ACI Worldwide, Inc. — 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 and six months ended June 30, 2022, compared with the corresponding 2021 periods. ACI reported more than 6,000 customers and approximately $14 trillion in daily payment and securities activity.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |
|---|---|---|
| Total revenue | $340.4 million, up 13% | $663.5 million, up 13% |
| SaaS and PaaS revenue | $207.0 million, up 5% | $401.5 million, up 2% |
| License revenue | $64.3 million, up 85% | $124.6 million, up 123% |
| Operating income | $24.5 million; 7.2% margin | $52.1 million; 7.9% margin |
| Net income | $13.3 million, up 105% | $28.8 million, up 533% |
| Net margin | 3.9% | 4.3% |
| Diluted EPS | $0.12 | $0.25 |
| Operating cash flow | Not separately reported | $67.8 million |
- Revenue growth was led by Banks, whose revenue increased 24% in the quarter and 31% year to date, primarily from license and capacity events. Billers revenue increased 8% in the quarter and 4% year to date, while Merchants revenue declined 2% in both periods.
- Segment Adjusted EBITDA for the six months was $134.9 million for Banks, $22.5 million for Merchants, and $54.7 million for Billers. Banks improved substantially, while Merchants and Billers declined.
- Six-month operating cash flow decreased from $105.0 million to $67.8 million, primarily because of the timing of accounts-receivable collections. Investing cash outflow was $14.4 million, including purchases of software, property, and equipment.
- Cash and cash equivalents were $119.0 million at June 30, 2022. Including settlement deposits, cash was $176.1 million. Total available liquidity was $577.5 million, consisting of cash and $458.5 million of revolving-credit availability.
- Total debt was $1.087 billion, including $656.9 million of term loans, $40.0 million drawn on the revolving facility, and $400.0 million of 5.750% senior notes due 2026. The Credit Facility matures April 5, 2024; its interest rate was 3.37% at quarter-end. The company was in compliance with its debt covenants.
- Revenue allocated to remaining performance obligations was $749.6 million, with approximately 46% expected to be recognized within 12 months. Reported 60-month backlog was $6.172 billion, including $2.089 billion of committed backlog and $4.083 billion of renewal backlog.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased $38.8 million, while six-month revenue increased $76.7 million. Foreign-currency translation reduced reported revenue by approximately $4.2 million in the quarter and $6.2 million year to date.
- License revenue increased sharply because of the timing and size of license renewals and capacity events. SaaS and PaaS revenue grew more modestly, primarily from higher transaction volumes, while maintenance revenue declined.
- Operating income increased 59% in the quarter and 173% year to date. Operating expense growth was below revenue growth, although cost of revenue increased because of higher personnel costs and payment-card interchange and processing fees.
- Net income benefited from higher operating income and higher other income. The six-month 2021 period included a tax benefit, whereas 2022 included tax expense; the 2021 comparison was therefore unusually low.
- Operating cash flow declined despite higher earnings. Financing cash outflow improved year over year, but ACI repurchased $62.7 million of common stock and repaid $21.2 million of term debt during the first six months of 2022.
- Accumulated other comprehensive loss increased by $14.7 million year to date, primarily from foreign-currency translation. Common shares outstanding declined to approximately 114.3 million from 115.7 million at December 31, 2021.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- The filing does not provide specific financial guidance for full-year 2022.
- Management cited continued growth opportunities from digital-payment volumes, real-time payments, cloud adoption, fraud and compliance solutions, omni-commerce, and Request for Payment services.
- On June 7, 2022, ACI agreed to sell its corporate online banking solutions assets and liabilities to One Equity Partners for $100.0 million. Closing was expected during the quarter ending September 30, 2022. A transition-services arrangement may continue for up to 18 months.
- Second-quarter operating expenses included $1.4 million of divestiture transaction costs and $1.3 million of European data-center migration costs. Six-month expenses included $1.4 million and $1.8 million, respectively.
- COVID-19 remains a source of economic and operating uncertainty. Foreign-currency movements, rising interest rates, customer payment volumes, revenue-recognition timing, contract renewals, and technology execution may affect results.
- ACI disclosed risks related to the conflict in Eastern Europe, including an office with 67 employees and one customer in Russia, sanctions, restrictions on services, and potential adverse effects on future results.
- Regulatory investigations and seven consumer class actions relate to an inadvertent transmission of mortgage-related ACH files in 2021. A proposed settlement would establish a $5.0 million fund plus up to $1.5 million of additional funds, subject to court approval and other conditions. Insurance coverage remains uncertain.
- Unrecognized tax benefits were $24.1 million at June 30, 2022; approximately $6.1 million may decrease within the following 12 months because of audit settlements and statute expirations.
- The company revised prior-period cash-flow presentation to include settlement deposits and settlement-asset activity in financing activities. Management characterized the revision as immaterial.
Important Facts for Investors to Verify
- Whether the $100.0 million corporate online banking divestiture closed on the expected timetable and the resulting gain, loss, or cash proceeds.
- The sustainability of license-revenue growth, which was driven substantially by renewal timing and capacity events rather than recurring SaaS growth.
- Cash-collection trends and whether operating cash flow recovers from the six-month decline.
- Refinancing or repayment plans for the Credit Facility maturity in April 2024 and the $400.0 million senior notes maturity in August 2026.
- The effect of payment-card processing costs on Billers profitability and the continuing deterioration in Billers and Merchants Segment Adjusted EBITDA.
- Developments in the ACH-file investigations, class-action settlement, insurance recovery, and related potential costs.
- Foreign-currency exposure, Eastern Europe operations, customer concentration in receivables, and assumptions underlying the $6.172 billion backlog estimate.