ACI Worldwide(ACIW) - 2020 Q4 - Annual Report

Part I Business ACI Worldwide, Inc. is a global software company developing and supporting real-time digital payment products and solutions - ACI develops, markets, installs, and supports software products and solutions for real-time digital payments, serving banks, intermediaries, merchants, and billers globally[19][20] - The company serves over 6,000 organizations, including 19 of the top 20 banks worldwide and over 80,000 merchants, with no single customer accounting for more than 10% of consolidated revenues in 2020[57] - In May 2019, ACI acquired Speedpay, a bill pay solutions provider, to expand its reach in the U.S. market and increase the scale of its ACI On Demand (AOD) platform business[22] - As of December 31, 2020, ACI had 3,768 employees worldwide, with 35% being women globally and 33% of the executive team being women[69] Executive Officers (as of Feb 25, 2021) | Name | Age | Position | | :--- | :--- | :--- | | Odilon Almeida | 59 | President and Chief Executive Officer | | Scott W. Behrens | 49 | Executive Vice President, Chief Financial Officer | | Evanthia (Eve) C. Aretakis | 61 | Executive Vice President, Chief Revenue Officer | | Jeremy M. Wilmot | 52 | Executive Vice President, Chief Product Officer | | Dennis P. Byrnes | 57 | Executive Vice President, Chief Legal Officer, General Counsel, and Secretary | Risk Factors The company identifies numerous risks, with significant uncertainty surrounding the ongoing impact of the COVID-19 pandemic on operations and financial performance - The effects of the COVID-19 pandemic have materially affected operations, and the duration and extent of its impact on future results remain uncertain, including risks to remote work productivity, cybersecurity, liquidity, and demand[82][83] - The digital payments market is highly competitive, with many competitors being significantly larger and having greater financial, technical, and marketing resources[85] - The business is dependent on the uninterrupted operation of its data centers and IT systems, where failures could lead to loss of customers, damage to reputation, and reduced revenues[87][88] - Security breaches or computer viruses could disrupt service delivery, damage the company's reputation, and lead to the loss of customers[89][90] - The company faces challenges in integrating the Speedpay acquisition and implementing its new 'Three Pillar' strategy, which focuses on real-time payments, large global merchants, and emerging markets[100][102] - Outstanding debt contains restrictive covenants that limit operational flexibility, and a failure to comply could result in an event of default and demand for immediate repayment[141][142] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[149] Properties ACI leases its principal executive headquarters in Naples, Florida, and as of year-end 2020, owned and leased approximately 865,000 square feet globally - As of the end of 2020, the company owned and leased approximately 453,000 sq. ft. in the United States and leased approximately 412,000 sq. ft. internationally[149] Legal Proceedings The company is involved in various litigation matters but is not currently a party to any legal proceedings expected to have a material effect on its financial condition - The company is not currently a party to any legal proceedings that are expected to have a material adverse outcome[150] Mine Safety Disclosures This item is not applicable to the company - Not applicable[150] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ACI's common stock trades on NASDAQ under ACIW, has never paid cash dividends, and had approximately $112.1 million remaining for stock repurchases as of December 31, 2020 - The company's common stock trades on The NASDAQ Global Select Market under the symbol ACIW[153] - ACI has never declared or paid cash dividends on its common stock and does not anticipate paying them in the future[154] - As of December 31, 2020, approximately $112.1 million remained authorized for purchase under the company's stock repurchase program[157] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Oct 1 - Oct 31, 2020 | — | — | — | | Nov 1 - Nov 30, 2020 | — | — | — | | Dec 1 - Dec 31, 2020 | 10,875 | 38.43 | — | | Total | 10,875 | 38.43 | — | Selected Financial Data This section provides a five-year summary of key financial data, with 2020 total revenues at $1.294 billion and net income at $72.7 million Selected Income Statement Data (in thousands, except per share data) | | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,294,322 | $1,258,294 | $1,009,780 | $1,024,191 | $1,005,701 | | Net income | $72,660 | $67,062 | $68,921 | $5,135 | $129,535 | | Diluted EPS | $0.62 | $0.57 | $0.59 | $0.04 | $1.09 | Selected Balance Sheet Data (in thousands) | | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | $3,386,903 | $3,257,534 | $2,122,455 | $1,861,639 | $1,902,295 | | Total Debt (Current + Long-term) | $1,163,071 | $1,384,740 | $679,369 | $686,142 | $746,386 | | Stockholders' equity | $1,206,597 | $1,129,968 | $1,048,231 | $764,597 | $754,917 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, key business trends, and liquidity, noting a 3% revenue increase to $1.29 billion in 2020 and a $6.04 billion backlog Overview and Key Trends ACI's strategy is shaped by accelerating digital payment volumes, real-time payment adoption, cloud technology, fraud, omni-commerce, and Request for Payment technology - Key trends impacting ACI's strategy include: * Increasing digital payment volumes: Accelerated by digitization of cash and COVID-19 * Adoption of real-time payments: Driven by consumer/business expectations and new standards like ISO 20022 * Adoption of cloud technology: Banks and merchants are moving to the cloud for cost, speed, and scalability * Digital payments fraud and compliance: Rising transaction volumes lead to increased fraud, creating demand for advanced detection solutions * Omni-commerce: Growth in contactless, click-and-collect, and other cross-channel payment experiences * Request for Payment (RfP): An emerging technology for secure messaging and payment requests between consumers and billers/merchants[168][169][170] Backlog The company's 60-month backlog, including committed and estimated renewal revenues, increased to $6.039 billion as of December 31, 2020 60-Month Backlog Trend (in millions) | | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | ACI On Demand | $3,965 | $3,868 | $3,863 | $3,781 | $3,855 | | ACI On Premise | $2,074 | $2,041 | $1,976 | $1,933 | $1,977 | | Total | $6,039 | $5,909 | $5,839 | $5,714 | $5,832 | Results of Operations (2020 vs. 2019) Total revenue increased 3% to $1.294 billion in 2020, driven by SaaS and PaaS growth, while operating income rose 17% to $144.7 million Consolidated Statement of Operations (in thousands) | | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,294,322 | $1,258,294 | $36,028 | 3% | | SaaS and PaaS | $769,180 | $677,669 | $91,511 | 14% | | License | $246,896 | $288,261 | ($41,365) | (14)% | | Total operating expenses | $1,149,578 | $1,134,538 | $15,040 | 1% | | Operating income | $144,744 | $123,756 | $20,988 | 17% | | Net income | $72,660 | $67,062 | $5,598 | 8% | - The Speedpay acquisition contributed an incremental $123.3 million in total revenue in 2020 compared to 2019[186] - Adjusted for Speedpay and foreign currency impacts, total revenue decreased by $85.2 million (7%), primarily due to a decline in license revenue and lower transaction volumes in the Biller customer base from COVID-19's economic impact[186][188] Segment Results ACI On Demand revenue grew to $769.2 million with doubled EBITDA, while ACI On Premise revenue declined to $525.1 million due to lower license revenue Segment Revenues (in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | ACI On Demand | $769,180 | $678,960 | | ACI On Premise | $525,142 | $579,334 | | Total revenue | $1,294,322 | $1,258,294 | Segment Adjusted EBITDA (in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | ACI On Demand | $149,610 | $66,501 | | ACI On Premise | $290,310 | $321,305 | - ACI On Demand Segment Adjusted EBITDA increased by $83.1 million, with $30.0 million attributed to the Speedpay acquisition and the remainder from decreased cash operating expenses[213] - ACI On Premise Segment Adjusted EBITDA decreased by $31.0 million, primarily due to a $54.2 million decrease in revenue, which was partially offset by a $23.2 million decrease in cash operating expenses[215] Liquidity and Capital Resources Total liquidity was $608.9 million as of December 31, 2020, supported by strong operating cash flow of $336.3 million and $1.155 billion in total debt Available Liquidity (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $165,374 | $121,398 | | Availability under revolving credit facility | 443,500 | 261,000 | | Total liquidity | $608,874 | $382,398 | Summary Cash Flow Data (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $336,302 | $137,649 | | Net cash used in investing activities | ($30,699) | ($830,481) | | Net cash (used in) provided by financing activities | ($261,570) | $667,223 | Contractual Obligations as of Dec 31, 2020 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $59,677 | $15,116 | $23,427 | $9,561 | $11,573 | | Term loans | $717,110 | $38,950 | $120,337 | $557,823 | $— | | Revolving credit facility | $55,000 | $— | $— | $55,000 | $— | | Senior notes | $400,000 | $— | $— | $— | $400,000 | | Total (excluding interest) | $1,231,787 | $54,066 | $143,764 | $622,384 | $411,573 | Critical Accounting Policies and Estimates Management identifies critical accounting policies including Revenue Recognition, Intangible Assets and Goodwill, Business Combinations, Stock-Based Compensation, and Income Taxes, all requiring significant judgment - Revenue Recognition: Significant judgment is required to determine the stand-alone selling price (SSP) for performance obligations, using the residual approach for software licenses and a range of amounts for maintenance and services[241] - Intangible Assets and Goodwill: Goodwill of $1.3 billion is tested for impairment annually at the reporting unit level (ACI On Demand and ACI On Premise) using a discounted cash flow model, with no impairment recorded in 2020[248][250] - Business Combinations: Accounting for acquisitions requires estimating the fair value of assets acquired and liabilities assumed, which is inherently uncertain and subject to refinement during the measurement period[251] - Stock-Based Compensation: Expense is estimated using models like Black-Scholes and Monte Carlo, which require judgmental assumptions about volatility, expected life, and performance outcomes[255][256] - Income Taxes: Significant judgments are made regarding the realizability of deferred tax assets, the adequacy of valuation allowances, and the resolution of uncertain tax positions[258][259] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency and interest rate risks, with a hypothetical 10% interest rate change impacting annual interest expense by approximately $1.7 million - The company is exposed to foreign currency exchange rate risk as it conducts business globally, but does not currently use hedging instruments[262] - The company has $1.2 billion of debt outstanding, with $772.1 million being floating-rate, where a hypothetical 10% increase or decrease in effective interest rates would change annual interest expense by approximately $1.7 million[264] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020, with an unqualified opinion from Deloitte & Touche LLP - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2020[272][288] - The auditor's report identifies Revenue Recognition as a Critical Audit Matter due to the significant judgments involved in determining contract term, performance obligations, financing components, variable consideration, and standalone selling prices for software license arrangements[294][295] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[265] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[266] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, an assessment audited by Deloitte & Touche, LLP[267][268] Other Information The company reports no other information for this item - None[278] Part III Directors, Executive Officers, and Corporate Governance Information regarding executive officers, directors, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 2021[278] Executive Compensation Information regarding director and executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[279] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[280] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[280] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[281] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including an index of all exhibits - This section contains the index to the consolidated financial statements and notes, which are filed as part of the annual report[283][284] - A list of all exhibits filed or furnished with the Form 10-K, or incorporated by reference, is provided in the Exhibit Index[285]