ACI Worldwide, Inc. — Form 10-Q Summary
Business context and reporting period
ACI Worldwide provides digital payment software and services to banks, merchants, and billers globally. The filing covers the unaudited three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Beginning in 2021, the company reports three operating segments: Banks, Merchants, and Billers.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $301.7 million | $299.9 million | $586.9 million | $591.4 million |
| Operating income | $15.4 million | $29.1 million | $19.1 million | $17.9 million |
| Net income (loss) | $6.5 million | $14.1 million | $4.6 million | $(10.4) million |
| Diluted EPS | $0.05 | $0.12 | $0.04 | $(0.09) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $108.2 million | $125.5 million |
- Calculated gross profit was approximately $143.1 million in Q2 and $268.8 million for the first six months. Calculated gross margins were approximately 47.4% and 45.8%, respectively.
- Calculated operating margins were approximately 5.1% in Q2 2021 and 3.3% for the six-month period. Calculated net margins were approximately 2.2% and 0.8%, respectively.
- SaaS and PaaS revenue increased 9% in Q2 and 5% year to date; license revenue declined 31% and 29%, respectively. Maintenance revenue was broadly stable, while services revenue increased 6% in Q2 and declined 1% year to date.
- Q2 segment revenue was $114.1 million for Banks, $37.4 million for Merchants, and $150.2 million for Billers. Six-month revenue was $210.0 million, $76.1 million, and $300.8 million, respectively.
- Six-month Segment Adjusted EBITDA was $91.7 million for Banks, $27.8 million for Merchants, and $68.6 million for Billers. Banks declined materially, while Merchants and Billers improved.
- Cash and cash equivalents were $146.2 million at June 30, 2021, down from $165.4 million at December 31, 2020. Total reported liquidity, including revolver availability, was $619.7 million.
- Total debt was $1.108 billion, consisting of $697.6 million of term loans, $25.0 million drawn on the revolving facility, and $400.0 million of 5.750% senior notes due 2026. The credit facility interest rate was 2.10% at quarter-end.
- The company repaid $30.0 million on the revolver and $19.5 million on term loans during the first six months. It remained in compliance with debt covenants.
Material changes versus the prior comparable period
- Q2 revenue increased 1%, but six-month revenue decreased 1%. Excluding foreign currency effects, management reported Q2 revenue down 1% and six-month revenue down 2%.
- Operating income declined 47% in Q2 despite slightly higher revenue, primarily reflecting higher cost of revenue, selling and marketing expense, and general and administrative expense.
- Six-month operating income increased 7%, and the company moved from a six-month net loss in 2020 to net income in 2021, aided by lower interest expense and the absence of the $7.7 million six-month 2020 other expense largely associated with foreign currency losses.
- Q2 and six-month results included $3.4 million and $4.6 million, respectively, of expenses related to significant transaction and cost-reduction strategies. Comparable 2020 periods included $5.0 million and $13.5 million of such expenses, primarily related to the Speedpay acquisition and cost reductions.
- Cost of revenue increased, primarily because of higher payment card interchange and processing fees. Six-month operating cash flow decreased $17.3 million because of working-capital timing.
- Management changed the organizational structure and segment reporting to Banks, Merchants, and Billers. The 60-month backlog estimate increased to $6.181 billion from $6.039 billion at December 31, 2020; approximately $3.898 billion was renewal backlog.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide explicit quantitative revenue, earnings, or cash-flow guidance.
- Management expects existing cash, operating cash flow, and revolver availability to fund projected working-capital and debt-service needs for the next twelve months and the foreseeable future. It reported $619.7 million of available liquidity at June 30, 2021.
- Growth opportunities cited include increasing digital-payment volumes, real-time payments, cloud adoption, fraud and compliance solutions, omni-commerce, and Request for Payment services.
- COVID-19 continues to create uncertainty in customer transaction volumes, demand, collections, and liquidity. The company noted atypical Biller volume fluctuations related to the timing of federal, state, and local tax assessments and due dates.
- In April 2021, erroneous ACH files related to a mortgage-services customer were transmitted during system testing. Reversal files were processed, but regulatory inquiries and potential fines, penalties, or claims could be material.
- The company entered into a five-year, $45 million Microsoft Azure server and cloud commitment and commenced a ten-year lease for its Miami headquarters, recording a $12.9 million right-of-use asset and $15.2 million lease liability.
- Risks include software defects and service errors, cybersecurity and remote-work risks, foreign-currency exposure, floating-rate debt, the transition away from LIBOR, execution risk from the Fit for Growth organizational realignment, and possible customer renegotiations or nonrenewals.
- Goodwill was approximately $1.3 billion. Management concluded that no additional quantitative impairment test was required after considering COVID-19-related conditions and the prior annual impairment test.
Important facts for investors to verify
- Whether the decline in Banks revenue and Segment Adjusted EBITDA reflects temporary license-event timing or a more persistent deterioration in demand.
- Whether Biller SaaS and PaaS growth, including tax-payment timing effects, is sustainable and how interchange and processing costs affect margins.
- The resolution and potential financial exposure from the erroneous ACH-file incident and related regulatory inquiries.
- Debt maturities, refinancing requirements beginning in 2024, floating-rate exposure, and the company’s transition from LIBOR.
- The reliability of the $6.181 billion backlog estimate, particularly the $3.898 billion renewal component and its underlying renewal assumptions.
- The effect of COVID-19, customer payment delays, transaction-volume changes, foreign exchange, and the organizational realignment on future results.