ACI Worldwide, Inc. — FY2020 Form 10-K Summary
Business context and reporting period
ACI Worldwide develops and operates real-time digital payment software and services for banks, intermediaries, merchants, and billers. Its offerings are delivered through ACI On Demand cloud-based solutions and ACI On Premise software. The filing covers the fiscal year ended December 31, 2020, with quarterly data including the fourth quarter ended December 31, 2020.
ACI served more than 6,000 organizations in 95-plus countries, including 19 of the 20 largest banks globally. No customer represented more than 10% of consolidated revenue in 2020, 2019, or 2018. The 2020 results include a full year of Speedpay ownership, compared with only part of 2019.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $1.294 billion | $1.258 billion | Up 3% |
| Operating income | $144.7 million | $123.8 million | Up 17% |
| Operating margin | 11.2% | 9.8% | Improved |
| Income before taxes | $98.6 million | $72.2 million | Up 37% |
| Net income | $72.7 million | $67.1 million | Up 8% |
| Diluted EPS | $0.62 | $0.57 | Up $0.05 |
| Net margin | 5.6% | 5.3% | Improved |
| Cash flow from operations | $336.3 million | $137.6 million | Up $198.7 million |
Revenue mix shifted toward recurring cloud offerings: SaaS and PaaS revenue was $769.2 million, or 60% of total revenue, up 14%; license revenue declined 14% to $246.9 million; maintenance revenue declined 1% to $211.7 million; and services revenue declined 16% to $66.5 million.
ACI On Demand revenue increased to $769.2 million from $679.0 million, while Segment Adjusted EBITDA increased to $149.6 million from $66.5 million. ACI On Premise revenue declined to $525.1 million from $579.3 million, and Segment Adjusted EBITDA declined to $290.3 million from $321.3 million.
Fourth-quarter revenue was $387.0 million, operating income was $95.7 million, and net income was $67.1 million, compared with fourth-quarter 2019 revenue of $399.9 million, operating income of $102.4 million, and net income of $55.5 million.
Liquidity, debt, and capital allocation
- Total available liquidity was $608.9 million at December 31, 2020, consisting of $165.4 million of cash and $443.5 million of revolver availability, compared with $382.4 million at year-end 2019.
- Total debt was approximately $1.2 billion, including $717.1 million of term loans, $55.0 million drawn on the revolving facility, and $400.0 million of 5.750% senior notes due 2026.
- The Credit Facility had an interest rate of 2.15% at year-end and matures in April 2024. The 2026 Notes mature in August 2026.
- ACI repaid $184.0 million on the revolving facility and $39.0 million on term loans during 2020. The company stated that it was in compliance with all debt covenants.
- Capital expenditures and purchases of software and distribution rights totaled $46.6 million. ACI repurchased 1.0 million shares for $28.9 million and had approximately $112.1 million remaining under its repurchase authorization.
- Settlement funds of $246.8 million were held in off-balance-sheet settlement accounts for clients. These funds are separate from ACI’s corporate assets.
Material changes versus the prior comparable period
- Speedpay contributed approximately $329.2 million of 2020 revenue, including a full year of results. Management stated that revenue excluding incremental Speedpay revenue and foreign currency effects declined $85.2 million, or 7%.
- Excluding Speedpay, SaaS and PaaS revenue declined 5%, primarily because of lower Biller transaction volumes related to COVID-19.
- License revenue declined because of the timing and size of license and capacity events. Services revenue declined because of the timing and magnitude of project work.
- Operating expenses included $44.6 million of significant transaction-related costs associated with cost-reduction initiatives and Speedpay integration, compared with $24.9 million in 2019.
- Interest expense declined 12% to $56.6 million, primarily because of lower interest rates, despite higher comparative debt balances.
- The effective tax rate increased to approximately 26% from 7% in 2019. The 2019 rate benefited substantially from the release of a valuation allowance on foreign tax credits following the Speedpay acquisition.
- Operating cash flow increased substantially because of higher net income and favorable working-capital timing. Investing cash outflows fell sharply because 2019 included the $753.9 million Speedpay acquisition.
- Backlog increased to $6.039 billion at year-end 2020 from $5.832 billion, including $3.592 billion of estimated renewal backlog. Backlog includes management assumptions and is not a GAAP measure.
Guidance, outlook, commentary, and risks
The filing does not provide a clear formal numerical revenue or earnings outlook. Management highlights continued growth opportunities from digital payment adoption, real-time payments, cloud migration, fraud and risk management, omni-commerce, request-for-payment services, emerging markets, and the company’s “Three Pillar” strategy focused on real-time payments, large global merchants, and emerging markets.
COVID-19 accelerated digital payment adoption but adversely affected certain Merchant and Biller transaction volumes, particularly consumption-based arrangements. The company stated that it could not reasonably estimate the pandemic’s future impact with certainty, although it believed available liquidity was sufficient to continue operations.
- COVID-19 may reduce customer transaction volumes, delay receivable collections, weaken demand, and create continued remote-work and cybersecurity risks.
- ACI operates in highly competitive and rapidly changing payment and software markets, with larger competitors possessing greater financial, technical, and marketing resources.
- System outages, data breaches, fraud, software defects, or failures at third-party providers could interrupt mission-critical services and harm customer relationships.
- Speedpay integration and implementation of the Three Pillar strategy may not produce anticipated synergies or growth.
- Debt covenants, debt maturities, variable interest rates, and the transition away from LIBOR could constrain financial flexibility.
- Foreign exchange, international regulation, data privacy requirements, money-transmitter rules, tax examinations, intellectual-property claims, and customer consolidation could affect results.
- Goodwill was approximately $1.3 billion and other intangible assets were $322.0 million. Management reported that estimated fair value substantially exceeded carrying value in its 2020 goodwill tests, but impairment remains a potential future risk.
Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2020. Deloitte & Touche issued unqualified opinions on the financial statements and internal controls. The critical audit matter was revenue recognition, particularly judgments involving contract terms, performance obligations, financing components, variable consideration, and standalone selling prices.
Most important facts for investors to verify
- Whether underlying organic revenue and transaction volumes recover after the COVID-19-related declines, particularly in the Biller and Merchant businesses.
- Whether Speedpay integration and cost-reduction initiatives deliver sustainable margin and cash-flow benefits after excluding transaction-related expenses.
- The durability of ACI On Demand growth and the continuing decline in ACI On Premise revenue and profitability.
- Debt repayment capacity, compliance with leverage covenants, the April 2024 Credit Facility maturity, and refinancing requirements.
- The effect of the LIBOR transition on borrowing costs and the availability of alternative reference rates.
- Whether backlog, especially the $3.592 billion of renewal backlog, converts into revenue at the assumed timing and renewal rates.
- Potential tax liabilities, including the $24.3 million of unrecognized tax benefits and ongoing domestic and foreign tax examinations.
- Exposure to cybersecurity incidents, service outages, payment settlement shortfalls, regulatory penalties, and intellectual-property claims.