ACI WORLDWIDE, INC. quarterly report, Q1 FY2021

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ACI Worldwide, Inc. — Q1 2021 Form 10-Q Summary

Business context and reporting period

ACI Worldwide provides digital payment software and services to banks, merchants, and billers globally. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020. Beginning in Q1 2021, the Company reported three operating segments: Banks, Merchants, and Billers.

Key financial metrics

  • Revenue: $285.2 million, down 2% year over year; foreign currency movements increased reported revenue by $3.1 million, and revenue declined approximately 3% excluding currency effects.
  • Revenue mix: SaaS and PaaS $195.7 million, up 1%; license $21.2 million, down 25%; maintenance $52.4 million, down 2%; services $15.9 million, down 7%.
  • Operating income: $3.7 million versus an operating loss of $11.3 million. Calculated operating margin was approximately 1.3% versus negative 3.9% in the prior-year quarter.
  • Net loss: $1.9 million, or $0.02 per diluted share, versus a net loss of $24.4 million, or $0.21 per share.
  • Net margin: approximately negative 0.7% versus negative 8.4% in Q1 2020.
  • Operating expenses: $281.5 million, down 7%, including $1.2 million of transaction-related expenses versus $8.5 million in the prior-year period.
  • Cash flow: operating cash flow was $70.1 million versus $57.5 million; investing cash outflow was $12.4 million; financing cash outflow was $38.7 million.
  • Liquidity: cash and cash equivalents were $184.4 million, and total available liquidity was $642.9 million, including $458.5 million of revolving credit availability.
  • Debt: total debt was $1.131 billion, consisting of $747.4 million under the Credit Facility and $400.0 million of 5.750% Senior Notes due 2026, net of debt issuance costs. The Credit Facility interest rate was 2.11% at March 31, 2021.
  • Balance sheet: total assets were $3.160 billion and stockholders’ equity was $1.198 billion. Goodwill was $1.280 billion.

Material changes versus the prior comparable period

  • Revenue declined $6.3 million, primarily because of a $6.9 million decrease in license revenue, partly offset by higher SaaS and PaaS revenue.
  • Operating results improved materially because operating expenses declined $21.3 million and other expense decreased by $14.0 million. Interest expense fell $5.7 million due primarily to lower debt balances, while foreign currency-related other expense declined $8.4 million.
  • Banks revenue decreased $9.9 million and Segment Adjusted EBITDA decreased $5.2 million, primarily due to lower license revenue.
  • Merchants revenue increased $6.9 million and Segment Adjusted EBITDA increased $8.3 million, primarily due to higher SaaS and PaaS revenue and lower cash operating expenses.
  • Billers revenue decreased $3.3 million, while Segment Adjusted EBITDA increased $3.8 million because of lower personnel, interchange, and processing costs.
  • Operating cash flow increased $12.6 million. The Company repaid $15.0 million on its revolving facility and $9.7 million on term loans; no common stock was repurchased under the stock repurchase program.
  • Sixty-month backlog declined to $5.944 billion from $6.039 billion at December 31, 2020. Remaining performance obligations were $802.7 million, with approximately 51% expected to be recognized within 12 months.

Guidance, outlook, risks, contingencies, and unusual items

  • The filing does not provide specific quantitative revenue or earnings guidance.
  • Management cited continued opportunities from digital payment growth, real-time payments, cloud adoption, fraud management, omni-commerce, and Request for Payment services.
  • COVID-19 continued to affect transaction volumes, particularly in the Merchants and Billers segments, and could cause reduced customer spending, delayed collections, uncertain demand, and adverse effects on liquidity and results.
  • Management stated that available liquidity and operating cash flow should satisfy projected requirements for the next 12 months and foreseeable future and that the Company was in compliance with its debt covenants.
  • The Company changed its organizational structure and segment reporting in January 2021. Goodwill allocation to the new reporting units was still in process.
  • In April 2021, erroneous ACH files were inadvertently transmitted during a system test. Reversal files were processed, but consumer protection and regulatory agencies contacted the Company; inquiries could result in fines or penalties, although the filing does not provide a clear estimate of potential exposure.
  • The Company entered into a 10-year lease for a new Miami headquarters during the quarter.
  • Unrecognized tax benefits were $24.7 million, and management expected approximately $3.6 million could decrease within the next 12 months from audit settlements and expiring statutes of limitation.
  • The Credit Agreement is indexed to LIBOR and extends beyond the expected discontinuation of LIBOR. The Company was evaluating alternative reference rates, including SOFR.

Important facts for investors to verify

  • Whether lower license revenue and the Q1 backlog decline represent timing effects or a sustained change in demand.
  • The durability of Merchants and Billers margin improvement and the effect of COVID-19 on transaction-based revenue.
  • The Company’s ability to reduce leverage while meeting scheduled debt maturities, including approximately $597.8 million of debt maturities in 2024.
  • The potential financial, regulatory, and reputational consequences of the April 2021 ACH processing incident.
  • The effect of the new Banks, Merchants, and Billers reporting structure and the pending goodwill allocation.
  • The terms and potential cost of transitioning the floating-rate Credit Agreement from LIBOR to an alternative benchmark.
  • The reliability of backlog and remaining-performance-obligation estimates, which include renewal assumptions and other management judgments.