher comparative debt balances[188] Nine Month Period Ended September 30, 2019, Compared to the Nine Month Period Ended September 30, 2018 For the nine-month period, total revenue grew by 24% to $858.4 million, with Speedpay contributing significantly. Operating expenses increased by 23%, largely due to Speedpay and related transaction costs. The Company reported a net income of $11.6 million, a substantial improvement from a net loss in the prior year | (in thousands) | Sep 30, 2019 | Sep 30, 2018 | Change vs 2018 | % Change vs 2018 | |:---------------|:-------------|:-------------|:---------------|:-----------------| | Total revenues | $858,374 | $689,830 | $168,544 | 24% | | Operating income | $21,343 | $9,497 | $11,846 | 125% | | Net income (loss) | $11,576 | ($18,769) | $30,345 | (162)% | - Total revenue increased by $168.5 million (24%), with $137.1 million (20%) from the Speedpay acquisition[193] - SaaS and PaaS revenue increased by $151.6 million (47%), with $137.1 million (43%) from Speedpay, and $16.8 million from new customers/increased volumes[195] - License revenue increased by $23.1 million (16%), driven by timing and size of license and capacity events[196][197] - Total operating expenses increased by $156.7 million (23%), with $121.9 million (18%) from Speedpay and $22.2 million (3%) from acquisition-related expenses[200] - Cost of revenue increased by $118.3 million (36%), with $99.7 million (31%) from Speedpay, and a $15.4 million increase in payment card interchange and processing fees[202] - General and administrative expense increased by $21.1 million (24%), with $21.8 million from Speedpay transaction and integration-related expenses[206] - Interest expense increased by $14.3 million (45%), primarily due to higher comparative debt balances[208] Segment Results This section analyzes the financial performance of ACI On Premise and ACI On Demand segments, including revenue and Adjusted EBITDA contributions Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:-------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | ACI On Premise | $161,949 | $141,006 | $383,075 | $367,431 | | ACI On Demand | $192,952 | $104,519 | $475,299 | $322,399 | | Total revenue | $354,901 | $245,525 | $858,374 | $689,830 | Segment Adjusted EBITDA (in thousands) | Segment Adjusted EBITDA (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:---------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | ACI On Premise | $99,553 | $77,819 | $184,890 | $171,477 | | ACI On Demand | $18,561 | $3,270 | $35,639 | ($4,327) | - ACI On Premise Segment Adjusted EBITDA increased by $21.7 million (three months) and $13.4 million (nine months) primarily due to revenue increases[217][218] - ACI On Demand Segment Adjusted EBITDA increased by $15.3 million (three months) and $40.0 million (nine months), with Speedpay acquisition contributing $16.2 million and $28.2 million, respectively[219][220] Liquidity and Capital Resources General The Company's primary liquidity needs are for operating expenses, debt service, acquisitions, capital expenditures, and lease payments, which are expected to be met by operating cash flow, cash and cash equivalents, and available revolving credit - Primary liquidity needs include funding operating expenses, debt service, acquisitions, capital expenditures, and lease payments[221] - These needs are expected to be satisfied by cash flow from operations, cash and cash equivalents, and available borrowings under the revolving credit facility[221] Available Liquidity The Company's total liquidity decreased from $648.5 million at December 31, 2018, to $356.6 million at September 30, 2019, primarily due to revolving credit facility borrowings, capital expenditures, and stock repurchases Available Liquidity (in thousands) | Available Liquidity (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:-----------------------------------|:-------------|:-------------| | Cash and cash equivalents | $121,581 | $148,502 | | Availability under revolving credit facility | $235,000 | $500,000 | | Total liquidity | $356,581 | $648,502 | - The decrease in total liquidity is primarily due to $265.0 million in revolving credit facility borrowings, $37.3 million in capital expenditures, and $35.6 million in stock repurchases[222] - As of September 30, 2019, $44.0 million of cash and cash equivalents were held by foreign subsidiaries, which may incur taxes upon repatriation[224] Cash Flows Operating cash flows decreased by $11.5 million to $88.9 million for the nine months ended September 30, 2019, primarily due to working capital timing. Investing activities used significant cash, mainly for the Speedpay acquisition, while financing activities provided substantial cash through new debt to fund the acquisition Summarized Cash Flow Data (in thousands) | Summarized Cash Flow Data (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | |:-----------------------------------------|:-------------------------------|:-------------------------------| | Net cash provided by (used by): | | | | Operating activities | $88,938 | $100,462 | | Investing activities | ($813,046) | ($39,777) | | Financing activities | $695,699 | ($53,301) | - Net cash from operating activities decreased by $11.5 million to $88.9 million for the nine months ended September 30, 2019, due to working capital timing[227] - Investing activities used $753.9 million for the Speedpay acquisition and $18.5 million for an investment in an Indian payment technology company[228] - Financing activities provided $695.7 million, including $500.0 million from a Delayed Draw Term Loan and $280.0 million from the Revolving Credit Facility, primarily to fund the Speedpay acquisition and stock repurchases[229] Debt The Company's debt structure includes $265.0 million outstanding under its Revolving Credit Facility and $765.8 million under Term Loans, with a floating interest rate of 4.29%. Additionally, $400.0 million in 5.750% Senior Notes due 2026 are outstanding - As of September 30, 2019, $265.0 million was outstanding under the Revolving Credit Facility and $765.8 million under Term Loans, with $235.0 million of unused borrowings available[234] - The Credit Facility's interest rate was 4.29% as of September 30, 2019[234] - The Company also had $400.0 million outstanding of 5.750% Senior Notes due 2026[234] Stock Repurchase Program The Company repurchased 1,228,102 shares for $35.6 million during the nine months ended September 30, 2019, under its stock repurchase program. Approximately $141.0 million remained authorized for repurchase as of that date - The Company repurchased 1,228,102 shares for $35.6 million during the nine months ended September 30, 2019[236] - As of September 30, 2019, approximately $141.0 million remained authorized for purchase under the stock repurchase program[236] Contractual Obligations and Commercial Commitments There were no material changes to contractual obligations and commercial commitments for the nine months ended September 30, 2019, other than those disclosed, which include term loan principal and interest, revolving credit facility principal and interest, and financed internal-use software Contractual Obligations (in thousands) | Contractual Obligations (in thousands) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |:---------------------------------------|:------------|:-----------------|:-----------|:-----------|:------------------| | Term loan | $765,798 | $38,950 | $84,513 | $642,335 | — | | Term loan interest | $132,451 | $32,252 | $59,469 | $40,730 | — | | Revolving credit facility | $265,000 | — | — | $265,000 | — | | Revolving credit facility interest | $51,133 | $11,363 | $22,726 | $17,044 | — | | Financed internal-use software | $13,822 | $5,973 | $7,849 | — | — | | Total | $1,228,204 | $88,538 | $174,557 | $965,109 | — | Critical Accounting Estimates This section identifies critical accounting policies and estimates, including revenue recognition, business combinations, intangible assets, goodwill, stock-based compensation, and income taxes - Critical accounting policies and estimates include Revenue Recognition, Business Combinations, Intangible Assets and Goodwill, Stock-Based Compensation, and Accounting for Income Taxes[243] - No significant changes to critical accounting policies and estimates occurred during the nine months ended September 30, 2019[243] Item 3 Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily related to foreign currency exchange rate fluctuations and interest rate changes on its debt. It notes that there have been no material changes to market risk, and the Company does not engage in speculative derivative financial instruments - The Company is exposed to market risks from foreign currency exchange rate fluctuations and interest rate changes[244] - A hypothetical 10% increase or decrease in effective interest rates would impact interest income by less than $0.1 million annually and interest expense related to the Credit Facility by approximately $4.4 million[245][246] - The Company does not use derivative financial instruments for speculation or arbitrage[244] Item 4 Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2019. The acquisition of Speedpay was considered material, and the Company is in the process of integrating its operations and internal controls over financial reporting - Disclosure controls and procedures were deemed effective as of September 30, 2019[247] - The Speedpay acquisition is material to financial reporting, and its internal controls are being integrated[249][250] - No other material changes to internal control over financial reporting occurred during the quarter ended September 30, 2019[251] PART II – OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity security sales, and exhibits Item 1 Legal Proceedings The Company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or results of operations - The Company is not a party to any legal proceedings that are likely to have a material adverse effect on its financial condition or results of operations[252] Item 1A Risk Factors No material changes to previously disclosed risk factors were reported, except for the specific risk of difficulties integrating Speedpay, which could prevent the realization of anticipated acquisition benefits and disrupt business operations - No material changes to risk factors were disclosed, other than the potential difficulties in integrating Speedpay, which could hinder the realization of anticipated benefits and disrupt business[253][254] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the three months ended September 30, 2019, under its authorized stock repurchase program. It also notes the withholding of shares for tax purposes related to vested restricted share awards and units Issuer Purchases of Equity Securities (Three Months Ended Sep 30, 2019) | Issuer Purchases of Equity Securities (Three Months Ended Sep 30, 2019) | Total Number of Shares Purchased | Average Price per Share ($) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program ($) | |:------------------------------------------------------------------------|:---------------------------------|:----------------------------|:-----------------------------------------------------------------------------------| | July 1, 2019 through July 31, 2019 | — | — | 175,956,000 | | August 1, 2019 through August 31, 2019 | 1,204,300 | 29.05 | 140,969,000 | | September 1, 2019 through September 30, 2019 | 399 | 32.51 | 140,969,000 | | Total | 1,204,699 | 29.05 | | - The Company repurchased 1,204,699 shares of common stock at an average price of $29.05 during the three months ended September 30, 2019[256] - As of September 30, 2019, approximately $141.0 million remained authorized for purchase under the stock repurchase program[257] Item 3 Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period Item 4 Mine Safety Disclosures This item is not applicable to the Company for the reporting period Item 5 Other Information This item is not applicable to the Company for the reporting period Item 6 Exhibits This section lists all exhibits filed as part of the quarterly report on Form 10-Q, including agreements, certificates, and XBRL documents, with references to their previous filings where applicable - The exhibits include the Stock Purchase Agreement, Certificate of Incorporation, Bylaws, Common Stock Certificate, various stock award agreements, and an Amendment Agreement to the Credit Agreement[261] - Certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to SEC Rule 13a-14 and 18 U.S.C. Section 1350) are also included[261] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Label Linkbase, Presentation Linkbase, and Definition Linkbase are provided[261] Signature The report is signed by Scott W. Behrens, Senior Executive Vice President, Chief Financial Officer, and Chief Accounting Officer, on behalf of ACI Worldwide, Inc., dated November 7, 2019 - The report was signed by Scott W. Behrens, Senior Executive Vice President, Chief Financial Officer and Chief Accounting Officer, on November 7, 2019[263]