ACI Worldwide, Inc. — Q2 2020 Form 10-Q Summary
Business context and reporting period
ACI Worldwide provides electronic payment software and services to banks, merchants, billers and other organizations through its ACI On Demand and ACI On Premise segments. This unaudited quarterly report covers the three and six months ended June 30, 2020, compared with the corresponding 2019 periods. The filing was signed August 6, 2020.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $299.9 million | $297.6 million | $591.4 million | $503.5 million |
| Operating income (loss) | $29.1 million | $(5.9) million | $17.9 million | $(34.0) million |
| Operating margin | 9.7% | (2.0%) | 3.0% | (6.7%) |
| Net income (loss) | $14.1 million | $5.7 million | $(10.4) million | $(20.2) million |
| Net margin | 4.7% | 1.9% | (1.8%) | (4.0%) |
| Operating cash flow | Not separately provided | Not separately provided | $125.5 million | $56.9 million |
- Q2 revenue consisted of SaaS and PaaS revenue of $180.6 million, license revenue of $50.1 million, maintenance revenue of $52.7 million and services revenue of $16.5 million.
- Q2 Segment Adjusted EBITDA was $33.1 million for ACI On Demand and $59.1 million for ACI On Premise. Six-month Segment Adjusted EBITDA was $56.2 million and $90.0 million, respectively.
- Cash and cash equivalents were $129.2 million at June 30, 2020, compared with $121.4 million at December 31, 2019.
- Total liquidity was $429.2 million, consisting of cash and $300.0 million of availability under the revolving credit facility.
- Total debt was $1.317 billion, including $736.6 million of term loans, $200.0 million drawn on the revolving credit facility and $400.0 million of 5.750% senior notes due 2026. The Credit Facility interest rate was 2.43% at June 30, 2020.
- Receivables, net, were $524.6 million; deferred revenue was $137.4 million. Remaining performance obligations were $672.2 million, with approximately 44% expected to be recognized within 12 months.
Material changes versus the prior comparable period
- Q2 revenue increased 1%, while six-month revenue increased 17%. The six-month increase primarily reflects the inclusion of Speedpay for the full period; Speedpay contributed $168.9 million of revenue in the first half of 2020.
- Excluding incremental Speedpay revenue and foreign-currency effects, Q2 revenue decreased approximately 10% and six-month revenue decreased approximately 6%.
- Q2 SaaS and PaaS revenue increased 5% overall but decreased approximately 15% excluding Speedpay and currency effects. The decline reflected changes in tax-payment assessment and due dates, lower Biller volumes and Digital Channels customer attrition.
- Q2 license revenue declined 5%, maintenance revenue increased 2% and services revenue declined 20%. Services were affected primarily by the timing and magnitude of project work.
- Operating income improved substantially from a Q2 2019 loss of $5.9 million to income of $29.1 million. Lower selling and marketing, general and administrative, research and development and cost-of-revenue expenses more than offset higher depreciation and amortization.
- Q2 operating expenses included $5.0 million of transaction-related and cost-reduction expenses, compared with $16.6 million of Speedpay-related expenses in Q2 2019. Six-month 2020 expenses included $13.5 million of such items versus $21.3 million in 2019.
- Six-month operating cash flow increased $68.7 million, supported by higher cash earnings and improved working-capital timing. The company used $25.7 million for capital expenditures, software and distribution rights, repaid $58.5 million of term and revolving debt on a net basis, and repurchased $28.9 million of common stock.
Guidance, outlook, risks and unusual items
- The filing does not provide specific numerical revenue, earnings or cash-flow guidance.
- Management stated that it had sufficient liquidity to continue operations during the COVID-19 disruption, delayed non-essential capital spending and operating expenses, and believed existing liquidity would satisfy projected requirements for the next 12 months and foreseeable future.
- COVID-19 caused changes in Merchant and Biller transaction volumes, including lower Biller volumes related to delayed federal, state and local tax due dates. Continued volume declines, customer payment delays, reduced spending, project delays, contract renegotiations or non-renewals could adversely affect revenue, cash flow and liquidity. Management stated that the ultimate impact could not be estimated with reasonable certainty.
- The company remained in compliance with its financial debt covenants. Debt maturities include $19.5 million in the remainder of 2020, $39.0 million in 2021, $50.4 million in 2022, $69.9 million in 2023, $757.8 million in 2024 and $400.0 million thereafter.
- Foreign-currency losses were $7.9 million in the first half of 2020 versus $0.5 million in the prior-year period, primarily reflecting market volatility associated with COVID-19. The company does not use foreign-currency hedging transactions.
- Management performed a COVID-19 goodwill assessment and concluded that an additional quantitative impairment test was not required after considering the excess fair value from the October 1, 2019 annual test and other qualitative factors.
- The effective tax rate was 30% for Q2 and 32% for the first half of 2020. The company had $30.0 million of unrecognized tax benefits and expected approximately $11.7 million could decrease within the following 12 months.
- The company adopted the expected-credit-loss standard and certain financial-instrument guidance during 2020 without a material financial-statement impact. The company is evaluating the future transition from LIBOR, which indexes its Credit Agreement.
- The company appointed Odilon Almeida as President and Chief Executive Officer effective March 9, 2020, and stockholders approved the 2020 Equity and Incentive Compensation Plan in June 2020.
- No legal proceedings were identified whose adverse outcome was believed likely to have a material effect on financial condition or results of operations. Management concluded disclosure controls and procedures were effective as of June 30, 2020.
Most important facts for investors to verify
- Determine how much of the reported revenue and EBITDA growth is attributable to Speedpay versus organic performance, particularly in ACI On Demand.
- Monitor transaction volumes and revenue trends among Merchant and Biller customers as COVID-19 effects and tax-payment timing changes continue.
- Assess leverage, debt maturities and refinancing exposure, including the large 2024 maturity concentration and the transition away from LIBOR.
- Reconcile reported net losses for the first half with strong operating cash flow and evaluate the sustainability of working-capital benefits.
- Review the assumptions underlying the $5.839 billion 60-month backlog, especially renewal rates, customer volumes, foreign exchange and potential COVID-19-related contract changes.
- Evaluate exposure to goodwill and acquired intangible assets, which totaled $1.280 billion and $335.7 million, respectively, at June 30, 2020.