ACI Worldwide, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
ACI Worldwide develops and supports real-time digital-payment software and services for banks, intermediaries, merchants, and billers. Its offerings include SaaS and PaaS, software licenses, maintenance, professional services, fraud management, real-time payments, merchant payments, and electronic bill payment services. The filing covers the fiscal year ended December 31, 2022, with comparisons to fiscal 2021 and 2020. The company served more than 6,000 organizations and 80,000-plus merchants in more than 95 countries.
On September 1, 2022, ACI sold its corporate online banking solutions business to One Equity Partners for $100.1 million, including a preliminary working-capital adjustment. ACI recorded a preliminary $38.5 million gain and entered into a transition services agreement expected to last no more than 18 months.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $1,421.9 million | $1,370.6 million | Up 4% |
| Operating income | $203.8 million | $209.9 million | Down 3% |
| Operating margin | 14.3% | 15.3% | Down approximately 100 bps |
| Income before taxes | $206.6 million | $175.1 million | Up 18% |
| Net income | $142.2 million | $127.8 million | Up 11% |
| Diluted EPS | $1.24 | $1.08 | Up 15% |
| Operating cash flow | $143.4 million | $220.5 million | Down $77.1 million |
| Cash and cash equivalents | $125.0 million | $122.1 million | Up $2.9 million |
| Total debt | $1,089.9 million | $1,065.7 million | Up $24.1 million |
Revenue mix was $802.9 million from SaaS and PaaS, $348.1 million from licenses, $200.0 million from maintenance, and $70.8 million from services. SaaS and PaaS represented 57% of revenue, licenses 24%, maintenance 14%, and services 5%.
Cost of revenue increased 9% to $696.1 million, primarily because of higher payment-card interchange and processing fees and personnel costs. Total operating expenses increased 5% to $1,218.1 million. FY2022 expenses included $5.8 million of European data-center migration costs, $3.0 million of divestiture transaction expenses, and $3.6 million of CEO-transition expenses.
Segment revenue and Segment Adjusted EBITDA were:
| Segment | Revenue | FY2022 Segment Adjusted EBITDA | FY2021 Segment Adjusted EBITDA |
|---|---|---|---|
| Banks | $638.6 million | $371.0 million | $372.9 million |
| Merchants | $153.9 million | $49.0 million | $54.3 million |
| Billers | $629.4 million | $107.4 million | $129.0 million |
Billers revenue increased $36.9 million, but Segment Adjusted EBITDA declined $21.7 million because of a $53.9 million increase in interchange and processing fees. Banks revenue increased $13.5 million, while Merchants revenue increased $0.9 million.
Material changes versus the prior comparable period
- Reported revenue increased 4%; management stated that revenue increased 7% excluding the divestiture and foreign-currency effects.
- SaaS and PaaS revenue increased 4%, driven mainly by new customer go-lives and higher transaction volumes.
- License revenue increased 9%, primarily due to renewal timing and the relative size of license and capacity events.
- Maintenance revenue declined 5%; on a divestiture- and currency-adjusted basis, it was approximately flat.
- Operating margin declined because cost of revenue grew faster than revenue, particularly from payment-card interchange and processing costs.
- Net income benefited from the $38.5 million divestiture gain, while interest expense increased 18% to $53.2 million due primarily to higher interest rates.
- Foreign-currency weakening reduced reported revenue by $19.1 million and reduced operating expenses by $17.9 million.
- Operating cash flow declined because of working-capital timing, including a $132.2 million increase in receivables.
- ACI repurchased 8.6 million shares for $206.5 million during 2022. Total liquidity declined to $518.5 million from $620.6 million, primarily because of share repurchases, partly offset by divestiture proceeds.
Debt, liquidity, and capital allocation
At December 31, 2022, ACI had $124.98 million of cash and $393.5 million of availability under its revolving credit facility, for total stated liquidity of $518.5 million. An additional $75.0 million uncommitted overdraft facility was available for bill-payment settlement timing differences.
Debt consisted of $592.7 million of term loans, $105.0 million drawn on the revolving credit facility, and $400.0 million of 5.750% senior notes due August 2026, net of debt issuance costs. The credit facility carried a 6.20% interest rate at year-end and is floating-rate. The company reported compliance with its debt covenants throughout the period. Scheduled debt maturities include approximately $69.9 million in 2023, $627.8 million in 2024, and $400.0 million in 2026.
The board approved a new $200.0 million repurchase authorization on February 24, 2023. ACI has never paid cash dividends and does not presently anticipate doing so.
Guidance, outlook, management commentary, risks, and unusual items
The filing does not provide a clear quantitative FY2023 revenue, earnings, or cash-flow guidance figure. Management highlights continued growth opportunities from digital-payment volumes, real-time payments, cloud adoption, fraud and compliance solutions, omni-commerce, and Request for Payment services.
- Global inflation affected 2022 performance, particularly interchange costs in the Billers segment. Higher interest rates increased borrowing costs.
- ACI is exposed to intense competition, rapid technological change, customer-developed systems, pricing pressure, and the risk that products may not achieve market acceptance.
- Service availability, cybersecurity incidents, data breaches, software defects, and failures at ACI or third-party infrastructure providers could result in customer losses, liability, regulatory penalties, and reputational damage.
- The business is exposed to customer renewals, project delays, cyclical revenue recognition, large transactions near quarter-end, and uncertainty in backlog estimates. Total 60-month backlog was $6.295 billion at December 31, 2022, up from $6.110 billion, but includes renewal assumptions and is not a GAAP measure.
- International operations expose ACI to foreign-exchange, geopolitical, sanctions, tax, regulatory, and political risks. The company had 57 employees and one customer in Russia and stated that sanctions-related operating changes could adversely affect future periods.
- ACI faces regulatory and legal exposure from its payments and money-transmission activities. An inadvertent 2021 ACH-file transmission led to class-action litigation and investigations by the CFPB, state attorneys general, and state money-transmission regulators. The proposed settlement included a $5.0 million fund, possible additional funding of $1.5 million, and remained subject to final approval and other conditions.
- The company is subject to tax examinations and reported $26.4 million of unrecognized tax benefits at year-end. It estimated that approximately $4.6 million could decrease within the following 12 months through settlements or statute expirations.
- Goodwill was $1.226 billion and other intangible assets were $228.7 million at year-end. Management stated that estimated fair values substantially exceeded carrying values and that no reporting unit was considered at risk in the goodwill impairment test.
- Thomas W. Warsop became interim President and CEO on November 8, 2022, creating a leadership transition item for investors to monitor.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022. Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for an investor to verify
- Whether revenue growth excluding the divestiture and foreign exchange remains sustainable, particularly in SaaS and PaaS and license renewals.
- Whether Billers interchange and processing costs moderate and whether segment profitability recovers.
- The company’s refinancing or repayment plan for approximately $697.7 million of credit-facility borrowings due principally in 2023 and 2024, plus the $400.0 million of notes due in 2026.
- Operating cash-flow conversion and the effect of rising receivables and settlement balances on liquidity.
- The final purchase-price and working-capital adjustments for the corporate online banking divestiture and the duration and economics of the transition services agreement.
- The outcome and potential cost of the ACH-related litigation and regulatory investigations, including insurance recoveries.
- Renewal rates and the quality of the $6.295 billion 60-month backlog, particularly the $3.957 billion renewal component.
- Progress under the new $200.0 million share-repurchase authorization and the effect of repurchases on leverage and share count.