ACI Worldwide(ACIW) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents unaudited condensed consolidated financial statements for ACI Worldwide, Inc., highlighting increased net income due to a divestiture and decreased operating cash flow Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,210,962 | $937,434 | | Goodwill | $1,226,026 | $1,280,226 | | Total Assets | $3,263,140 | $3,158,741 | | Total Current Liabilities | $997,974 | $754,155 | | Long-term Debt | $947,750 | $1,019,872 | | Total Liabilities | $2,064,924 | $1,913,964 | | Total Stockholders' Equity | $1,198,216 | $1,244,777 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $306,591 | $316,914 | $970,096 | $903,769 | | Operating Income | $3,489 | $27,979 | $55,612 | $47,093 | | Net Income | $23,117 | $13,764 | $51,949 | $18,320 | | Diluted EPS | $0.20 | $0.12 | $0.45 | $0.15 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $101,966 | $144,483 | | Net cash from investing activities | $73,622 | $(33,009) | | Net cash from financing activities | $(143,008) | $(194,335) | | Net increase (decrease) in cash | $32,520 | $(82,777) | Notes to Condensed Consolidated Financial Statements Details accounting policies, revenue recognition, debt structure, segment performance, and legal contingencies, including a $100.1 million divestiture - On June 7, 2022, the company agreed to divest its corporate online banking solutions for $100.1 million, closing on September 1, 2022. A preliminary gain of $38.5 million was recognized on the sale[43][44] - As of September 30, 2022, total debt outstanding was approximately $1.02 billion, comprising Term Loans, a Revolving Credit Facility, and Senior Notes. The company was in compliance with all financial debt covenants[53][54] - The company reports performance across three operating segments: Banks, Merchants, and Billers. For the nine months ended September 30, 2022, revenues were $391.6 million for Banks, $113.1 million for Merchants, and $465.4 million for Billers[76][84] - The company is involved in legal proceedings and investigations following an inadvertent ACH file transmission in April 2021. A proposed settlement for class action lawsuits involves establishing a $5.0 million fund plus attorneys' fees and administrative costs[100][101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, key industry trends, revenue and expense fluctuations, the $6.08 billion backlog, and liquidity Overview and Key Trends Business strategy is shaped by accelerating digital and real-time payments, cloud adoption, fraud detection, and omni-commerce trends - Key trends driving the business include increasing digital payment volumes, adoption of real-time payments (e.g., Zelle, FedNow), transition to cloud technology, rising digital payments fraud, the growth of omni-commerce, and the emergence of Request for Payment (RfP) services[114][115][119] Backlog The 60-month backlog decreased slightly to $6.08 billion, partly due to a $170.1 million divestiture impact 60-Month Backlog by Segment (in millions) | Segment | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Banks | $2,038 | $2,272 | | Merchants | $772 | $754 | | Billers | $3,267 | $3,084 | | Total | $6,077 | $6,110 | Results of Operations Q3 2022 revenue decreased 3% to $306.6 million, while nine-month revenue grew 7% to $970.1 million, with net income significantly boosted by a divestiture gain Q3 2022 vs Q3 2021 Revenue Breakdown (in thousands) | Revenue Type | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | SaaS and PaaS | $195,540 | $191,456 | 2% | | License | $43,661 | $54,454 | (20)% | | Maintenance | $49,163 | $53,519 | (8)% | | Services | $18,227 | $17,485 | 4% | | Total Revenues | $306,591 | $316,914 | (3)% | Nine Months 2022 vs 2021 Revenue Breakdown (in thousands) | Revenue Type | Nine Months 2022 | Nine Months 2021 | % Change | | :--- | :--- | :--- | :--- | | SaaS and PaaS | $597,080 | $583,530 | 2% | | License | $168,260 | $110,383 | 52% | | Maintenance | $151,143 | $159,037 | (5)% | | Services | $53,613 | $50,819 | 5% | | Total Revenues | $970,096 | $903,769 | 7% | - Other, net income for Q3 2022 was $41.5 million, which included a $38.5 million gain from the divestiture of the corporate online banking solutions business[159] Liquidity and Capital Resources Total liquidity was $623.3 million, with cash flow from operations decreasing to $102.0 million, and $90.9 million in share repurchases Available Liquidity (in thousands) | Component | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $134,799 | $122,059 | | Availability under revolving credit facility | $488,500 | $498,500 | | Total liquidity | $623,299 | $620,559 | - The company repurchased 3,210,313 shares for $90.9 million during the nine months ended September 30, 2022. Approximately $125.4 million remained authorized for purchase under the stock repurchase program[194] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations and interest rate changes on its $1.0 billion debt, with a 10% rate change impacting annual interest by $3.0 million - The company is exposed to foreign currency risk as the U.S. dollar is the primary revenue currency, while some operating expenses are in local currencies. It does not use hedging transactions[205] - The company has $1.0 billion of debt, with $617.3 million being floating-rate. A hypothetical 10% change in effective interest rates would change annual interest expense by approximately $3.0 million[207] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2022[209] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[210] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company faces investigations and has a proposed $5.0 million settlement for class action lawsuits related to an inadvertent ACH file transmission - The company is under investigation by the CFPB and state regulators due to an inadvertent ACH file transmission incident in April 2021[100][211] - A settlement agreement has been reached for related class-action lawsuits, establishing a $5.0 million fund, subject to court approval[101] Item 1A. Risk Factors No material changes to risk factors except new risks from the Eastern Europe crisis and compliance with sanctions impacting Russian operations - A new risk factor has been identified related to the crisis in eastern Europe. The company has augmented services and solutions for its customer in Russia to comply with U.S. and global sanctions, which could have adverse impacts[213][214] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Q3 2022 stock repurchases of 1,154,825 shares for $24.44 average, with $125.4 million remaining authorized Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | 297,700 | $26.95 | | August 2022 | 376,045 | $25.78 | | September 2022 | 481,080 | $21.84 | | Total | 1,154,825 | $24.44 | - As of September 30, 2022, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $125.4 million[217] Item 3. Defaults Upon Senior Securities Not applicable - Not applicable[219] Item 4. Mine Safety Disclosures Not applicable - Not applicable[219] Item 5. Other Information Not applicable - Not applicable[219] Item 6. Exhibits Lists exhibits filed, including CEO and CFO certifications and XBRL Interactive Data Files - Exhibits filed include CEO and CFO certifications (31.01, 31.02, 32.01, 32.02) and XBRL data files (101 series)[221]