ACI Worldwide(ACIW) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for ACI Worldwide, Inc. as of June 30, 2021, and for the three and six-month periods then ended, including Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, with detailed notes Condensed Consolidated Balance Sheets Total assets decreased to $3.18 billion from $3.39 billion, primarily due to lower cash and receivables, while total liabilities decreased to $2.00 billion from $2.18 billion, mainly from reduced long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,175,180 | $3,386,903 | | Cash and cash equivalents | $146,213 | $165,374 | | Goodwill | $1,280,226 | $1,280,226 | | Total Liabilities | $1,996,620 | $2,180,306 | | Long-term debt | $1,071,822 | $1,120,742 | | Total Stockholders' Equity | $1,178,560 | $1,206,597 | Condensed Consolidated Statements of Operations Q2 2021 revenues slightly increased to $301.7 million, but net income decreased to $6.5 million, while H1 2021 revenues slightly decreased to $586.9 million, resulting in a net income of $4.6 million, a significant improvement from a prior-year net loss Three Months Ended June 30, (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $301,669 | $299,910 | | Operating Income | $15,424 | $29,138 | | Net Income | $6,501 | $14,075 | | Diluted EPS | $0.05 | $0.12 | Six Months Ended June 30, (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $586,855 | $591,395 | | Operating Income | $19,114 | $17,855 | | Net Income (Loss) | $4,556 | $(10,352) | | Diluted EPS (Loss) | $0.04 | $(0.09) | Condensed Consolidated Statements of Comprehensive Income (Loss) Q2 2021 comprehensive income was $8.0 million, down from $13.5 million, while H1 2021 comprehensive income was $2.9 million, recovering from a $17.1 million loss, driven by net income and foreign currency adjustments Comprehensive Income (Loss) (in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended June 30 | | | | Net income (loss) | $6,501 | $14,075 | | Other comprehensive income (loss) | $1,466 | $(582) | | Comprehensive income (loss) | $7,967 | $13,493 | | Six Months Ended June 30 | | | | Net income (loss) | $4,556 | $(10,352) | | Other comprehensive income (loss) | $(1,650) | $(6,751) | | Comprehensive income (loss) | $2,906 | $(17,103) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $1.18 billion from $1.21 billion, primarily due to $39.4 million in stock repurchases and tax withholdings, partially offset by net income and stock-based compensation - For the six months ended June 30, 2021, the company repurchased 1,000,000 shares of common stock for $39.4 million[21] - Net income of $4.6 million and stock-based compensation of $14.4 million increased equity, while stock repurchases and other items led to an overall decrease[21] Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $108.2 million, investing activities used $23.7 million, and financing activities used $103.3 million, resulting in a net cash decrease of $19.2 million for the six months ended June 30, 2021 Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $108,216 | $125,529 | | Net cash from investing activities | $(23,727) | $(25,672) | | Net cash from financing activities | $(103,262) | $(100,150) | | Net increase (decrease) in cash | $(19,161) | $7,825 | Notes to Condensed Consolidated Financial Statements Detailed notes cover accounting policies, COVID-19 impact, revenue recognition, debt structure, segment reporting changes (Banks, Merchants, Billers), and stock-based compensation - The company highlights risks and uncertainties from the COVID-19 pandemic, noting its impact is highly uncertain and could adversely affect business through changes in customer transaction volumes and spending[30][31] - In January 2021, the company changed its organizational and segment reporting structure to Banks, Merchants, and Billers to align with its strategic direction[80] - Total debt as of June 30, 2021, was approximately $1.11 billion, comprised of term loans, a revolving credit facility, and senior notes[58] - Revenue allocated to remaining performance obligations was $804.2 million as of June 30, 2021, with 53% expected to be recognized in the next 12 months[48][53] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance for Q2 and H1 2021, covering COVID-19 impact, business trends, 60-month backlog, detailed results by revenue and expense, segment performance (Banks, Merchants, Billers), and liquidity COVID-19 Pandemic The ongoing COVID-19 pandemic creates uncertainty, impacting customer transaction volumes in Merchants and Billers segments, though management believes current liquidity of $619.7 million is sufficient - The company has seen changes in customer transaction volumes since March 2020, especially in the Merchants and Billers segments, and atypical fluctuations in Biller volumes due to changes in tax deadlines[105] - As of June 30, 2021, the company believes it has sufficient liquidity ($619.7 million) to continue operations during this period of uncertainty[104] Overview and Key Trends ACI Worldwide's strategy is shaped by key industry trends including accelerating digital payment volumes, global adoption of real-time payments and cloud technology, rising digital fraud, omni-commerce growth, and 'Request for Payment' services - Key market trends driving ACI's business include increasing digital payment volumes, adoption of real-time payments (like Zelle, FedNow), transition to cloud technology, rising digital fraud, and the need for omni-commerce solutions[110][111][112][113][114] Backlog The 60-month backlog, including committed and assumed renewal revenues, increased to $6.18 billion as of June 30, 2021, up from $6.04 billion, with growth across all Banks, Merchants, and Billers segments 60-Month Backlog Estimate (in millions) | Segment | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Banks | $2,248 | $2,167 | | Merchants | $839 | $808 | | Billers | $3,094 | $3,064 | | Total | $6,181 | $6,039 | Results of Operations - Three Months Ended June 30, 2021 Q2 2021 total revenue increased 1% to $301.7 million, driven by a 9% rise in SaaS and PaaS revenue, offset by a 31% decline in License revenue, leading to a 47% decrease in operating income to $15.4 million - SaaS and PaaS revenue grew $15.8 million (9%), primarily due to the timing of tax payments by customers in the Biller segment[129] - License revenue decreased $15.4 million (31%) due to the timing and relative size of license and capacity events compared to the prior year[132] - Cost of revenue increased by $11.3 million (8%), mainly due to higher payment card interchange and processing fees[138] Results of Operations - Six Months Ended June 30, 2021 H1 2021 total revenue decreased 1% to $586.9 million, with SaaS and PaaS revenue up 5% offset by a 29% decline in License revenue, resulting in a 7% increase in operating income to $19.1 million and a net income of $4.6 million - SaaS and PaaS revenue increased $18.6 million (5%), driven by changes in the timing of tax payments in the Biller segment[154] - License revenue decreased $22.3 million (29%) due to the timing and size of deals compared to H1 2020[155] - Operating income increased to $19.1 million from $17.9 million, and the company reported net income of $4.6 million compared to a net loss of $10.4 million in the prior-year period[151] Segment Results Q2 2021 saw decreased Banks segment revenue and Adjusted EBITDA, flat Merchants, and growth in Billers revenue and Adjusted EBITDA, while H1 2021 showed Banks EBITDA decline and Merchants and Billers EBITDA growth Segment Revenue (in thousands) | Segment | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Banks | $114,051 | $125,386 | $209,968 | $231,207 | | Merchants | $37,424 | $37,314 | $76,094 | $69,109 | | Billers | $150,194 | $137,210 | $300,793 | $291,079 | Segment Adjusted EBITDA (in thousands) | Segment | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Banks | $54,465 | $68,385 | $91,660 | $110,821 | | Merchants | $13,041 | $12,838 | $27,766 | $19,256 | | Billers | $34,603 | $34,305 | $68,624 | $64,539 | Liquidity and Capital Resources As of June 30, 2021, total liquidity was $619.7 million, comprising $146.2 million in cash and $473.5 million from the revolving credit facility, with management deeming it sufficient for the foreseeable future Available Liquidity (in thousands) | Component | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $146,213 | $165,374 | | Availability under revolving credit facility | $473,500 | $443,500 | | Total liquidity | $619,713 | $608,874 | - During the first six months of 2021, the company repurchased 1,000,000 shares for $39.4 million, with $72.7 million remaining authorized under the stock repurchase program[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, with USD-denominated revenue and local currency expenses, and interest rate risk on its $722.6 million floating-rate debt - The company is exposed to foreign currency risk as it conducts business globally, with revenues primarily in USD and expenses in various local currencies[193] - The company has $722.6 million in floating-rate debt, where a hypothetical 10% change in effective interest rates would impact annual interest expense by approximately $1.5 million[195] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[196] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[197] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material effect on its financial condition or results of operations - ACI is involved in various litigation matters in the ordinary course of business but does not believe any current proceedings would have a material adverse outcome[199] Item 1A. Risk Factors Updated risk factors include potential liability from software defects, specifically an April 2021 erroneous ACH file transmission incident leading to agency inquiries and potential fines, and challenges from transitioning to a new organizational structure - A new risk factor was added concerning an April 2021 incident where erroneous ACH files were transmitted during a system test, leading to inquiries from state and federal agencies that could result in material fines or penalties[202] - The company notes that recent changes to senior management and the realignment of its organizational structure under the 'Fit for Growth' strategy may pose operational challenges[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, the company repurchased 1,000,000 shares of common stock for $39.4 million, with approximately $72.7 million remaining authorized for future repurchases Issuer Purchases of Equity Securities (Q2 2021) | Month | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | May 2021 | 1,000,000 | $39.41 | 1,000,000 | - As of June 30, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $72.7 million[208] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications, and XBRL data files - The report includes standard exhibits such as the CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files[213]