ACI Worldwide, Inc. 2023 Form 10-K Summary
Business context and reporting period
ACI Worldwide develops and supports real-time digital payment software and services for banks, intermediaries, merchants, and billers. Its offerings include issuing and acquiring, real-time payments, merchant payment orchestration, fraud management, and electronic bill payment. The company serves more than 6,000 organizations and 80,000+ merchants in more than 95 countries.
This filing covers the fiscal year ended December 31, 2023, with comparisons primarily to fiscal 2022. Results are subject to significant seasonality, with revenue and operating results generally strongest in the third and fourth quarters.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $1.453 billion | $1.422 billion | Up 2% |
| Operating income | $220.4 million | $203.8 million | Up 8% |
| Operating margin | 15.2% | 14.3% | Up approximately 90 bps |
| Income before taxes | $147.6 million | $206.6 million | Down 29% |
| Net income | $121.5 million | $142.2 million | Down 15% |
| Diluted EPS | $1.12 | $1.24 | Down 10% |
| Operating cash flow | $168.5 million | $143.4 million | Up $25.1 million |
- SaaS and PaaS revenue was $849.1 million, up 6%; license revenue was $321.2 million, down 8%; maintenance revenue was $205.1 million, up 3%; and services revenue was $77.1 million, up 9%.
- Reported revenue growth was reduced by $32.0 million from the 2022 divestiture of the corporate online banking business and by $2.4 million from foreign-currency effects. Excluding those effects, revenue increased approximately 5%.
- Cost of revenue increased 3% to $719.2 million, primarily due to higher personnel costs, payment-card interchange and processing fees, and cloud-computing fees.
- Interest expense increased 48% to $78.5 million, primarily because of higher interest rates. Other, net changed from $43.4 million of income in 2022, which included a $38.5 million divestiture gain, to $8.5 million of expense in 2023.
- The effective tax rate declined to approximately 18% from 31% in 2022. The 2023 tax provision included a $6.0 million benefit related to IRS guidance on foreign tax credits.
Segment performance and material changes
| Segment | 2023 revenue | 2022 revenue | 2023 Segment Adjusted EBITDA |
|---|---|---|---|
| Banks | $616.1 million | $638.6 million | $355.5 million |
| Merchants | $150.6 million | $153.9 million | $44.3 million |
| Billers | $685.9 million | $629.4 million | $142.3 million |
- Banks revenue declined primarily because of the 2022 divestiture and lower license revenue. Excluding the divestiture, Banks Segment Adjusted EBITDA declined modestly.
- Merchants revenue and Segment Adjusted EBITDA declined, reflecting lower revenue and higher cash operating expenses.
- Billers was the principal growth driver, with revenue up $56.5 million and Segment Adjusted EBITDA up $35.0 million. Higher transaction volumes were partly offset by $14.5 million of higher interchange and processing fees.
- Sixty-month backlog increased to $6.520 billion from $6.295 billion. Renewal backlog rose to $4.342 billion, while committed backlog declined to $2.178 billion. Backlog includes management estimates and assumed renewals and is not a GAAP measure.
- The company recorded $21.0 million of cost-reduction strategy expenses, $2.6 million of significant transaction-related expenses, $1.8 million of CEO-transition costs, and $2.8 million of European data-center migration expenses in 2023.
Cash flow, liquidity, debt, and capital allocation
- Operating cash flow was $168.5 million. Investing activities used $37.8 million, primarily for software, property, and equipment. Financing activities used $111.6 million.
- Capital expenditures and software purchases totaled approximately $37.8 million, comprising $8.9 million of property and equipment and $28.9 million of software and distribution rights.
- Cash and cash equivalents were $164.2 million at year-end, including $60.9 million held by foreign subsidiaries. Total available liquidity was $538.1 million, consisting of cash and $373.9 million of revolving-credit availability. A separate $75.0 million overdraft facility was also fully available.
- Total debt was $1.038 billion at December 31, 2023, comprising $519.7 million of term loans, $124.0 million drawn on the revolving facility, and $400.0 million of 5.750% senior notes due August 2026. The credit facility carried a 7.21% interest rate at year-end.
- Scheduled debt maturities were $77.9 million in 2024, $565.8 million in 2025, and $400.0 million in 2026. The company was in compliance with its debt covenants at year-end.
- On February 26, 2024, after the reporting period, ACI refinanced its debt with a $500 million senior secured term loan and a $600 million senior secured revolving facility, extending facility maturity to February 26, 2029.
- ACI repurchased 939,567 shares for $27.6 million in 2023 and had approximately $172.4 million remaining under its authorization. It has never paid cash dividends and does not currently anticipate paying them.
Outlook, management commentary, risks, and unusual items
- Management identifies continued growth in digital payment volumes, real-time payments, cloud adoption, payment intelligence and fraud prevention, omni-commerce, and request-for-payment services as key opportunities.
- The filing does not provide a clear numerical 2024 revenue or earnings guidance range.
- Major risks include intense competition, rapid technology change, cybersecurity and service outages, privacy and payment regulation, software defects, customer concentration in financial services, foreign-currency exposure, economic weakness, contract renewals, project delays, and reliance on skilled personnel.
- ACI has not entered into foreign-currency hedging transactions. A 10% change in effective interest rates would affect annual interest expense on the credit facility by approximately $4.6 million.
- The balance sheet includes approximately $1.2 billion of goodwill and $195.6 million of net intangible assets. Management reported that the estimated fair value of each reporting unit substantially exceeded carrying value, with no reporting unit considered at risk in the 2023 goodwill impairment test.
- The company is subject to consent orders and compliance agreements related to prior regulatory investigations. It also faces tax examinations, including an IRS examination of its 2021 federal return and Indian tax audits.
- Following an inadvertent 2021 ACH file transmission, ACI paid or funded settlements of $25.0 million with the CFPB and $20.0 million with state money-transmission regulators and attorneys general; the payments were funded by insurance. A related customer damages action remains pending, and insurance coverage is subject to policy limits and reservations of rights.
- The financial statements and internal control over financial reporting received unqualified opinions from Deloitte & Touche LLP.
Important facts for investors to verify
- Whether Billers growth and higher transaction volumes can offset weakness in Banks license revenue and Merchant performance.
- The sustainability of operating-margin improvement after excluding cost-reduction, transaction, transition, and data-center migration charges.
- Execution of the February 2024 refinancing, future interest expense, leverage, covenant compliance, and the 2025–2026 debt maturities.
- The quality and conversion of the $6.520 billion backlog, particularly the $4.342 billion renewal component.
- Potential exposure from the pending customer litigation, regulatory undertakings, tax audits, and uncertain tax benefits of $20.9 million.
- Cybersecurity, operational resilience, foreign-exchange exposure, and the effect of inflation on Biller interchange costs.
- Whether the company’s capital allocation priorities, including share repurchases and the absence of dividends, remain appropriate given debt obligations and liquidity needs.