ACI Worldwide, Inc. — Q1 2020 Form 10-Q Summary
Business Context and Reporting Period
ACI Worldwide provides electronic payment software and services to banks, merchants, billers and other payment organizations through its ACI On Demand and ACI On Premise segments. This unaudited report covers the three months ended March 31, 2020, compared with the three months ended March 31, 2019. Results include a full quarter of Speedpay, acquired on May 9, 2019, which contributed $88.7 million of revenue and $12.3 million of operating income.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $291.5 million | $205.9 million | Up 42% |
| SaaS and PaaS revenue | $193.0 million | $108.6 million | Up 78% |
| License revenue | $28.1 million | $21.1 million | Up 33% |
| Maintenance revenue | $53.3 million | $55.1 million | Down 3% |
| Services revenue | $17.1 million | $21.1 million | Down 19% |
| Operating loss | $(11.3) million | $(28.1) million | Improved $16.8 million |
| Operating margin | (3.9%) | (13.6%) | Improved |
| Net loss | $(24.4) million | $(26.0) million | Improved $1.5 million |
| Diluted loss per share | $(0.21) | $(0.22) | Improved |
| Operating cash flow | $57.5 million | $42.4 million | Up $15.1 million |
Revenue growth was largely acquisition-driven. Excluding Speedpay and foreign currency effects, total revenue decreased approximately 1%. ACI On Demand revenue increased to $193.0 million from $109.8 million, while ACI On Premise revenue increased to $98.5 million from $96.0 million. Segment Adjusted EBITDA was $23.1 million for ACI On Demand and $30.9 million for ACI On Premise, compared with $(0.3) million and $28.3 million, respectively, in the prior-year quarter.
Total operating expenses were $302.8 million, or 103% of revenue, compared with $233.9 million, or 114%, in Q1 2019. Cost of revenue was $165.8 million, or 57% of revenue. Depreciation and amortization increased 46% to $31.9 million, primarily because of Speedpay-related amortization. The company recorded $8.5 million of transaction-related expenses associated primarily with cost-reduction strategies.
Cash Flow, Debt and Liquidity
- Cash and cash equivalents were $119.1 million at March 31, 2020, compared with $121.4 million at December 31, 2019.
- Total available liquidity was $389.1 million, consisting of cash of $119.1 million and $270.0 million of unused revolving-credit capacity.
- Operating cash flow was $57.5 million; investing cash flow used $10.1 million, primarily for software, property and equipment; financing cash flow used $60.8 million.
- Debt consisted of $746.3 million of term loans, $230.0 million drawn on the revolving facility and $400.0 million of 5.750% senior notes due 2026. Total debt, net of issuance costs, was $1.36 billion.
- The credit facility interest rate was 3.17% at March 31, 2020. The company was in compliance with its financial debt covenants.
- The company repurchased 1.0 million shares for $28.9 million during the quarter; approximately $112.1 million remained authorized under the repurchase program.
Material Changes Versus the Prior Comparable Period
- Speedpay materially increased revenue, operating income and operating expenses compared with Q1 2019.
- Excluding Speedpay and foreign currency, revenue declined modestly, primarily because of lower Biller transaction volumes and timing of project-related work.
- Foreign currency losses increased to $9.8 million from $1.9 million, reflecting market volatility associated with COVID-19.
- Interest expense increased 48% to $17.2 million because of higher comparative debt balances, partially offset by lower interest rates.
- Comprehensive loss was $30.6 million, including a $6.2 million foreign-currency translation loss.
- Revenue allocated to remaining performance obligations was $682.2 million at March 31, 2020; approximately 44% was expected to be recognized over the next 12 months.
Guidance, Outlook, Commentary and Risks
The filing does not provide quantitative revenue, earnings or cash-flow guidance. Management stated that the company had sufficient liquidity to continue operations and expected existing liquidity, operating cash flow and available borrowings to satisfy projected requirements for the next 12 months and the foreseeable future.
Management reported no material adverse impact on first-quarter results from COVID-19, other than foreign-exchange losses, but observed changes in customer transaction volumes beginning in late March and continuing into the second quarter, primarily among Merchant and Biller customers. Continued declines in consumption-based transaction volumes, customer payment delays, contract renegotiations, reduced spending, project delays and broader economic disruption could materially affect revenue, cash flow, liquidity and financial condition.
Most employees were working remotely, while essential data-center personnel remained on site. The company delayed non-essential capital spending and operating expenses. Additional risks include cybersecurity and operational risks from remote work, foreign-exchange volatility, competition, customer consolidation, LIBOR transition, debt covenant requirements and potential impairment of goodwill or other intangible assets. Management concluded that no additional quantitative goodwill impairment test was required after its qualitative assessment.
Unrecognized tax benefits were $30.0 million at March 31, 2020, and the company believed approximately $11.7 million could decrease within the following 12 months. No material legal proceedings were reported.
Important Facts for Investors to Verify
- Separate the underlying operating trend from the $88.7 million of Speedpay revenue contribution and related expense growth.
- Monitor Merchant and Biller transaction volumes, especially under consumption-based contracts, and customer payment collection trends.
- Assess the company’s ability to service approximately $1.4 billion of debt if COVID-19 reduces revenue or delays collections.
- Review the effect of $8.5 million of cost-reduction transaction expenses and higher Speedpay-related amortization on normalized earnings.
- Track foreign-exchange losses, which rose substantially during the quarter, and the company’s lack of foreign-currency hedging transactions.
- Evaluate the sustainability of operating cash flow, available revolver capacity and continued share repurchases amid pandemic uncertainty.
- Verify backlog assumptions: the reported $5.7 billion 60-month backlog includes estimated renewals and is not a guarantee of future revenue.