ACI Worldwide, Inc. — Fiscal 2021 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. The filing covers the fiscal year ended December 31, 2021, compared primarily with fiscal 2020. Beginning in 2021, the Company reported three segments: Banks, Merchants, and Billers.
- Served more than 6,000 organizations in 95+ countries and processed approximately $14 trillion in payments and securities daily.
- Revenue mix: Banks $625.1 million, Billers $592.5 million, and Merchants $153.0 million.
- Key strategic themes include real-time payments, cloud adoption, digital-payment fraud management, omni-commerce, and emerging markets.
Financial performance and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $1,370.6 million | $1,294.3 million | Up 6% |
| Operating income | $209.9 million | $144.7 million | Up 45% |
| Operating margin | 15.3% | 11.2% | Up approximately 4.1 points |
| Net income | $127.8 million | $72.7 million | Up 76% |
| Diluted EPS | $1.08 | $0.62 | Up 74% |
| Operating cash flow | $220.5 million | $314.9 million | Down $94.4 million |
| Cash and cash equivalents | $122.1 million | $165.4 million | Down $43.3 million |
| Total debt | $1,065.7 million | $1,155.0 million | Down $89.3 million |
| Total liquidity | $620.6 million | $608.9 million | Up $11.7 million |
- SaaS and PaaS revenue was $774.3 million, or 57% of total revenue, up 1% year over year.
- License revenue increased 30% to $319.9 million, primarily due to renewal timing and the size of license and capacity events.
- Maintenance revenue declined 1% to $210.5 million; services revenue declined 1% to $65.9 million.
- Net income margin was approximately 9.3%, compared with 5.6% in 2020.
- 2021 operating cash flow was reduced by working-capital timing, including changes in receivables and deferred revenue.
- Capital expenditures and purchases of software and distribution rights totaled $45.4 million.
- The Company repurchased 3.0 million shares for $107.4 million and had approximately $216.3 million remaining under its repurchase authorization at year-end.
- Sixty-month backlog was $6.11 billion at December 31, 2021, up from $6.04 billion at December 31, 2020; renewal backlog represented $4.02 billion of the total.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by a $73.0 million increase in license revenue and a $5.2 million increase in SaaS and PaaS revenue.
- Operating income benefited from higher revenue, lower significant transaction and cost-reduction expenses, and lower depreciation and amortization.
- Significant transaction and cost-reduction expenses declined to $13.4 million from $44.6 million in 2020, including lower integration-related expenses associated with the Speedpay acquisition.
- Selling and marketing expense increased 22%, primarily due to higher personnel, related, and advertising costs.
- Billers revenue increased 1%, but Billers Segment Adjusted EBITDA declined $6.1 million to $129.0 million due to higher cash operating expenses.
- Banks revenue increased 12% and Banks Segment Adjusted EBITDA increased $41.5 million to $372.9 million.
- The Company repaid a net $55.0 million on the revolving credit facility and $39.0 million on the term loans during 2021.
- The filing includes an immaterial revision to prior-year cash-flow presentation related to settlement deposits and settlement assets and liabilities; the revision did not affect previously reported balance sheets, income statements, comprehensive income, or stockholders’ equity.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide a clear quantified revenue, earnings, or cash-flow outlook for 2022. Management expects available cash, operating cash flow, and revolving-credit capacity to satisfy anticipated needs over the next 12 months and beyond, and reported compliance with debt covenants at December 31, 2021.
- Management views accelerating digital-payment volumes, real-time-payment adoption, cloud migration, fraud prevention, and omni-commerce as growth opportunities.
- COVID-19 continued to affect certain Merchant and Biller transaction volumes and created uncertainty around customer demand, collections, remote-work productivity, cybersecurity, and liquidity.
- Debt consisted primarily of $678.2 million under the Credit Facility and $400.0 million of 5.750% Senior Notes due 2026. The Credit Facility had a 2.10% interest rate at year-end and is exposed to the transition from LIBOR.
- Debt maturities include approximately $50.4 million in 2022, $69.9 million in 2023, $557.8 million in 2024, and $400.0 million in 2026.
- In April 2021, ACH files associated with a mortgage-servicing customer were inadvertently transmitted to a processing bank during system testing. The Company is cooperating with regulatory investigations and faces seven related class-action lawsuits. Potential fines, penalties, damages, and injunctive remedies could be material, but the filing does not provide a clear quantified exposure.
- Other principal risks include intense competition, cybersecurity and service outages, regulatory and privacy compliance, foreign-currency exposure, customer concentration in financial services, contract renewals, project delays, acquisitions, goodwill and intangible-asset impairment, and reliance on complex revenue-recognition estimates.
- Goodwill was $1.28 billion at year-end, and management reported that the fair value of each reporting unit substantially exceeded carrying value in its impairment testing.
- Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition for software license arrangements was identified as the critical audit matter.
Most important facts for investors to verify
- Whether the strong 2021 license-revenue growth and improved operating margin are sustainable or primarily reflect renewal timing and unusually large license and capacity events.
- The effect of declining operating cash flow and working-capital timing on future liquidity and debt repayment capacity.
- Progress and outcomes of the ACH-file regulatory investigations and seven class-action lawsuits, including any material accruals or settlements.
- Execution of the strategy focused on real-time payments, cloud solutions, merchants, and emerging markets, including segment-level profitability trends.
- Renewal rates underlying the $4.02 billion renewal backlog and the extent to which backlog estimates depend on assumed renewals.
- Exposure to floating interest rates, LIBOR replacement, foreign currencies, and debt maturities beginning in 2022 and 2024.
- Potential effects of COVID-19-related transaction-volume changes, customer payment delays, cybersecurity risks, and remote-work conditions.
- Future share repurchases, given the $216.3 million remaining authorization and the Company’s substantial debt obligations.