ACI Worldwide, Inc. — 2020 Q3 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 Form 10-Q covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
The filing identifies COVID-19 as a significant uncertainty. The company reported changes in transaction volumes, particularly among Merchant and Biller customers, and limited requests for extended payment terms. The Speedpay acquisition completed in May 2019 materially affects year-over-year comparisons.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Total revenue | $315.9 million | $354.9 million | Down 11% |
| Operating income | $31.2 million | $55.3 million | Down 44% |
| Operating margin | 9.9% | 15.6% | Down 5.7 pts |
| Net income | $15.9 million | $31.8 million | Down 50% |
| Diluted EPS | $0.13 | $0.27 | Down $0.14 |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | — |
| Metric | Nine Months 2020 | Nine Months 2019 | Change |
|---|---|---|---|
| Total revenue | $907.3 million | $858.4 million | Up 6% |
| Operating income | $49.0 million | $21.3 million | Up 130% |
| Operating margin | 5.4% | 2.5% | Up 2.9 pts |
| Net income | $5.5 million | $11.6 million | Down 52% |
| Diluted EPS | $0.05 | $0.10 | Down $0.05 |
| Operating cash flow | $192.1 million | $88.9 million | Up $103.1 million |
Q3 revenue consisted of $190.4 million of SaaS and PaaS revenue, $56.8 million of license revenue, $53.0 million of maintenance revenue, and $15.7 million of services revenue. SaaS and PaaS represented 60% of quarterly revenue.
At September 30, 2020, cash and cash equivalents were $133.8 million, total assets were $3.13 billion, and stockholders’ equity was $1.12 billion. Total debt was $1.27 billion, including $726.8 million of term loans, $160.0 million drawn on the revolving facility, and $400.0 million of 5.750% senior notes due 2026.
Available liquidity was $472.3 million, comprising cash of $133.8 million and $338.5 million of revolving-credit availability. The company stated that it was in compliance with debt covenants.
Material Changes Versus the Prior Comparable Period
- Q3 revenue declined primarily because license revenue fell $35.3 million, or 38%, due to the timing and size of license and capacity events. SaaS and PaaS revenue declined 1%, partly because of lower Biller transaction volumes related to COVID-19.
- Q3 ACI On Demand revenue declined 1%, while ACI On Premise revenue declined 23%. Segment Adjusted EBITDA increased $14.6 million for On Demand but declined $30.0 million for On Premise.
- Nine-month revenue increased 6%, substantially reflecting the inclusion of Speedpay for the full 2020 period. Excluding incremental Speedpay revenue and foreign-currency effects, management stated that revenue decreased approximately 8%.
- Nine-month SaaS and PaaS revenue increased 19% reported, but declined approximately 7% excluding incremental Speedpay revenue and foreign-currency effects.
- Q3 operating expenses decreased 5%, but included $12.3 million of transaction-related expenses associated with cost-reduction strategies. Depreciation and amortization increased 7%.
- Interest expense declined 32% in Q3, primarily due to lower debt balances and interest rates. Other expense was favorably affected by foreign-currency gains in the quarter, while nine-month other expense increased because of market volatility.
- Nine-month operating cash flow increased to $192.1 million. Investing cash usage was $35.6 million, compared with $813.0 million in 2019, which included the Speedpay acquisition. Financing cash usage was $148.9 million, including debt repayments and $28.9 million of share repurchases.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide specific numerical financial guidance. Management stated that it believes existing liquidity, operating cash flow, cash, and revolving-credit availability will satisfy projected requirements for the next twelve months and foreseeable future.
- COVID-19 could reduce consumption-based transaction volumes, delay customer payments, weaken demand, delay or cancel projects, and affect renewals and customer spending. The company stated that the future impact cannot be estimated with reasonable certainty.
- Management delayed non-essential capital spending and operating expenses and formed a crisis-management team to maintain business continuity and product availability.
- Backlog was estimated at $5.91 billion as of September 30, 2020, including $2.19 billion of committed backlog and $3.72 billion of renewal backlog. Approximately 39% of remaining performance obligations of $731.7 million was expected to be recognized within twelve months.
- Goodwill was $1.28 billion. Management considered COVID-19-related conditions but concluded that an additional quantitative goodwill impairment test was not required after its most recent annual assessment.
- The company had $30.1 million of unrecognized tax benefits and believed approximately $11.7 million could decrease within twelve months through audit settlements and expiration of statutes of limitation.
- The credit facility is floating-rate and indexed to LIBOR; the company is evaluating the transition to alternative reference rates. A hypothetical 10% change in effective rates would affect annual interest expense on the Credit Facility by approximately $2.1 million.
- The company repurchased 1.0 million shares for $28.9 million during the first nine months, with approximately $112.1 million remaining under the authorization.
- No legal proceedings were identified that management believes would likely have a material effect on financial condition or results of operations. Management concluded disclosure controls were effective.
Most Important Facts for Investors to Verify
- Whether transaction volumes and revenue trends among Merchant and Biller customers recover or deteriorate as COVID-19 effects continue.
- The sustainability of reported cash generation and the extent to which working-capital timing contributed to the $192.1 million nine-month operating cash flow.
- Whether license-revenue weakness reflects only event timing or a more persistent shift away from on-premise solutions.
- Speedpay’s ongoing contribution, integration performance, and effect on margins and cash flow after normalization of year-over-year comparisons.
- Debt maturities, covenant compliance, floating-rate exposure, and the company’s ability to refinance or repay obligations, including the large 2024 maturity concentration.
- The assumptions supporting the $5.91 billion backlog, particularly renewal rates, customer concentration, transaction volumes, foreign exchange, and potential COVID-19-related renegotiations.
- Potential goodwill or intangible-asset impairment risk given COVID-19 uncertainty and $1.61 billion of goodwill and intangible assets combined at September 30, 2020.