ACI Worldwide(ACIW) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents ACI Worldwide's unaudited Q1 2023 consolidated financial statements, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets Total assets decreased to $3.01 billion from $3.21 billion, with liabilities and equity also declining as of March 31, 2023 Condensed Consolidated Balance Sheets (in thousands) | Account | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $954,036 | $1,114,805 | | Total Assets | $3,006,801 | $3,209,895 | | Total Current Liabilities | $700,910 | $858,842 | | Total Liabilities | $1,839,174 | $2,016,708 | | Total Stockholders' Equity | $1,167,627 | $1,193,187 | | Total Liabilities and Stockholders' Equity | $3,006,801 | $3,209,895 | Condensed Consolidated Statements of Operations Q1 2023 saw a net loss of $32.3 million and an operating loss, primarily due to a 10% revenue decrease and higher operating expenses Statements of Operations Highlights (in thousands, except per share data) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $289,676 | $323,080 | | License Revenue | $18,331 | $60,285 | | SaaS and PaaS Revenue | $204,930 | $194,562 | | Operating Income (Loss) | $(24,352) | $27,666 | | Net Income (Loss) | $(32,308) | $15,490 | | Diluted EPS | $(0.30) | $0.13 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q1 2023 resulted in a comprehensive loss of $28.7 million, primarily driven by the net loss, partially offset by foreign currency translation adjustments Comprehensive Income (Loss) (in thousands) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Net Income (Loss) | $(32,308) | $15,490 | | Foreign currency translation adjustments | $3,618 | $(2,100) | | Comprehensive Income (Loss) | $(28,690) | $13,390 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $1.17 billion by March 31, 2023, primarily due to the net loss, partially offset by stock-based compensation - Total stockholders' equity decreased by $25.6 million in Q1 2023, from $1,193.2 million to $1,167.6 million[16] - Key changes in Q1 2023 included a net loss of $32.3 million and stock-based compensation of $5.3 million[16] - In the comparable period of Q1 2022, the company repurchased $37.9 million of common stock[18] Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $40.1 million in Q1 2023, leading to a $13.6 million increase in cash and cash equivalents for the quarter Cash Flow Summary (in thousands) | Activity | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Net cash from operating activities | $40,068 | $28,874 | | Net cash from investing activities | $(8,739) | $(8,487) | | Net cash from financing activities | $(20,326) | $(25,998) | | Effect of exchange rate fluctuations | $2,557 | $(2,464) | | Net increase (decrease) in cash | $13,560 | $(8,075) | Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, debt structure, segment performance, and legal contingencies impacting the financial statements - As of March 31, 2023, the company had a goodwill balance of $1.2 billion, allocated to Banks ($671.7 million), Merchants ($137.3 million), and Billers ($417.0 million)[32] - Total debt outstanding as of March 31, 2023, was approximately $1.1 billion, consisting of a Revolving Credit Facility, Term Loans, and Senior Notes[44] - The company is involved in legal proceedings and investigations following an inadvertent ACH file transmission in April 2021, with a proposed settlement fund of $5.0 million for class action lawsuits, subject to court approval[90][91] - Revenue allocated to remaining performance obligations was $651.4 million as of March 31, 2023, with about 50% expected to be recognized in the next 12 months[41] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting a 10% revenue decrease and net loss, along with key business trends, segment performance, and liquidity Overview and Key Trends ACI Worldwide's strategy is shaped by key trends in digital payments, cloud adoption, fraud prevention, and omni-commerce - Key operational trends shaping the company's strategy include: - Increasing digital payment transaction volumes - Adoption of real-time payments, with ACI positioned as a leader through partnerships with Mastercard and Microsoft - Industry transition to public and private cloud technology - Growing demand for advanced fraud prevention and payments intelligence - Rise of omni-commerce experiences across multiple channels - Emergence of Request for Payment (RfP) technology[102][103][104][105][106][107] Backlog The 60-month backlog increased to $6.37 billion as of March 31, 2023, composed of committed contracts and assumed renewals 60-Month Backlog by Segment (in millions) | Segment | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :--- | :--- | :--- | | Banks | $2,154 | $2,095 | | Merchants | $821 | $810 | | Billers | $3,395 | $3,390 | | Total | $6,370 | $6,295 | 60-Month Backlog by Type (in millions) | Type | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :--- | :--- | :--- | | Committed | $2,266 | $2,338 | | Renewal | $4,104 | $3,957 | | Total | $6,370 | $6,295 | Results of Operations Q1 2023 total revenue fell 10% to $289.7 million, resulting in an operating loss, primarily due to a sharp decline in license revenue Q1 2023 vs Q1 2022 Performance (in thousands) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $289,676 | $323,080 | $(33,404) | (10)% | | License Revenue | $18,331 | $60,285 | $(41,954) | (70)% | | SaaS & PaaS Revenue | $204,930 | $194,562 | $10,368 | 5% | | Total Operating Expenses | $314,028 | $295,414 | $18,614 | 6% | | Operating Income (Loss) | $(24,352) | $27,666 | $(52,018) | (188)% | | Net Income (Loss) | $(32,308) | $15,490 | $(47,798) | (309)% | - The divestiture of the corporate online banking solutions business resulted in a $12.4 million decrease in total revenue for Q1 2023[119] - Weakening foreign currencies against the U.S. dollar led to a $4.9 million decrease in total revenue[119] Segment Results In Q1 2023, Banks and Merchants segments saw revenue and Adjusted EBITDA declines, while the Billers segment grew due to higher transaction volumes Segment Revenue (in thousands) | Segment | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Banks | $88,040 | $132,198 | | Merchants | $34,781 | $41,002 | | Billers | $166,855 | $149,880 | | Total | $289,676 | $323,080 | Segment Adjusted EBITDA (in thousands) | Segment | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Banks | $24,681 | $64,714 | | Merchants | $6,544 | $14,713 | | Billers | $29,641 | $26,357 | Liquidity and Capital Resources As of March 31, 2023, total liquidity was $530.9 million, comprising cash and available revolving credit, with no share repurchases in Q1 2023 Available Liquidity (in thousands) | Component | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $142,412 | $124,981 | | Availability under revolving credit facility | $388,440 | $393,500 | | Total liquidity | $530,852 | $518,481 | - The company did not repurchase any shares under its program in Q1 2023. As of March 31, 2023, $200.0 million remained authorized for future repurchases[154][71] - Cash flow from operating activities increased to $40.1 million in Q1 2023 from $28.9 million in Q1 2022, primarily due to better customer receipt collections[157] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations and interest rate changes, with a significant portion of its debt at floating rates - The company is exposed to foreign currency risk as it conducts business globally, with the U.S. dollar being the primary currency for revenue contracts[165] - The company has $1.1 billion in debt, with $688.1 million under a floating-rate Credit Facility; a 10% change in effective interest rates would alter interest expense by about $4.7 million annually[166] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[167] - No material changes were made to the internal control over financial reporting during the first quarter of 2023[168] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company faces class action lawsuits and regulatory investigations related to an April 2021 ACH file transmission, with a proposed settlement fund - The company is a defendant in seven class action lawsuits following an inadvertent ACH file transmission in April 2021[91] - A settlement agreement, subject to court approval, has been reached to establish a $5.0 million fund for class members[91] - The company is also under investigation by the U.S. Consumer Financial Protection Bureau (CFPB) and state authorities regarding the same incident[92] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's Form 10-K for the fiscal year ended December 31, 2022 - No material changes to risk factors were reported for the quarter[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q1 2023 but withheld shares for RSU tax obligations, with $200.0 million remaining authorized for repurchase - No shares were repurchased under the publicly announced program during Q1 2023[173] - The company withheld 114,492 shares to satisfy tax withholding obligations for employees on vested RSUs[173] - On February 24, 2023, the board authorized a new $200.0 million stock repurchase program, which is the amount remaining available as of March 31, 2023[174] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, credit facility agreements, and officer certifications - Key exhibits filed include an Extension Agreement for the credit facility dated April 28, 2023, and CEO/CFO certifications[178]