ACI Worldwide, Inc. — Form 10-Q Summary
Business context and reporting period
ACI Worldwide provides digital-payment software and services to banks, merchants, billers, and payment intermediaries. The filing covers the unaudited three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
The company reports three operating segments: Banks, Merchants, and Billers. It serves more than 6,000 organizations globally and cites digital-payment volumes, real-time payments, cloud adoption, fraud prevention, and omnichannel commerce as key market trends.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $306.6 million | $316.9 million | $970.1 million | $903.8 million |
| Operating income | $3.5 million | $28.0 million | $55.6 million | $47.1 million |
| Net income | $23.1 million | $13.8 million | $51.9 million | $18.3 million |
| Diluted EPS | $0.20 | $0.12 | $0.45 | $0.15 |
| Net cash from operations | Not separately provided | Not separately provided | $102.0 million | $144.5 million |
- Q3 revenue declined 3%; nine-month revenue increased 7%.
- Q3 operating margin was approximately 1.1%, versus 8.8% in the prior-year quarter. Nine-month operating margin was approximately 5.7%, versus 5.2%.
- Q3 net margin was approximately 7.5%, versus 4.3%; nine-month net margin was approximately 5.4%, versus 2.0%.
- Revenue mix for the nine months included SaaS and PaaS of $597.1 million, license revenue of $168.3 million, maintenance revenue of $151.1 million, and services revenue of $53.6 million.
- Q3 revenue was $153.5 million for Billers, $117.4 million for Banks, and $35.6 million for Merchants. Nine-month revenue was $465.4 million, $391.6 million, and $113.1 million, respectively.
- Q3 Segment Adjusted EBITDA was $49.8 million for Banks, $9.8 million for Merchants, and $26.3 million for Billers. Nine-month Segment Adjusted EBITDA was $184.7 million, $32.2 million, and $81.0 million, respectively.
Liquidity, cash flow, debt, and balance sheet
- September 30 cash and cash equivalents were $134.8 million, compared with $122.1 million at December 31, 2021. Including settlement deposits, cash was $216.7 million.
- Available liquidity was $623.3 million, consisting of cash and $488.5 million available under the revolving credit facility. A separate $75.0 million uncommitted overdraft facility was fully available.
- Operating cash flow was $102.0 million for the first nine months, down from $144.5 million, primarily due to the timing of customer cash receipts.
- Investing cash flow was $73.6 million, including $100.1 million of divestiture proceeds and $26.5 million of purchases of software, property, and equipment.
- Financing cash flow was negative $143.0 million, reflecting $70.8 million of term-loan repayments, $90.9 million of common-stock repurchases, and $10.0 million of net revolving-facility borrowings.
- Total debt was $1.008 billion at September 30, 2022, comprising $607.3 million of term loans, $10.0 million drawn on the revolver, and $400.0 million of 5.750% senior notes due 2026. The Credit Facility matures in April 2024.
- The Credit Facility had a 4.88% interest rate at quarter-end and is floating-rate; management estimated that a hypothetical 10% change in effective rates would affect annual interest expense by approximately $3.0 million.
- The company stated that it was in compliance with its debt covenants and expects operating cash flow, cash, and available revolver capacity to meet liquidity needs over the next 12 months and beyond.
Material changes versus the prior comparable period
- Q3 revenue decreased $10.3 million, primarily because of the divestiture and unfavorable foreign-currency effects. Excluding those factors, management stated that revenue increased $0.9 million.
- Nine-month revenue increased $66.3 million; management estimated 9% growth excluding the divestiture and foreign-currency effects.
- Q3 license revenue fell 20% because of renewal timing and the relative size of license and capacity events. Nine-month license revenue increased 52% for the same reason.
- SaaS and PaaS revenue increased 2% in both Q3 and the nine-month period, driven by new customer go-lives and higher transaction volumes after adjusting for divestiture and currency effects.
- Q3 operating expenses increased 5%, with cost of revenue up 8%. Higher personnel costs and payment-card interchange and processing fees were significant drivers.
- Billers revenue increased, but Billers Segment Adjusted EBITDA declined by $5.6 million in Q3 and $19.6 million for nine months, primarily because of higher interchange and processing costs. Merchants profitability also declined.
- Shares repurchased totaled 3.2 million for $90.9 million during the first nine months. The remaining authorization was approximately $125.4 million at September 30.
Guidance, outlook, risks, and unusual items
- The filing does not provide a clear quantitative 2022 revenue, earnings, or cash-flow guidance figure.
- On September 1, 2022, ACI completed the sale of its corporate online banking solutions business to One Equity Partners for $100.1 million and recorded a preliminary $38.5 million gain. The gain materially increased reported other income and net income and remains subject to post-closing adjustments.
- ACI entered into a transition-services agreement expected to last no longer than 18 months; reimbursements are intended to cover direct costs for services provided to the divested business.
- Management highlighted inflation, higher interest rates, foreign-currency weakness, COVID-19 uncertainty, payment-card interchange costs, and economic conditions as factors affecting results. Inflation specifically increased Biller interchange costs.
- The company has regulatory investigations and consumer class-action litigation related to an inadvertent transmission of mortgage-related ACH files in 2021. It agreed, subject to court approval and other conditions, to fund a $5.0 million settlement plus attorneys’ fees and administrative costs, with an additional $1.5 million potentially required. Insurance coverage has been asserted but is uncertain.
- ACI disclosed risks related to the war and sanctions affecting Eastern Europe. It has 67 employees and one customer in Russia and has modified its operations and support activities.
- Remaining performance obligations were $682.0 million at September 30, 2022, with approximately 51% expected to be recognized over the next 12 months. Estimated 60-month backlog was $6.077 billion, but includes renewal assumptions and is not a guarantee of future revenue.
- Foreign-currency translation produced a $28.2 million comprehensive-loss adjustment for the first nine months. The company does not use foreign-currency hedges.
Important facts for investors to verify
- Whether the $38.5 million divestiture gain is finalized without a material post-closing adjustment.
- The timing and refinancing or repayment plan for the Credit Facility, which matures in April 2024, and sensitivity to floating interest rates.
- Whether higher interchange, personnel, and other operating costs continue to pressure Billers and consolidated margins.
- The conversion of backlog and remaining performance obligations into recognized revenue, particularly the renewal assumptions.
- The ultimate regulatory, litigation, settlement, and insurance outcomes related to the ACH-file incident.
- Cash-flow performance excluding divestiture proceeds and the sustainability of stock repurchases alongside debt obligations.