ACI Worldwide, Inc. — Form 10-Q Summary
Business context and reporting period
ACI Worldwide provides electronic payment, transaction banking, mobile banking, fraud detection and related software and hosted services to more than 2,600 financial institutions, retailers and processors globally. The filing covers the quarter and six months ended June 30, 2013, compared with the corresponding 2012 periods. Results include Online Resources Corporation (ORCC) from its March 11, 2013 acquisition and PTESA from the first quarter of 2013.
Financial results and liquidity
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $205.8 million | $149.8 million | $367.8 million | $287.4 million |
| Operating income (loss) | $11.5 million | $(7.9) million | $7.5 million | $(9.5) million |
| Operating margin | 5.6% | (5.2)% | 2.0% | (3.3)% |
| Net income (loss) | $1.9 million | $(4.7) million | $(0.3) million | $(6.5) million |
| Diluted EPS | $0.05 | $(0.12) | $(0.01) | $(0.17) |
| Net cash from operating activities | Not separately provided | Not separately provided | $57.6 million | $(18.1) million |
- Revenue increased 37.4% in the quarter and 28.0% year to date. ORCC contributed approximately $38.4 million of quarterly revenue and $47.2 million of six-month revenue.
- Software hosting revenue increased 125.1% in the quarter and 110.7% year to date. Maintenance revenue increased 17.2% and 25.1%, respectively. Services revenue declined 20.4% in the quarter and 10.3% year to date.
- Quarterly net income benefited from the return to operating profitability, while six-month results remained slightly loss-making because of acquisition-related costs, amortization and higher interest expense.
- Cash and cash equivalents were $107.7 million at June 30, 2013, including $73.0 million held by foreign subsidiaries that management intends to permanently reinvest outside the United States.
- Total assets were $1.534 billion and stockholders’ equity was $508.4 million at June 30, 2013. Goodwill was $626.0 million and other intangible assets were $193.8 million, reflecting recent acquisitions.
- Debt outstanding comprised $473.1 million under the term facility and $188.0 million under the revolving facility. Approximately $62.0 million remained available under the revolver; the interest rate at June 30, 2013 was 2.45%. The company was in compliance with its debt covenants.
- The company generated $57.6 million of operating cash flow but used $277.8 million in investing activities, including $264.2 million for acquisitions. Financing activities provided $256.2 million, primarily from $300.0 million of term borrowing.
Material changes versus the prior comparable period
- ORCC added online banking and electronic bill presentment and payment capabilities and significantly increased Americas revenue, assets, goodwill and intangible assets.
- Operating income improved from a $7.9 million loss to $11.5 million of income in the quarter and from a $9.5 million loss to $7.5 million of income for the six months.
- Interest expense increased by $3.2 million in the quarter and $5.2 million year to date, primarily because of debt used to fund the S1 and ORCC acquisitions.
- Depreciation and amortization increased 39.3% in the quarter and 42.9% year to date, primarily from acquisition-related intangibles.
- Six-month operating cash flow improved by $75.7 million, from a use of $18.1 million to cash generation of $57.6 million.
- The company incurred $3.7 million of restructuring and termination costs during the six months, compared with $9.6 million in the prior-year period. Approximately $1.3 million remained accrued at June 30, 2013.
- The 60-month backlog estimate increased to $3.084 billion from $2.416 billion at December 31, 2012, principally because of ORCC. The 12-month backlog estimate was $746 million versus $596 million at year-end 2012.
Guidance, outlook, risks and unusual items
- The filing does not provide formal numerical revenue or earnings guidance. Management states that available cash, operating cash flow and revolver capacity are expected to satisfy projected liquidity needs for the next twelve months and foreseeable future.
- Management expects corporate costs to continue decreasing as acquisition synergies are realized, but ORCC integration and related internal-control integration remain in process.
- Backlog estimates depend on assumed renewals, stable pricing, constant foreign exchange rates and other assumptions. Management cautions that actual revenue may differ materially from backlog estimates.
- Key risks include competition, customer project delays or cancellations, customer consolidation, migration to next-generation products, debt service and covenant restrictions, acquisition integration, goodwill and intangible-asset impairment, cybersecurity and system interruptions, foreign exchange exposure, international operations, tax uncertainties and litigation.
- Settlement funds of approximately $200.2 million were held for clients at June 30, 2013 and were excluded from the company’s balance sheet. Timing differences or client funding failures could require the company to fund settlement-account shortfalls with corporate cash.
- The company had $15.5 million of unrecognized tax benefits, plus $2.1 million of related interest and penalties, at June 30, 2013. Management expects approximately $1.5 million of unrecognized tax benefits could decrease within twelve months.
- The board authorized an additional $100 million for stock repurchases after June 30, 2013. Approximately $67.3 million of the prior authorization remained available at June 30, 2013.
Important facts for investors to verify
- Whether ORCC integration delivers expected revenue growth, cost synergies and strategic benefits without further material restructuring charges.
- The company’s ability to service approximately $661.1 million of outstanding credit-facility debt while continuing acquisitions, repurchases and capital investment.
- The sustainability and quality of revenue growth, particularly the sharp increase in software hosting and initial license fees versus recurring monthly license revenue.
- The assumptions supporting the $3.084 billion 60-month backlog and $746 million 12-month backlog, including renewal rates, customer project timing and foreign exchange.
- The carrying values and future recoverability of $626.0 million of goodwill and $193.8 million of other intangible assets.
- Potential changes in tax liabilities, foreign-currency results, settlement-account exposure and the company’s ability to repatriate or otherwise access foreign-held cash.