Mr. MakiWilmot serves as Executive Vice President and Chief DevelopmentProduct Officer. Prior to his current role, Mr. Wilmot held a number of senior leadership roles at ACI, including leading ACI's On Premise segment, and serving as Chief Marketing and Revenue Officer, Senior Vice President and Treasurer.Managing Director for the Americas, President for Asia Pacific and Regional Director for Western Europe and Africa. Prior to joining ACI in 1999, Mr. Wilmot worked for ICL (now Fujitsu) in several capacities, including as International Sales Manager for Financial Services. Mr. Wilmot holds a Bachelor of Arts in Business Studies from Oxford Brookes University in the United Kingdom and has completed the Advanced Management Program at INSEAD in France.
Factors That May Affect Our Future Results or the Market Price of Our Common Stock
ITEM 1A. RISK FACTORS
We operate in a rapidly changing technological and economic environment that presents numerous risks. Many of these risks are beyond our control and are driven by factors that often cannot be predicted. The following discussion highlights some of these risks.
Risks Related to Our Business and Operations
The markets in which we compete are rapidly changing and highly competitive, and we may not be able to compete effectively.
The markets in which we compete are characterized by rapid change, evolving technologies and industry standards and intense competition. There is no assurance that we will be able to maintain our current market share or customer base. We face intense competition in our businesses and we expect competition to remain intense in the future. We have many competitors that are significantly larger than us and have significantly greater financial, technical and marketing resources, have well-established relationships with our current or potential customers, advertise aggressively or beat us to the market with new products and services. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. Increased competition in our markets could lead to price reductions, reduced profits, or loss of market share.
To compete successfully, we need to maintain a successful research and development effort. If we fail to enhance our current products and develop new products in response to changes in technology and industry standards, bring product enhancements or new product developments to market quickly enough, or accurately predict future changes in our customers’ needs and our competitors develop new technologies or products, our products could become less competitive or obsolete.
Our Universal Payments strategy could prove to be unsuccessful in
If we experience business interruptions or failure of our information technology and communication systems, the
market.Our UP solutions, including our UP Retail Payments and Real-Time Payments solutions, are strategic for us, in that they are designated to help us win new accounts, replace legacy payments systems on multiple hardware platforms, and help us transition our existing customers to a new, real-time, and open-systems product architecture. Our business, financial condition, cash flows and/or resultsavailability of operations could be materially adversely affected if we are unable to generate adequate sales of Universal Payments solutions or if we are unable to successfully deploy them in production environments.
Our future profitability depends on demand for our products.
Our revenue and profitability depend on the overall demand for our products and services. A significant portionservices could be interrupted which could adversely affect our reputation, business and financial condition.
Our ability to provide reliable service in a number of our total revenues resultbusinesses depends on the efficient and uninterrupted operation of our data centers, information technology and communication systems, and those of our external service providers. As we continue to grow our private and public cloud offerings, our dependency on the continuing operation and availability of these systems increases. Our systems and data centers, and those of our external service providers, could be exposed to damage or interruption from licensingfire, natural disasters, constraints within our UP Retail Payments solution, including our BASE24 product lineworkforce due to pandemics such as outbreaks of COVID-19, power loss, telecommunications failure, unauthorized entry and providing relatedcomputer viruses. Although we have taken steps to prevent system failures and we have installed back-up systems and procedures to prevent or reduce disruption, such steps may not be sufficient to prevent an interruption of services and maintenance. Any reductionour disaster recovery planning may not account for all eventualities. Further, our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur.
An operational failure or outage in
demand for,any of these systems, or
increasedamage to or destruction of these systems, which causes disruptions in
competition with respectour services, could result in loss of customers, damage to customer relationships, reduced revenues and profits, refunds of customer charges and damage to our
UP Retail Payments solutionbrand and reputation and may require us to incur substantial additional expense to repair or replace damaged equipment and recover data loss caused by the interruption. Any one or more of the foregoing occurrences could have a material adverse effect on our
financial condition, cash flows and/or results of operations.Consolidations and failures in the financial services industry may adversely impact the number of customers and our revenues in the future.
Mergers, acquisitions and personnel changes at key financial services organizations have the potential to adversely affect ourreputation, business, financial condition, cash flows and results of operations. Our business is concentrated in the financial services industry, making us susceptible to consolidation in, or contraction of, the number of participating institutions within that industry. Consolidation activity among financial institutions has increased in recent years and changes in financial conditions have historically resulted in even further consolidation and contraction as financial institutions have failed or have been acquired by or merged with other
financial institutions. There are several potential negative effects of increased consolidation activity. Continuing consolidation and failure of financial institutions could cause us to lose existing and potential customers for our products and services. For instance, consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products. Additionally, if anon-customer and a customer combine and the combined entity in turn decided to forego future use of our products, our revenues would decline.
Potential customers may be reluctant to switch to a new vendor, which may adversely affect our growth, both in the United States and internationally.
For banks, financial intermediaries, and other potential customers of our products, switching from one vendor of core financial services software (or from an internally-developed legacy system) to a new vendor is a significant endeavor. Many potential customers believe switching vendors involves too many potential disadvantages such as disruption of business operations, loss of accustomed functionality, and increased costs (including conversion and transition costs). As a result, potential customers may resist change. We seek to overcome this resistance through value enhancing strategies such as a defined conversion/migration process, continued investment in the enhanced functionality of our software and system integration expertise. However, there can be no assurance that our strategies for overcoming potential customers’ reluctance to change vendors will be successful, and this resistance may adversely affect our growth, both in the United States and internationally.
Failure to obtain renewals of customer contracts or obtain such renewals on favorable terms could adversely affect our results of operations and financial condition.
Failure to achieve favorable renewals of customer contracts could negatively impact our business. Our contracts with our customers generally run for a period of five years, three years in the case of certain acquired SaaS and PaaS contracts. At the end of the contract term, customers have the opportunity to renegotiate their contracts with us and to consider whether to engage one of our competitors to provide products and services. Failure to achieve high renewal rates on commercially favorable terms could adversely affect our results of operations and financial condition.
The delay or cancellation of a customer project or inaccurate project completion estimates may adversely affect our operating results and financial performance.
Any unanticipated delays in a customer project, changes in customer requirements or priorities during the project implementation period, or a customer’s decision to cancel a project, may adversely impact our operating results and financial performance. In addition, during the project implementation period, we perform ongoing estimates of the progress being made on complex and difficult projects and documenting this progress is subject to potential inaccuracies. Changes in project completion estimates are heavily dependent on the accuracy of our initial project completion estimates and our ability to evaluate project profits and losses. Any inaccuracies or changes in estimates resulting from changes in customer requirements, delays or inaccurate initial project completion estimates may result in increased project costs and adversely impact our operating results and financial performance.
Our software products may contain undetected errors or other defects, which could damage our reputation with customers, decrease profitability, and expose us to liability.
Our software products are complex. Software typically contains bugs or errors that can unexpectedly interfere with the operation of the software products. Our software products may contain undetected errors or flaws when first introduced or as new versions are released. These undetected errors may result in loss of, or delay in, market acceptance of our products and a corresponding loss of sales or revenues. Customers depend upon our products for mission-critical applications, and these errors may hurt our reputation with customers. In addition, software product errors or failures could subject us to product liability, as well as performance and warranty claims, which could materially adversely affect our business, financial condition, cash flows and/or results of operations.
If our products and services fail to comply with legislation, government regulations, and industry standards to which our customers are subject, it could result in a loss of customers and decreased revenue.
Legislation, governmental regulation and industry standards affect how our business is conducted, and in some cases, could subject us to the possibility of future lawsuits arising from our products and services. Globally, legislation, governmental regulation and industry standards may directly or indirectly impact our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services. For example, our products are affected by VISA, MasterCard and other major payment brand electronic payment standards that are generally updated twice annually. Beyond this, our products are affected by PCI Security Standards. As a provider of electronic data processing to financial institutions, we must comply with FFIEC regulations and are subject to FFIEC examinations.
In addition, action by government and regulatory authorities such as the Dodd-Frank Wall Street Reform and the Consumer Protection Act relating to financial regulatory reform and the European Union-wide General Data Protection Regulation (“GDPR”) (which imposes strict data privacy requirements and regulatory fines of up to 4% of “worldwide turnover”), as well as legislation and regulation related to credit availability, data usage, privacy, or other related regulatory developments could have an adverse effect on our customers and therefore could have a material adverse effect on our business, financial condition, cash flows and results of operations. The regulatory focus on privacy issues also continues to increase and worldwide laws and regulations concerning the handling of personal information are expanding and becoming more complex. Our failure, or perceived failure, to comply with laws and regulations concerning the handling of personal information could result in lost or restricted business, proceedings, actions or fines brought against us or levied by governmental entities or others, or could adversely affect our business and harm our reputation.
If we fail to comply with the complex regulations applicable to our payments business, we could be subject to liability or our revenues may be reduced.
Official Payments Corporation is licensed as a money transmitter in those states where such licensure is required. These licenses require us to demonstrate and maintain certain levels of net worth and liquidity, require us to file periodic reports and subject us to inspections by state regulatory agencies. In addition, our payment business is generally subject to federal regulation in the United States, including anti-money laundering regulations and certain restrictions on transactions to or from certain individuals or entities. The complexity of these regulations will continue to increase our cost of doing business. Any violations of these laws may also result in civil or criminal penalties against us and our officers or the prohibition against us providing money transmitter services in particular jurisdictions. We could also be forced to change our business practices or be required to obtain additional licenses or regulatory approvals that could cause us to incur substantial costs.
In addition, our customers must ensure that our services comply with the government regulations, including the EU GDPR, and industry standards that apply to their businesses. Federal, state, foreign or industry authorities could adopt laws, rules, or regulations affecting our customers’ businesses that could lead to increased operating costs that may lead to reduced market acceptance. In addition, action by regulatory authorities relating to credit availability, data usage, privacy, or other related regulatory developments could have an adverse effect on our customers and, therefore, could have a material adverse effect on our business, financial condition, and results of operations.
If we fail to comply with privacy regulations imposed on providers of services to financial institutions, our business could be harmed.
As a provider of services to financial institutions, we may be bound by the same limitations on disclosure of the information we receive from our customers as apply to the financial institutions themselves. If we are subject to these limitations and we fail to comply with applicable regulations, including the EU GDPR, we could be exposed to suits for breach of contract or to governmental proceedings, our customer relationships and reputation
could be harmed, and we could be inhibited in our ability to obtain new customers. In addition, if more restrictive privacy laws or rules are adopted in the future on the federal or state level, or, with respect to our international operations, by authorities in foreign jurisdictions on the national, provincial, state, or other level, that could have an adverse impact on our business.
Our risk management and information security programs are the subject of oversight and periodic reviews by the federal agencies that regulate our business. In the event an examination of our information security and risk management functions results in adverse findings, such findings could be made public or communicated to our regulated financial institution customers, which could have a material adverse effect on our business.
If our security measures are breached or become infected with a computer virus, or if our services are subject to attacks that degrade or deny the ability of users to access our products or services, our business willmay be harmed by disrupting delivery of services and damaging our reputation.
As part of our business, we electronically receive, process, store, and transmit sensitive business information of our customers. Unauthorized access to our computer systems or databases could result in the theft or publication of confidential information or the deletion or modification of records or could otherwise cause interruptions in our operations. These concerns about security are increased when we transmit information over the Internet. Security breaches in connection with the delivery of our products and services, including products and services utilizing the Internet, or well-publicized security breaches, and the trend toward broad consumer and general public notification of such incidents, could significantly harm our business, financial condition, cash flows and/or results of operations. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network
break-ins or inappropriate access, or other developments will not compromise or breach the technology protecting our networks and confidential information. Computer viruses have also been distributed and have rapidly spread over the Internet. Computer viruses could infiltrate our systems, disrupting our delivery of services and making our applications unavailable. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and terminate their agreements with us, and could inhibit our ability to attract new customers.
Failure to attract and retain senior management personnel and skilled technical employees could harm our ability to grow.
Our senior management team has significant experience in the financial services industry. The loss of this leadership could have an adverse effect on our business, operating results and financial condition. Further, the loss of this leadership may have an adverse impact on senior management’s ability to provide effective oversight and strategic direction for all key functions within the Company, which could impact our future business, operating results and financial condition.
Our future success also depends upon our ability to attract and retain highly-skilled technical personnel. Because the development of our solutions and services requires knowledge of computer hardware, operating system software, system management software, and application software, our technical personnel must be proficient in a number of disciplines. Competition for such technical personnel is intense, and our failure to hire and retain talented personnel could have a material adverse effect on our business, operating results and financial condition.
Our future growth will also require sales and marketing, financial and administrative personnel to develop and support new solutions and services, to enhance and support current solutions and services and to expand operational and financial systems. There can be no assurance that we will be able to attract and retain the necessary personnel to accomplish our growth strategies and we may experience constraints that could adversely affect our ability to satisfy client demand in a timely fashion.
Our ability to maintain compliance with applicable laws, rules and regulations and to manage and monitor the risks facing our business relies upon the ability to maintain skilled compliance, security, risk and audit professionals. Competition for such skillsets is intense, and our failure to hire and retain talented personnel could have an adverse effect on our internal control environment and impact our operating results.
As a result of the global COVID-19 pandemic, a significant portion of our workforce is working in a mostly remote environment. This remote environment may continue after the pandemic due to potential resulting trends, and could impact the quality of our corporate culture. Failure to attract, hire, develop, motivate and retain highly qualified and diverse employee talent, or to maintain a corporate culture that fosters innovation, creativity, and teamwork could harm our overall business and results of operations.
If we engage in acquisitions, strategic partnerships or significant investments in new business, we will be exposed to risks which could materially adversely affect our business.
As part of our business strategy, we anticipate that we may acquire new products and services or enhance existing products and services through acquisitions of other companies, product lines, technologies and personnel, or through investments in, or strategic partnerships with, other companies. Any acquisition, investment or partnership, is subject to a number of risks. Such risks include the diversion of management time and resources, disruption of our ongoing business, potential overpayment for the acquired company or assets, dilution to existing stockholders if our common stock is issued in consideration for an acquisition or investment, incurring or assuming indebtedness or other liabilities in connection with an acquisition which may increase our interest expense and leverage significantly, lack of familiarity with new markets, and difficulties in supporting new product lines.
Further, even if we successfully complete acquisitions, we may encounter issues not discovered during our due diligence process, including product or service quality issues, intellectual property issues and legal contingencies, the internal control environment of the acquired entity may not be consistent with our standards and may require significant time and resources to improve and we may impair relationships with employees and customers as a result of migrating a business or product line to a new owner. We may also face challenges in integrating any acquired business. These challenges may include eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, customers and business partners, managing different corporate cultures, and achieving cost reductions and cross-selling opportunities. There can be no assurance that we will be able to fully integrate all aspects of acquired businesses successfully, realize synergies expected to result from the acquisition, advance our business strategy or fully realize the potential benefits of bringing the businesses together, and the process of integrating these acquisitions may further disrupt our business and divert our resources.
See Critical Accounting Policies and Estimates in Part II, Item 7 of this Form 10-K for additional information related to Accounting Standards Codification ("ASC") 805, Business Combinations.
Our failure to successfully manage acquisitions or investments, or successfully integrate acquisitions could have a material adverse effect on our business, financial condition, cash flows and/or results of operations. Correspondingly, our expectations related to the benefits related to our recent acquisitions, prior acquisitions or any other future acquisition or investment could be inaccurate.
We may experience difficulties implementing our Three Pillar strategy, and the Three Pillar strategy could prove
unsuccessful in growing our business.
Our Three Pillar strategy focuses on investments in real-time payments, large sophisticated global merchants, and fast-growing emerging markets. Successfully implementing our Three Pillar strategy may present organizational and infrastructure challenges, and we may not be able to fully implement or realize the intended benefits of this new strategy. Moving to a new business strategy may result in a loss of established efficiency, which may have a negative impact on our business. As we adjust, we also may need to bring on additional talent, which could prove difficult in a competitive job market, especially as the COVID-19 pandemic and remote working continues. The increased focus on opportunities for strategic mergers and acquisitions and research and development could result in financial difficulties and may not always be fruitful. We may also face an increased amount of competition as we attempt to expand and grow our business, which may negatively impact our financial results. In order for us to be successful as we enter and invest in emerging markets, these markets must continue to grow. However, this growth depends on a variety of factors that we are not always able to predict.
While there are anticipated challenges associated with shifting to a new business strategy, the scope and extent of these challenges are difficult to predict. As such, we will not always be able to fully and successfully mitigate any of our anticipated challenges. Further, even if we realize all anticipated benefits associated with this change in our business strategy, there may be consequences, internal control issues, or business impacts that were not expected.
To the extent that we convert some or all of our on-premise licenses from a fixed-term to a subscription model, our future financial results will be affected by the frequency at which our customers adopt our subscription model, which carries with it certain risks.
Our on-premise licenses currently have a five-year fixed term model. In the future, we may transition some or all of these licenses to a subscription model. A transition to a subscription model would reflect a significant shift from a fixed-term license. In addition, a subscription model presents a number of risks to us including the following:
•arrangements entered into on a subscription basis generally delay the timing of revenue recognition and can require the incurrence of up-front costs, which may be significant;
•subscription models make it difficult to rapidly increase revenues through additional bookings in any period, as revenues are recognized ratably over the subscription period;
•customers in a subscription arrangement may elect not to renew their contract upon expiration or they may attempt to renegotiate pricing or other contractual terms at the point of (or prior to) renewal on terms that are less favorable to us; and
•there is no assurance that our customers will broadly accept a subscription model for our on-premise licenses.
Certain anti-takeover provisions contained in our charter and under Delaware law could hinder a takeover attempt.
We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware prohibiting, under some circumstances, publicly held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer, or proxy contest involving us, even if such events could be beneficial, in the short term, to the interests of our stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving three-year terms and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders.
Risks Related to Our Customers
Certain payment funding methods expose us to the credit and/or operating risk of our clients.
When we process an automated clearing house or ATM network payment transaction for certain clients, we occasionally transfer funds from our settlement account to the intended destination account before we receive funds from a client’s source account. The vast majority of these occurrences are resolved quickly through normal processes. However, if they are not resolved and we are then unable to reverse the transaction that sent funds to the intended destination, a shortfall in our settlement account will be created. Although we have legal recourse against our clients for the amount of the shortfall, timing of recovery may be delayed by litigation or the amount of any recovery may be less than the shortfall. In either case, we would have to fund the shortfall in our settlement account from our corporate funds.
Potential customers may be reluctant to switch to a new vendor, which may adversely affect our growth, both in the United States and internationally.
For banks, intermediaries, and other potential customers of our products, switching from one vendor of core financial services software (or from an internally developed legacy system) to a new vendor is a significant endeavor. Many potential customers believe switching vendors involves too many potential disadvantages such as disruption of business operations, loss of accustomed functionality, and increased costs (including conversion and transition costs). As a result, potential customers may resist change. We seek to overcome this resistance through value enhancing strategies such as a defined conversion/migration process, continued investment in the enhanced functionality of our software and system integration expertise. However, there can be no assurance that our strategies for overcoming potential customers’ reluctance to change vendors will be successful, and this resistance may adversely affect our growth, both in the United States and internationally.
Risks Related to Our Intellectual Property
We may be unable to protect our intellectual property and technology.
To protect our proprietary rights in our intellectual property, we rely on a combination of contractual provisions, including customer licenses that restrict use of our products, confidentiality agreements and procedures, and trade secret and copyright laws. Despite such efforts, we may not be able to adequately protect our proprietary rights, or our competitors may independently develop similar technology, duplicate products, or design around any rights we believe to be proprietary. This may be particularly true in countries other than the United States because some foreign laws do not protect proprietary rights to the same extent as certain laws of the United States. Any failure or inability to protect our proprietary rights could materially adversely affect our business.
We also use a limited amount of software licensed by its authors or other third parties underso-called “open source” licenses and may continue to use such software in the future. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software if we combine our proprietary software with open source software in a certain manner. Additionally, the terms of many open source licenses have not been interpreted by United States or other courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software.
Our exposure to risks associated with the use of intellectual property may be increased for third-party products distributed by us or as a result of acquisitions since we have a lower level of visibility, if any, into the development process with respect to such third-party products and acquired technology or the care taken to safeguard against infringement risks.
We may be subject to increasing litigation over our intellectual property rights.
There has been a substantial amount of litigation in the software industry regarding intellectual property rights. Third parties have in the past, and may in the future, assert claims or initiate litigation related to exclusive patent, copyright, trademark or other intellectual property rights to business processes, technologies and related standards that are relevant to us and our customers. These assertions have increased over time as a result of the general increase in patent claims assertions, particularly in the United States. Because of the existence of a large number of patents in the electronic commerce field, the secrecy of some pending patents and the rapid issuance of new patents, it is not economical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others. Any claim against us, with or without merit, could be time-consuming, result in costly litigation, cause product delivery delays, require us to enter into royalty or licensing agreements or pay amounts in settlement, or require us to develop alternative
non-infringing technology.
We anticipate that software product developers and providers of electronic commerce solutions could increasingly be subject to infringement claims, and third parties may claim that our present and future products infringe upon their intellectual property rights. Third parties may also claim, and we are aware that at least two parties have claimed on several occasions, that our customers’ use of a business process method which utilizes our products in conjunction with other products infringe on the third-party’s intellectual property rights. These third-party claims could lead to indemnification claims against us by our customers. Claims against our customers related to our products, whether or not meritorious, could harm our reputation and reduce demand for our products. Where indemnification claims are made by customers, resistance even to unmeritorious claims could damage the customer relationship. A successful claim by a third-party of intellectual property infringement by us or one
of our customers could compel us to enter into costly royalty or license agreements, pay significant damages, or stop selling certain products and incur additional costs to develop alternative
non-infringing technology. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could adversely affect our business.
Certain payment funding methods expose us to the credit and/or operating risk of our clients.
When we process an automated clearing house or automated teller machine network payment transaction for certain clients, we occasionally transfer funds from our settlement account to the intended destination account before we receive funds from a client’s source account. The vast majority of these occurrences are resolved quickly through normal processes. However, if they are not resolved and we are then unable to reverse the transaction that sent funds to the intended destination, a shortfall in our settlement account will be created. Although we have legal recourse against our clients for the amount of the shortfall, timing of recovery may be delayed by litigation or the amount of any recovery may be less than the shortfall. In either case, we would have to fund the shortfall in our settlement account from our corporate funds.
If we experience business interruptions or failure of our information technology and communication systems, the availability of our products and services could be interrupted which could adversely affect our reputation, business and financial condition.
Our ability to provide reliable service in a number of our businesses depends on the efficient and uninterrupted operation of our data centers, information technology and communication systems, and those of our external service providers. As we continue to grow our ACI On Demand business, our dependency on the continuing operation and availability of these systems increases. Our systems and data centers, and those of our external
service providers, could be exposed to damage or interruption from fire, natural disasters, power loss, telecommunications failure, unauthorized entry and computer viruses. Although we have taken steps to prevent system failures and we have installedback-up systems and procedures to prevent or reduce disruption, such steps may not be sufficient to prevent an interruption of services and our disaster recovery planning may not account for all eventualities. Further, our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur.
An operational failure or outage in any of these systems, or damage to or destruction of these systems, which causes disruptions in our services, could result in loss of customers, damage to customer relationships, reduced revenues and profits, refunds of customer charges and damage to our brand and reputation and may require us to incur substantial additional expense to repair or replace damaged equipment and recover data loss caused by the interruption. Any one or more of the foregoing occurrences could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations.
We are engaged in offshore software development activities, which may not be successful and which may put our intellectual property at risk.
As part of our globalization strategy and to optimize available research and development resources, we utilize our Irish subsidiary to serve as the focal point for certain international product development and commercialization efforts. This subsidiary oversees remote software development operations in Romania and elsewhere, as well as manages certain of our intellectual property rights. In addition, we manage certain offshore development activities in India. While our experience to date with our offshore development centers has been positive, there is no assurance that this will continue. Specifically, there are a number of risks associated with this activity, including but not limited to the following:
•communications and information flow may be less efficient and accurate as a consequence of the time, distance and language differences between our primary development organization and the foreign based activities, resulting in delays in development or errors in the software developed;
•in addition to the risk of misappropriation of intellectual property from departing personnel, there is a general risk of the potential for misappropriation of our intellectual property that might not be readily discoverable;
•the quality of the development efforts undertaken offshore may not meet our requirements because of language, cultural and experiential differences, resulting in potential product errors and/or delays;
•potential disruption from the involvement of the United States in political and military conflicts around the world; and
•currency exchange rates could fluctuate and adversely impact the cost advantages intended from maintaining these facilities.
Risks Related to Our International Operations
There are a number of risks associated with our international operations that could have a material impact on our operations and financial condition.
We derive a significant portion of our revenues from international operations and anticipate continuing to do so. As a result, we are subject to risks of conducting international operations. One of the principal risks associated with international operations is potentially adverse movements of foreign currency exchange rates. Our exposures resulting from fluctuations in foreign currency exchange rates may change over time as our business evolves and could have an adverse impact on our financial condition, cash flows and/or results of operations. We have not entered into any derivative instruments or hedging contracts to reduce exposure to adverse foreign currency changes.
Other potential risks include difficulties associated with staffing and management, reliance on independent distributors, longer payment cycles, potentially unfavorable changes to foreign tax rules, unfavorable trade treaties or tariffs, compliance with foreign
regulatory requirements, effects of a variety of foreign laws and regulations, including restrictions on access to personal information, reduced protection of intellectual property rights, variability of foreign economic conditions, governmental currency controls, difficulties in enforcing our contracts in foreign jurisdictions, and general economic and political conditions in the countries where we sell our products and services. Some of our products may contain encrypted technology, the export of which is regulated by the United States government. Changes in U.S. and other applicable export laws and regulations restricting the export of software or encryption technology could result in delays or reductions in our shipments of products internationally. There can be no assurance that we will be able to successfully address these challenges.
In addition, the implementation of the United Kingdom’s decision to exit the European Union (referred to as Brexit) could, among
Political, military, and other
outcomes, disrupt the free movement of goods, services, and people between the U.K. and the E.U.,international developments can undermine bilateral cooperation in key policy areas,
and significantly disrupt trade,
between the U.K. and
the E.U. Unless the E.U. agrees to an extension, the U.K. is scheduled to exit the E.U. on March, 29, 2019, and it is possible that the U.K. may exit without an agreement in place. The uncertainties related to Brexit have cross-border operational, financial and tax implications, among others, and any economic volatility that may arise in the U.K., the E.U., or elsewhere mayotherwise adversely affect
our business.economic conditions.
Risks Related to Our Products and Services
Global economic conditions could reduce the demand for our products and services or otherwise adversely impact our cash flows, operating results and financial condition.
For the foreseeable future, we expect to derive most of our revenue from products and services we provide to the banking and financial services industries. The global electronic payments industry and the banking and financial services industries depend heavily upon the overall levels of consumer, business and government spending. Adverse economic conditions such as those caused by the COVID-19 pandemic and the potential for disruptions in these industries as well as the general software sector could result in a decrease in consumers’ use of banking services and financial service providers resulting in significant
decreases in the demand for our products and services which could adversely affect our business and operating results. A lessening demand in either the overall economy, the banking and financial services industry or the software sector could also result in the implementation by banks and related financial service providers of cost reduction measures or reduced capital spending resulting in longer sales cycles, deferral or delay of purchase commitments for our products and increased price competition which could lead to a material decrease in our future revenues and earnings.
Failure
If our products and services fail to
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harm our ability to growOur senior management team has significant experienceresult in the financial services industry, including Philip Heasley who has been our CEO since March 2005 and has more than 30 years of experience in payment systems and financial services. Thea loss of customers and decreased revenue.
Legislation, governmental regulation, and industry standards affect how our business is conducted, and in some cases, could subject us to the possibility of future lawsuits arising from our products and services. Globally, legislation, governmental regulation and industry standards may directly or indirectly impact our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services. For example, our products are affected by VISA, Mastercard and other major payment brand electronic payment standards that are generally updated twice annually. Beyond this, leadershipour products are affected by PCI Security Standards. As a provider of electronic data processing to financial institutions, we must comply with FFIEC regulations and are subject to FFIEC examinations.
Legislation and regulation related to credit availability, data usage, privacy, or other related regulatory developments could have an adverse effect on our
business, operating resultscustomers or us. Laws and
financial condition. Further,regulations concerning the
losshandling of
this leadership may have an adverse impact on senior management’s ability to provide effective oversightpersonal information are expanding and
strategic direction for all key functions within the Company, which could impact our future business, operating results and financial condition.becoming more complex. Our future success also depends upon our ability to attract and retain highly-skilled technical personnel. Because the development of our solutions and services requires knowledge of computer hardware, operating system software, system management software and application software, our technical personnel must be proficient in a number of disciplines. Competition for such technical personnel is intense, and ourfailure, or perceived failure, to hirecomply with these and retain talented personnel could have a material adverse effect on our business, operating resultsother laws and financial condition.
Our future growth will also require sales and marketing, financial and administrative personnel to develop and support new solutions and services, to enhance and support current solutions and services and to expand operational and financial systems. There can be no assurance that we will be able to attract and retain the necessary personnel to accomplish our growth strategies and we may experience constraints thatregulations could adversely affect our abilitybusiness and harm our reputation.
Our software products may contain undetected errors or other defects, which could damage our reputation with customers, decrease profitability, and expose us to satisfy client demandliability.
Our software products are complex. Software may contain bugs or defects that could unexpectedly interfere with the operation of the software products when first introduced or as new versions are released. Additionally, errors could occur during our provision of services, including processing services such as our bill payment services and other services delivered through public or private cloud. Software defects or service errorsmay result in the loss of, or delay in, market acceptance of our products and services and a timely fashion.corresponding loss of sales or revenues.
Customers depend upon our products and services for mission-critical applications, and product defects or serviceerrors may hurt our reputation with customers. In addition, software product defects or errors could subject us to liability for damages, performance and warranty claims, and fines or penalties from governmental authorities, which could be material.
Risks Related to Legal, Regulatory, and Tax Matters
If we fail to comply with the complex regulations applicable to our payments business, we could be subject to liability or our revenues may be reduced.
ACI Payments, Inc. is licensed as a money transmitter in those states where such licensure is required. These licenses require us to demonstrate and maintain compliancecertain levels of net worth and liquidity, require us to file periodic reports and subject us to inspections by state regulatory agencies. In addition, our payment business is generally subject to federal regulation in the United States, including anti-money laundering regulations and certain restrictions on transactions to or from certain individuals or entities. The complexity of these regulations will continue to increase our cost of doing business. Any violations of these laws may also result in civil or criminal penalties against us and our officers or the prohibition against us providing money transmitter services in particular jurisdictions. We could also be forced to change our business practices or be required to obtain additional licenses or regulatory approvals that could cause us to incur substantial costs.
In addition, our customers must ensure that our services comply with
applicablethe government regulations, including the EU GDPR, and industry standards that apply to their businesses. Federal, state, foreign or industry authorities could adopt laws, rules,
andor regulations
andaffecting our customers’ businesses that could lead to
manage and monitor the risks facing our business relies upon the abilityincreased operating costs that may lead to
maintain skilled compliance, security, risk and audit professionals. Competition for such skillsets is intense, and our failurereduced market acceptance. In addition, action by regulatory authorities relating to
hire and retain talented personnelcredit availability, data usage, privacy, or other related regulatory developments could have an adverse effect on our
internal control environment and impact our operating results.The volatility and disruption of the capital and credit markets and adverse changes in the global economy may negatively impact our liquidity and our ability to access financing.
While we intend to finance our operations and growth of our business with existing cash and cash flow from operations, if adverse global economic conditions persist or worsen, we could experience a decrease in cash from operations attributable to reduced demand for our products and services and as a result, we may need to borrow additional amounts under our existing credit facility or we may require additional financing for our continued operation and growth. However, due to the existing uncertainty in the capital and credit markets and the impact of the current economic conditions on our operating results, cash flows and financial conditions, the amount of available unused borrowings under our existing credit facility may be insufficient to meet our needs and/or our access to capital outside of our existing credit facility may not be available on terms acceptable to us or at all. Additionally, if one or more of the financial institutions in our syndicate were to default on its obligation to fund its commitment, the portion of the committed facility provided by such defaulting financial institution would not be available to us. There can be no assurance that alternative financing on acceptable terms would be available to replace any defaulted commitments.
We may become involved in litigation that could materially adversely affect our business financial condition, cash flows and/or results of operations.
From time to time, we are involved in litigation relating to claims arising out of our operations. Any claims, with or without merit, could be time-consuming and result in costly litigation. Failure to successfully defend against these claims could result in a material adverse effect on our business, financial condition, results of operations and/or cash flows.
We may face claims associated with the sale and transition of our Community Financial Services assets and liabilities.
On March 3, 2016, we completed the sale of our CFS related assets and liabilities to Fiserv. In connection with that sale we entered into a transaction agreement and a transition services agreement in which we undertook certain continuing obligations to effect the transition of the assets and liabilities to Fiserv. We could face claims under the transaction agreement, including based on our representations and warranties, covenants and retained liabilities. We could also face claims under the transition services agreement related to our obligations to provide transition services and assistance. Any such claim or claims could result in a material adverse effect on our business, financial condition, results of operations and cash flows.
If we engage in acquisitions, strategic partnerships or significant investments in new business, we will be exposed to risks which could materially adversely affect our business.
As part of our business strategy, we anticipate that we may acquire new products and services or enhance existing products and services through acquisitions of other companies, product lines, technologies and personnel, or through investments in, or strategic partnerships with, other companies. Any acquisition, investment or partnership, is subject to a number of risks. Such risks include the diversion of management time and resources, disruption of our ongoing business, potential overpayment for the acquired company or assets, dilution to existing stockholders if our common stock is issued in consideration for an acquisition or investment, incurring or assuming indebtedness or other liabilities in connection with an acquisition which may increase our interest expense and leverage significantly, lack of familiarity with new markets, and difficulties in supporting new product lines.
Further, even if we successfully complete acquisitions, we may encounter issues not discovered during our due diligence process, including product or service quality issues, intellectual property issues and legal contingencies, the internal control environment of the acquired entity may not be consistent with our standards and may require significant time and resources to improve and we may impair relationships with employees and customers as a result of migrating a business or product line to a new owner. We will also face challenges in integrating any acquired business. These challenges include eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, customers and, business partners, managing different corporate cultures, and achieving cost reductions and cross-selling opportunities. There can be no assurance that we will be able to fully integrate all aspects of acquired businesses successfully, realize synergies expected to result from the acquisition, advance our business strategy or fully realize the potential benefits of bringing the businesses together, and the process of integrating these acquisitions may further disrupt our business and divert our resources.
In addition, under business combination accounting standards pursuant to Accounting Standards Codification (“ASC”) 805,Business Combinations, we recognize the identifiable assets acquired, the liabilities assumed and anynon-controlling interests in acquired companies generally at their acquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is measured as the excess amount of consideration transferred, which is also generally measured at fair value, and the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, a number of factors could result in material goodwill impairment charges that could adversely affect our operating results.
Our failure to successfully manage acquisitions or investments, or successfully integrate acquisitionstherefore, could have a material adverse effect on our business, financial condition, and results of operations.
If we fail to comply with privacy regulations imposed on providers of services to financial institutions, our business could be harmed.
As a provider of services to financial institutions, we may be bound by the same limitations on disclosure of the information we receive from our customers as apply to the financial institutions themselves. If we fail to comply with applicable regulations, including the EU GDPR and CCPA, we could be exposed to suits for breach of contract or to governmental proceedings, our customer relationships and reputation could be harmed, and we could be inhibited in our ability to obtain new customers. In addition, if more restrictive privacy laws or rules are adopted in the future on the federal or state level, or, with respect to our international operations, by authorities in foreign jurisdictions on the national, provincial, state, or other level, that could have an adverse impact on our business.
Our risk management and information security programs are the subject of oversight and periodic reviews by governmental agencies that regulate our business. In the event an examination of our information security and risk management functions results in adverse findings, such findings could be made public or communicated to our regulated financial institution customers, which could have a material adverse effect on us.
From time to time, we are involved in investigations, lawsuits and other proceedings that are expensive, time-consuming and could seriously harm to our business.
From time to time, we are involved in lawsuits, including class-action lawsuits, and government investigations relating to the conduct of our business. For example, in April 2021, ACH files associated with one of our mortgage servicing customers were inadvertently transmitted to a processing bank during a test of its ACH file production system. This incident is under investigation by regulatory authorities and has given rise to class action litigation. See Legal Proceedings in Note 13, Commitments and Contingencies, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.
Damage claims in lawsuits, and fines and penalties imposed by governmental agencies, can be substantial, and injunctive remedies imposed by governmental agencies can be costly to implement. Any litigation may result in an onerous or unfavorable judgment that might not be reversed on appeal, or we may decide to settle lawsuits or resolve government investigations on adverse terms. Any such negative outcome could result in the payment of substantial monetary damages or fines or require changes to our products or business practices that materially affect us. Even where the ultimate outcome of any such litigation or regulatory proceeding may be favorable, defending against claims and responding to regulatory proceedings is costly and can impose a significant burden on us.
The existence of lawsuits and investigations, and any adverse outcome, may create negative publicity for the Company and undermine the Company’s goodwill with customers. Competitors may use these lawsuits and investigations against us in the marketplace, making it difficult for us to attract new customers and retain our existing customers.
We may face exposure to unknown tax liabilities, which could adversely affect our financial condition, cash flows and/or results of operations. Correspondingly,
We are subject to income and non-income based taxes in the United States and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax liabilities and other tax liabilities. We believe that these tax-saving strategies comply with applicable tax law. If the governing tax authorities have a different interpretation of the applicable law and successfully challenge any of our tax positions, our financial condition, cash flows and/or results of operations could be adversely affected.
Our U.S. companies are the subject of an examination by several state tax departments. Some of our foreign subsidiaries are currently the subject of a tax examination by the local taxing authorities. Other foreign subsidiaries could face challenges from various foreign tax authorities. It is not certain that the local authorities will accept our tax positions. We believe our tax positions comply with applicable tax law and intend to vigorously defend our positions. However, differing positions on certain issues could be upheld by foreign tax authorities, which could adversely affect our financial condition and/or results of operations.
Risks Related to Our Industry
Consolidations and failures in the financial services industry may adversely impact the number of customers and our revenues in the future.
Mergers, acquisitions, and personnel changes at key financial services organizations have the potential to adversely affect our business, financial condition, cash flows, and results of operations. Our business is concentrated in the financial services industry, making us susceptible to consolidation in, or contraction of, the number of participating institutions within that industry.
Our stock price may be volatile.
No assurance can be given that operating results will not vary from quarter to quarter, and past performance may not accurately predict future performance. Any fluctuations in quarterly operating results may result in volatility in our stock price. Our stock price may also be volatile, in part, due to external factors such as announcements by third parties or competitors, inherent volatility in the technology sector, variability in demand from our existing customers, failure to meet the expectations relatedof market analysts, the level of our operating expenses and changing market conditions in the software industry. In addition, the financial markets have experienced significant price and volume fluctuations that have particularly affected the stock prices of many technology companies and financial services companies, and these fluctuations sometimes are unrelated to the benefitsoperating performance of these companies. Broad market fluctuations, as well as industry-specific and general economic conditions may adversely affect the market price of our common stock.
Risks Related to Our Financial Performance
Our future profitability depends on demand for our products.
Our revenue and profitability depend on the overall demand for our products and services. A significant portion of our total revenues result from licensing our Issuing and Acquiring solutions, including our BASE24 product line and providing related services and maintenance. Any reduction in demand for, or increase in competition with respect to, our recent acquisitions, prior acquisitions Issuing and Acquiring solutions could have a material adverse effect on our financial condition, cash flows and/or any other future acquisitionresults of operations.
Failure to obtain renewals of customer contracts or
investmentobtain such renewals on favorable terms could
be inaccurate.adversely affect our results of operations and financial condition.
Failure to achieve favorable renewals of customer contracts could negatively impact our business. Our contracts with our customers generally run for a period of five years, or three years in the case of certain acquired SaaS and PaaS contracts. At the end of the contract term, customers have the opportunity to renegotiate their contracts with us and to consider whether to engage one of our competitors to provide products and services. Failure to achieve high renewal rates on commercially favorable terms could adversely affect our results of operations and financial condition.
The delay or cancellation of a customer project or inaccurate project completion estimates may adversely affect our operating results and financial performance.
Any unanticipated delays in a customer project, changes in customer requirements or priorities during the project implementation period, or a customer’s decision to cancel a project, may adversely impact our operating results and financial performance. In addition, during the project implementation period, we perform ongoing estimates of the progress being made on complex and difficult projects and documenting this progress is subject to potential inaccuracies. Changes in project completion estimates are heavily dependent on the accuracy of our initial project completion estimates and our ability to evaluate project profits and losses. Any inaccuracies or changes in estimates resulting from changes in customer requirements, delays or inaccurate initial project completion estimates may result in increased project costs and adversely impact our operating results and financial performance.
Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of these assets could negatively affect our financial results.
Our balance sheet includes goodwill and intangible assets that represent a significant portion of our total assets at December 31,
2018.2021. On at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible assets. If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating earnings. An impairment of a significant portion of goodwill or intangible assets could materially negatively affect our results of operations.
Management’s backlog estimate may not be accurate and may not generate the predicted revenues.
Estimates of future financial results are inherently unreliable. Our backlog estimates require substantial judgment and are based on a number of assumptions, including management’s current assessment of customer and third-party contracts that exist as of the date the estimates are made, as well as revenues from assumed contract renewals, to the extent that we believe that recognition of the related revenue will occur within the corresponding backlog period. A number of factors could result in actual revenues being less than the amounts reflected in backlog. Our customers or third-party partners may attempt to renegotiate or terminate their contracts for a number of reasons, including mergers, changes in their financial condition, or general changes in economic conditions within their industries or geographic locations, or we may experience delays in the development or delivery of products or services specified in customer contracts. Actual renewal rates and amounts may differ
from historical experience used to estimate backlog amounts. Changes in foreign currency exchange rates may also impact the amount of revenue actually recognized in future periods. Accordingly, there can be no assurance that contracts included in backlog will actually generate the specified revenues or that the actual revenues will be generated within a 12-month or 60-month period. Additionally, because backlog estimates are operating metrics, the estimates are not required to be subject to the same level of internal review or controls as a U.S. generally accepted accounting principles (“GAAP”) financial measure.
Our revenue and earnings are highly cyclical, our quarterly results fluctuate significantly, and we have revenue-generating transactions concentrated in the final weeks of a quarter which may prevent accurate forecasting of our financial results and cause our stock price to decline.
Our revenue and earnings are highly cyclical causing significant quarterly fluctuations in our financial results. Revenue and operating results are usually strongest during the third and fourth fiscal quarters ending September 30 and December 31, primarily due to the sales and budgetary cycles of our customers. We experience lower revenues, and possible operating losses, in the first and second quarters ending March 31 and June 30. Our financial results may also fluctuate from quarter to quarter and year to year due to a variety of factors, including changes in product sales mix that affect average selling prices, and the timing of customer renewals (any of which may impact the pattern of revenue recognition).
In addition, large portions of our customer contracts are executed in the final weeks of each quarter. Before these contracts are executed, we create and rely on forecasted revenues for planning, modeling and earnings guidance. Forecasts, however, are only estimates and actual results may vary for a particular quarter or longer periods of time. Consequently, significant discrepancies between actual and forecasted results could limit our ability to plan, budget or provide accurate guidance, which could adversely affect our stock price. Any publicly-stated revenue or earnings projections are subject to this risk.
Risks Related to Financing
Our outstanding debt contains restrictions and other financial covenants that limit our flexibility in operating our business.
Our credit facility and the indenture governing our 5.750% Senior Notes due 2026 (“2026 Notes”) contain customary affirmative and negative covenants for debt of these types that limit our ability to engage in specified types of transactions. These covenants limit our ability, and the ability of our subsidiaries, to, among other things: pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments; make certain investments; sell certain assets; create liens; incur additional indebtedness or issue certain preferred shares; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with our affiliates. Our outstanding debt also requires us to meet certain quarterly financial tests, including a maximum leverage ratio and a minimum interest coverage ratio. Our outstanding debt includes customary events of default, including, but not limited to, failure to pay principal or interest, breach of covenants or representations and warranties, cross-default to other indebtedness, judgment default and insolvency. If an event of default occurs, the lenders, trustee, or holders of the 2026 Notes will be entitled to take various actions, including, but not limited to, demanding payment for all amounts outstanding. If adverse global
economic conditions persist or worsen, we could experience decreased revenues from our operations attributable to reduced demand for our products and services and as a result, we could fail to satisfy the financial and other restrictive covenants to which we are subject under our existing debt, resulting in an event of default. If we are unable to cure the default or obtain a waiver, we will not be able to access our credit facility and there can be no assurance that we would be able to obtain alternative financing.
See Note 4, Debt, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.
Our existing levels of debt and debt service requirements may adversely affect our financial condition or operational flexibility and prevent us from fulfilling our obligations under our outstanding indebtedness.
Our level of debt could have adverse consequences for our business, financial condition, operating results and operational flexibility, including the following: (i) the debt level may cause us to have difficulty borrowing money in the future for working capital, capital expenditures, acquisitions or other purposes; (ii) our debt level may limit operational flexibility and our ability to pursue business opportunities and implement certain business strategies; (iii) we use a large portion of our operating cash flow to pay principal and interest on our credit facility and the 2026 Notes, which reduces the amount of money available to finance operations, acquisitions and other business activities; (iv) we have a higher level of debt than some of our competitors or potential competitors, which may cause a competitive disadvantage and may reduce flexibility in responding to changing business and economic conditions, including increased competition and vulnerability to general adverse economic and industry conditions; (v) some of our debt has a variable rate of interest, which exposes us to the risk of increased interest rates; (vi) there are significant maturities on our debt that we may not be able to fulfill or that may be refinanced at higher rates; and (vii) if we fail to satisfy our obligations under our outstanding debt or fail to comply with the financial or other restrictive covenants required under our credit facility and the 2026 Notes, an event of default could result that could cause all of our debt to become due and payable and could permit the lenders under our credit facility to foreclose on the assets securing such debt.
Management’s backlog estimate may not be accurate and may not generate the predicted revenues.
Estimates
Replacement of the
date the estimates are made, as well as revenues from assumed contract renewals, to the extent that we believe that recognition of the related revenue will occur within the corresponding backlog period. A number of factors could result in actual revenues being less than the amounts reflected in backlog. Our customers or third-party partners may attempt to renegotiate or terminate their contracts for a number of reasons, including mergers, changes in their financial condition, or general changes in economic conditions within their industries or geographic locations, or we may experience delays in the development or delivery of products or services specified in customer contracts. Actual renewal rates and amounts may differ from historical experiences used to estimate backlog amounts. Changes in foreign currency exchange rates may also impact the amount of revenue actually recognized in future periods. Accordingly, there can be no assurance that contracts included in backlog will actually generate the specified revenues or that the actual revenues will be generated within a12-month or60-month period. Additionally, because backlog estimates are operating metrics, the estimates are not required to be subject to the same level of internal review or controls as a U.S. generally accepted accounting principles (“GAAP”) financial measure.We may face exposure to unknown tax liabilities, whichLIBOR benchmark interest rate could adversely affect our business, financial condition, cash flows and/orand results of operations.
We are subject to income andnon-income based taxes in
In July 2017, the United StatesKingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced it will no longer compel banks to submit rates for the calculation of non-U.S.-dollar LIBOR after 2021. U.S-dollar LIBOR must be replaced before June 30, 2023. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR.
Our Credit Agreement is currently indexed to U.S.-dollar-LIBOR, and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax liabilities and other tax liabilities. In addition, we expect to continue to benefit from implementedtax-saving strategies. We believe that thesetax-saving strategies comply with applicable tax law. If the governing tax authorities have a different interpretationmaturity date of the applicable lawCredit Agreement extends beyond June 30, 2023. The Credit Agreement contemplates the discontinuation of LIBOR and successfully challenge any of our tax positions, our financial condition, cash flows and/or results of operations could be adversely affected.
Our U.S. companies are the subject ofprovides options for us in such an examination by several state tax departments. Some of our foreign subsidiaries are currently the subject of a tax examination by the local taxing authorities. Other foreign subsidiaries could face challenges from various foreign tax authorities.event. It is not certain thatuncertain at this time, however, what the local authorities will acceptpotential impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including SOFR, may be on our tax positions. We believe our tax positions comply with applicable tax law and intend to vigorously defend our positions. However, differing positions on certain issues could be upheld by foreign tax authorities, which could adversely affect ourbusiness, financial condition, and/or results of operations.
Our revenue
Risks Related to COVID-19
The effects of the COVID-19 pandemic have materially affected how we, our clients and earningsbusiness partners are highly cyclical,operating, and the duration and extent to which this will impact our quarterlyfuture results fluctuate significantlyof operations and overall financial performance remains uncertain.
As a result of the COVID-19 pandemic, we have revenue-generating transactions concentrated in the final weeks ofhad temporary office closures globally and at any given time a quarter which may prevent accurate forecastingmajority of our employees may be working from home or remotely, which has caused strain for, and may adversely impact the productivity of, some of our employees. Remote working conditions may persist, which could harm our business, including our future financial performance, our potential exposure to cybersecurity risks and potential improper dissemination of personal or confidential information. Additionally, the COVID-19 pandemic may have long-lasting effects on the viability of the office environment and remote working, and this may result in changes in how we operate our business.
Due to the ongoing uncertainty surrounding the continued severity and duration of the COVID-19 pandemic, we cannot yet determine if our efforts thus far and efforts to come will be effective in mitigating the effects of the COVID-19 pandemic on our business, results
and causeof operations or financial performance. Accordingly, we are unable at this time to predict how the COVID-19 pandemic will continue to affect our
stock price to decline.Our revenueoperations, liquidity, and earnings are highly cyclical causing significant quarterly fluctuations in our financial results. RevenueFurther, without more clarity on the ultimate magnitude and duration of the COVID-19 pandemic, we are unable to determine whether the impact of COVID-19 will be material.
General Risk Factors
Our business and operating results are usually strongest duringcould be adversely affected by events outside of our control, including natural disasters, wars and outbreaks of disease or other adverse public health developments.
We may be impacted by natural disasters, wars, and outbreaks of disease or other adverse public health developments such as the
thirdrecent COVID-19 coronavirus outbreak. These events could cause disruptions or restrictions on us, our partners and
fourth fiscal quarters ending September 30customers, including restrictions on travel, temporary closure of facilities, and
December 31, primarily due to theother restrictions. Such disruptions or restrictions may result in delays or losses of sales and
budgetary cyclesdelays in the development or implementation of our
customers. We experience lower revenues, and possible operating losses,products. These events could also result in
the first and second quarters ending March 31 and June 30. Our financial results may also fluctuate from quarter to quarter and year to year due to a
variety of factors, including changesdecrease in
product sales mix that affect average selling prices, and the timing of customer renewals (any of which may impact the pattern of revenue recognition).In addition, large portionsconsumers’ use of our customer contractscustomers’ services, further adversely affecting our business and operating results.
If our revenues or mix of revenues are consummatedbelow anticipated levels or if our operating results are below analyst or investor expectations, the market price of our common stock could be adversely affected.
A significant percentage of our expenses, particularly personnel and facilities costs, are relatively fixed and based in
the final weeks of each quarter. Before these contracts are consummated, we createpart on anticipated revenue levels which can be difficult to predict. A decline in revenues without a corresponding and
rely on forecasted revenues for planning, modeling and earnings guidance. Forecasts, however, are only estimates and actual results may vary for a particular quarter or longer periods of time. Consequently, significant discrepancies between actual and forecasted results could limit our ability to plan, budget or provide accurate guidance, whichtimely slowdown in expense growth could adversely affect our
stock price. Any publicly-statedbusiness. Significant revenue
or earnings projections are subject to this risk.Our stock priceshortfalls in any quarter may cause significant declines in operating results since we may be volatile.
No assurance can be given thatunable to reduce spending in a timely manner.
Quarterly or annual operating results
will not vary from quarter to quarter, and past performance may not accurately predict future performance. Any fluctuations in quarterly operating results may result in volatility in our stock price. Our stock price may also be volatile, in part, due to external factors such as announcements by third parties or competitors, inherent volatility in the technology sector, variability in demand from our existing customers, failure to meetthat are below the expectations of
public market analysts
the level of our operating expenses and changing market conditions in the software industry. In addition, the financial markets have experienced significant price and volume fluctuations that have particularly affected the stock prices of many technology companies and financial services companies, and these fluctuations sometimes are unrelated to the operating performance of these companies. Broad market fluctuations, as well as industry-specific and general economic conditions maycould adversely affect the market price of our common stock.
Factors that could cause fluctuations in our operating results include: •a change in customer demand for our products, which is highly dependent on our ability to continue to offer innovative technology solutions in very competitive markets;
•the timing of customer orders;
•the timing of product implementations, which are highly dependent on customers’ resources and discretion;
•overall economic conditions, which may affect our customers’ and potential customers’ budgets for information technology expenditures;
•foreign exchange rate volatility, which can have a significant effect on our total revenues and costs when our foreign operations are translated to U.S. dollars;
•the incurrence of costs relating to the integration of software products and operations in connection with acquisitions of technologies or businesses; and
•the timing and market acceptance of new products or product enhancements by either us or our competitors.
ITEM 1B. | UNRESOLVED STAFF COMMENTS
|
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
We lease office space in Naples,Coral Gables, Florida, for our principal executive headquarters. The Naples lease expires in 2027. We also lease office space in Omaha, Nebraska, for our principal product development group, sales and support groups for the Americas, as well as our corporate, accounting, and administrative functions. The Omaha lease continues through 2028. Our Europe/Middle East/Africa (“EMEA”) headquarters is in Watford, England. The lease for the Watford facility expires atAs of the end of 2023. Our Asia/Pacific headquarters is in Singapore, with the lease for this facility expiring in fiscal 2020. We also lease2021, we owned and leased a total of approximately 323,000 square feet of office and data center space in numerous other locations in the United States as well asand leased approximately 398,000 square feet of office and data center space outside the United States, primarily in many other countries.India, the United Kingdom, Ireland, South Africa, Romania, and Singapore.
We believe our current facilities are adequate for our present and short-term foreseeable needs and that additional suitable space will be available as required. We also believe we will be able to renew leases as they expire or secure alternate suitable space.
See Note 14,Commitments and Contingencies12, Leases, in theto our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information regarding our obligations under our facilities leases. From time to time, we are involved in various litigation matters arising in the ordinary course
ITEM 3. LEGAL PROCEEDINGS
For a description of our business. We are not currently a party to anymaterial pending legal proceedings, the adverse outcomeplease refer to Note 13, Commitments and Contingencies, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of which, individually or in the aggregate, we believe would be likely to have a material effect on our financial condition or results of operations.this Form 10-K. ITEM 4. | MINE SAFETY DISCLOSURES
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on The NASDAQ Global Select Market under the symbol ACIW.
As of February
25, 2019,22, 2022, there were
278256 holders of record of our common stock. A substantially greater number of shareholders hold our common stock in “street name”, or as beneficial holders whose shares are held in the name of banks, brokers, or other financial institutions.
For equity compensation plan information, please refer to Item12 in Part III of this Annual Report.
Dividends
We have never declared nor paid cash dividends on our common stock. We do not presently anticipate paying cash dividends. However, any future determination relating to our dividend policy will be made at the discretion of our board of directors (the "board") and will depend upon our financial condition, capital requirements, and earnings, as well as other factors the board may deem relevant. The terms of our current Credit Facility may restrict the payment of dividends subject to us meeting certain financial metrics and being in compliance with the events of default provisions of the agreement.
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of common stock during the three months ended December 31,
2018: | | | | | | | | | | | | | | | | |
Period | | Total Number of
Shares
Purchased | | | Average Price
Paid per Share | | | Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program | | | Approximate
Dollar Value of
Shares that May
Yet Be
Purchased
Under the
Program | |
October 1, 2018 through October 31, 2018 | | | — | | | $ | — | | | | — | | | $ | 176,587,000 | |
November 1, 2018 through November 30, 2018 | | | — | | | | — | | | | — | | | | 176,587,000 | |
December 1, 2018 through December 31, 2018 | | | — | | | | — | | | | — | | | | 176,587,000 | |
| | | | | | | | | | | | | | | | |
Total | | | — | | | $ | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | |
2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
| October 1, 2021 through October 31, 2021 | | — | | | $ | — | | | — | | | $ | 72,677,000 | |
| November 1, 2021 through November 30, 2021 | | 1,000,000 | | | 34.28 | | | 1,000,000 | | | 38,402,000 | |
| December 1, 2021 through December 31, 2021 | | 1,000,000 | | | 33.69 | | | 1,000,000 | | | 216,308,000 | |
| Total | | 2,000,000 | | | $ | 33.98 | | | 2,000,000 | | | |
In
fiscal 2005, our board approved a stock repurchase program authorizing us, as market and business conditions warrant, to acquire our common stock and periodically
authorizeauthorizes additional funds for the program, with the intention of using existing cash and cash equivalents to fund these repurchases.
In February 2018,On December 1, 2021, the board approved the repurchase of
the Company's common stock for up to
$200.0$250.0 million,
of our common stock in place of the remaining purchase amounts previously authorized. As of December 31,
2018,2021, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately
$176.6$216.3 million.
There is no guarantee as to the exact number of shares we will repurchase. Repurchased shares are returned to the status of authorized but unissued shares of common stock. In March 2005, our board approved a plan under Rule10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of shares of common stock under the existing stock repurchase program. Under our Rule10b5-1 plan, we have delegated authority over the timing and amount of repurchases to an independent broker who does not have access to inside information about the Company. Rule10b5-1 allows us, through the independent broker, to purchase shares at times when we ordinarily would not be in the market because of self-imposed trading blackout periods, such as the time immediately preceding the end of the fiscal quarter through a period of three business days following our quarterly earnings release.
Stock Performance Graph and Cumulative Total Return
The following table shows a line-graph presentation comparing cumulative stockholder return on an indexed basis with a broad equity market index and either a nationally-recognized industry standard or an index of peer companies selected by us. We selected the S&P 500 Index and the
S&P MidCap 400 Index for comparison. The S&P MidCap 400 Index replaces the NASDAQ Electronic Components Index
for comparison.
in this analysis and going forward, as the CRSP Index data is no longer accessible. The CRSP index has been included with data through 2020.
The graph above
compares ACI Worldwide, Inc.’s annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the S&P 500 Index and the S&P MidCap 400 Index. This presentation assumes that
a $100
investment was
madeinvested in
our common stock and each indexshares of the relevant issuers on December 31,
2013,2016, and that
all dividends
received were
reinvested. Also included areimmediately invested in additional shares. The graph plots the
respective investment returns based upon the stock and index values asvalue of the
end of each year during such five-year period. Theinitial $100 investment at one-year intervals for the fiscal years shown. This information was provided by Zacks Investment Research, Inc. of Chicago, Illinois.
The stock performance graph disclosure above is not considered “filed” with the SEC under the Securities and Exchange Act of 1934, as amended, and is not incorporated by reference in any past or future filing by us under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, unless specifically referenced.
ITEM 6. | SELECTED FINANCIAL DATA
|
The following selected financial data has been derived from our consolidated financial statements (in thousands, except per share data). This data should be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the consolidated financial statements and related notes included elsewhere in this annual report. The financial information below is not necessarily indicative of the results of future operations. Future results could differ materially from historical results due to many factors, including those discussed in Item 1A, “Risk Factors.”
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 (1) | | | 2017 (2) | | | 2016 (3) | | | 2015 (4) | | | 2014 (5) | |
Income Statement Data: | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 1,009,780 | | | $ | 1,024,191 | | | $ | 1,005,701 | | | $ | 1,045,977 | | | $ | 1,016,149 | |
Net income | | | 68,921 | | | | 5,135 | | | | 129,535 | | | | 85,436 | | | | 67,560 | |
Earnings per share: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.59 | | | $ | 0.04 | | | $ | 1.10 | | | $ | 0.73 | | | $ | 0.59 | |
Diluted | | $ | 0.59 | | | $ | 0.04 | | | $ | 1.09 | | | $ | 0.72 | | | $ | 0.58 | |
Shares used in computing earnings per share: | | | | | | | | | | | | | | | | | |
Basic | | | 116,057 | | | | 118,059 | | | | 117,533 | | | | 117,465 | | | | 114,798 | |
Diluted | | | 117,632 | | | | 119,444 | | | | 118,847 | | | | 118,919 | | | | 116,771 | |
| |
| | | December 31, | |
| | | 2018 (1) | | | 2017 | | | 2016 (3) | | | 2015 (4) | | | 2014 (5) | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Working capital | | $ | 269,857 | | | $ | 100,039 | | | $ | 31,625 | | | $ | (2,360 | ) | | $ | (4,672 | ) |
Total assets | | | 2,122,455 | | | | 1,861,639 | | | | 1,902,295 | | | | 1,975,788 | | | | 1,830,172 | |
Current portion of debt (6) | | | 20,767 | | | | 17,786 | | | | 90,323 | | | | 89,710 | | | | 81,108 | |
Debt (long-term portion) (6)(7) | | | 658,602 | | | | 668,356 | | | | 656,063 | | | | 845,639 | | | | 795,194 | |
Stockholders’ equity | | | 1,048,231 | | | | 764,597 | | | | 754,917 | | | | 654,400 | | | | 581,405 | |
(1) | The consolidated balance sheet and statement of operations for the year ended December 31, 2018, reflects the application of Accounting Standards Update (“ASU”)2014-09,Revenue from Contracts with Customers(codified as “ASC 606”) as discussed in Note 2,Revenue, in the Notes to Consolidated Financial Statements, including a cumulative adjustment of $244.0 million to retained earnings.
|
(2) | The consolidated statement of operations for the year ended December 31, 2017, reflects the Baldwin Hackett & Meeks, Inc. (“BHMI”) judgment. We recorded $46.7 million in general and administrative expense and $1.4 million in interest expense, as discussed in Note 14,Commitments and Contingencies, in the Notes to Consolidated Financial Statements.
|
(3) | The consolidated balance sheet and statement of operations for the year ended December 31, 2016, reflects the sale of CFS assets and liabilities as discussed in Note 3,Divestiture, in the Notes to Consolidated Financial Statements.
|
(4) | The consolidated balance sheet and statement of operations for the year ended December 31, 2015, includes the acquisition of PAY.ON AG and its subsidiaries (“PAY.ON”).
|
(5) | The consolidated balance sheet and statement of operations for the year ended December 31, 2014, includes the acquisition of Retail Decisions Europe Limited and Retail Decisions, Inc. (collectively “ReD”).
|
(6) | During the year ended December 31, 2018, we issued $400.0 million in senior notes due August 15, 2026. We used the net proceeds of these senior notes to redeem our outstanding $300.0 million senior notes due 2020, which we originally entered in to during the year ended December 31, 2013. During the year ended December 31, 2015, we increased the Revolving Credit Facility by $181.0 million to fund the acquisition of PAY.ON and related transaction expenses. During the year ended December 31, 2014, we increased the
|
| Term Credit Facility by $150.0 million to fund the acquisition of ReD. In addition, we drew a net additional $44.0 million on our Revolving Credit Facility during the year ended December 31, 2014, partially used to fund the acquisition of ReD and the related transaction costs. See Note 5,Debt,in the Notes to Consolidated Financial Statements for further discussion. |
(7) | During the year ended December 31, 2012, we financed a five-year license agreement for certain internally-used software for $14.8 million with annual payments through April 2016. During the year ended December 31, 2015, we financed multiple three-year license agreements for certain internally-used software for a total value of $20.4 million with payments due through November 2018. Of these amounts at December 31, 2016, $9.0 million remained outstanding with $7.3 million included in other current liabilities and $1.7 million included in othernon-current liabilities in our consolidated balance sheet. At December 31, 2017, $1.9 million remained outstanding with $1.5 million included in other current liabilities and $0.4 million included in othernon-current liabilities in our consolidated balance sheet. During the year ended December 31, 2018, we financed certain multi-year license agreements for internally-used software for $11.9 million with annual payments through June 2023. Of these amounts at December 31, 2018, $9.4 million remained outstanding, with $2.5 million and $6.9 million included in other current liabilities and other noncurrent liabilities, respectively, in our consolidated balance sheet.
|
ITEM 6. [RESERVED]ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACI Worldwide
the Universal Payments (“UP”) company, powers
electronicdigital payments for more than
5,1006,000 organizations around the world. More than 1,000 of the largest
financial institutionsbanks and intermediaries, as well as thousands of
leadingglobal merchants,
globally, rely on ACI to execute $14 trillion each day in payments and securities. In addition,
thousands ofmyriad organizations utilize our
EBPPelectronic bill presentment and payment services. Through our comprehensive suite of
software solutions
delivered on customers’ premises, through the public cloud or through ACI’s private cloud, we
deliverprovide real-time, immediate payments capabilities and enable
athe industry’s most complete omni-channel payments experience.
Our products are sold and supported directly and through distribution networks covering three geographic regions – the Americas, EMEA, and Asia/Asia Pacific. Each distribution networkregion has its own globally coordinated sales force, and supplements its sales forcesupplemented with local independent reseller and/or distributor networks. Our products and solutions are used globally by banks financialand intermediaries, merchants, and corporates,billers, such as third-party electronic payment processors, payment associations, switch interchanges and a wide range of transaction-generating endpoints, including ATMs, merchantpoint-of-sale (“POS”) POS terminals, bank branches, mobile phones, tablets,
corporations, and
Internetinternet commerce sites. Accordingly, our business and operating results are influenced by trends such as information technology spending levels, the growth rate of
electronicdigital payments, mandated regulatory changes, and changes in the number and type of customers in the financial services
industry.industry, as well as economic growth and purchasing habits. Our products are marketed under the ACI Worldwide
ACI Universal Payment, and ACI UP brands.brand.
We derive a majority of our revenues from domestic operations and believe we have large opportunities for growth in international markets, as well as continued expansion domestically in the United States. Refining our global infrastructure is a critical component of driving our growth. We have launched a globalization strategy which includes elements intended to streamline our supply chain and maximize expertise in several geographic locations to support a growing international customer base and competitive needs. We utilize our Irish subsidiaries to manage certain of our intellectual property rights and to oversee and manage certain international product development and commercialization efforts. We increased our SaaS and PaaS capabilities with a data center in Ireland allowing our SaaS and PaaS solutions to be more-broadly offered in the European market. We also continue to growmaintain centers of expertise in Timisoara, Romania and Pune and Bangalore in India, as well as key operational centers such as in Cape Town, South Africa and in multiple locations in the United States.
Key trends that currently impact our strategies and operations include:
Increasing electronicdigital payment transaction volumes. Electronic payment volumes continue. The adoption of digital payments continues to increase aroundaccelerate, propelled by the digitization of cash, financial inclusion efforts of countries throughout the world, taking market share from traditional cashthe Internet of Things, rapid growth of eCommerce and check transactions. In their World Payments Report, Capgemini predicts thatnon-cash transaction volumes will grow in volume at an annual ratethe adoption of 12.7%, from 482.5 billion in 2016real-time payments. COVID-19 has further accelerated this growth as more people, governments, and businesses have embraced digital payments—a change likely to 876.4 in 2021, with varying growth rates based oncontinue once the type of payment and part of the world.pandemic is over. We leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems cannot handle increased volume, and through the sale of capacity upgrades to existing customers.customers, and through the scalability of our platform-based solutions.
Adoption of real-time payments. Customer expectations, Expectations from both consumers and corporate,businesses are drivingcontinuing to drive the payments world to more real-time delivery. InThis is bolstered by the U.K., payments sent throughnew data-rich ISO 20022 messaging format, which promises to deliver greater value to banks and their customers. We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth (further driven by COVID-19) and new payment types. Mature markets, including India, the traditional ACHmulti-day batch service can now be sent through the Faster Payments service giving almost immediate access to the funds, and this is being considered and implemented in several countries includingUnited Kingdom, Australia, Malaysia, Singapore, Thailand, and the Nordics (P27), continue to accelerate innovation, especially in terms of overlay services and cross-border connectivity. The United States. InStates is driving real-time payments adoption through Zelle, TCH Real-Time Payments, and the U.S. market, National Automated Clearinghouse Association (“NACHA”) implemented phase 2 of Same Day ACHplanned FedNow service, while Brazil's PIX was launched in September 2017. Corporate customers expectNovember 2020. ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as the leaders in real-time information onpayments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the status of their payments instead of waiting for an endof-day report. Regulators expect banks to be monitoring key measures like liquidity in real time. ACI’s focus has always been on the real-time execution of transactions and delivery of information through real-time tools, such as dashboards, so our experience will be valuable in addressing this trend.Increasing competition. The electronic payments market is highly competitive and subject to rapid change. Our competition comes fromin-house information technology departments, third-party electronic payment processors, and third-party software companies located both within and outside of the United States. Many of these companies are significantly larger than us and have significantly greater financial, technical, and marketing resources. As electronic payment transaction volumes increase, third-party processors tend to provide competition to our solutions, particularly among customers that do not seek to differentiate their electronic payment offerings or are eliminating banks from the payments service, reducing the need for our solutions. As consolidation in the financial services industry continues, we anticipate that competition for those customers will intensify.
world.
Adoption of cloud technology.technology. To leverage lower-cost computing technologies, someincrease time to market, accelerate innovation, and ensure scalability and resiliency, banks financialand intermediaries, merchants, and corporatesbillers are seeking to transition their systems to make use of cloud technology. Our investments provideand partnerships, as demonstrated by our product enablement and initial optimization onto Microsoft Azure, enable us to leverage the groundinghybrid cloud technology benefits of automation and rapid deployment and delivery, while preserving the ACI fundamentals of resiliency and scalability, to deliver cloud capabilities now and in the future. Market sizing data from Ovum (now Omdia) indicates that spend on SaaS and PaaS payment systems is growing faster than spend on installed applications.Electronic
Digital payments fraud and compliance.As electronic The rise in digital payment transaction volumes and payment types has subsequently led to an increase organized criminal organizations continue to find ways to commitin online fraud in many guises and across all channels. Driven in part by COVID-19, we have seen an increase in phishing and friendly fraud, as well as remote banking fraud and authorized push payment scams. Real-time payments bring a growing volumenew level of fraudulent transactions using a wide range of techniques.urgency, as money cannot easily be retrieved once it has been sent. Banks financialand intermediaries, merchants, and corporates continue to seekbillers must find faster, smarter, more accurate and increasingly automated ways to leverage new technologies to identifysecure customers and prevent fraudulent transactions and other attacks such as denial of service attacks. Due to concerns with international terrorism and money laundering, banks and financial intermediaries in particular are being faced with increasing scrutiny andmeet regulatory pressures. We continue to see opportunity to offer our fraud detection solutions with advanced machine learning capabilities to help customers manage the growing levels of electronicdigital payments fraud and compliance activity.Adoption of smartcard technology. In many markets, card issuers
Omni-commerce. Shoppers are increasingly browsing, buying, and returning items across channels, including in-store, online, and mobile. COVID-19 has accelerated this trend, leading to an increase in contactless payments, click and collect, and curbside collection. Merchants from all industries, including grocers, fuel and convenience stores, are being requiredtasked with delivering seamless experiences that include pay-in-aisle, kiosks, mobile app payments, QR code payments, eCommerce, traditional and mobile POS, buy online pickup in-store (BOPIS) and buy online return in-store (BORIS). We believe there is significant opportunity to issue new cards with embedded chip technology,provide merchants with the liability shift having gone into effecttools to deliver a seamless, secure, personalized experience that creates loyalty and satisfaction, and drives conversion rates while protecting consumer data and preventing fraud.
Request for Payment (RfP). Markets across the world are introducing an innovative payments service called Request for Payment (RfP). This technology is known by different names in 2015different markets: Collect payments in India, Request 2 Pay in Europe, Request To Pay (RTP) in the United Kingdom, or Request for Payment (RfP) in the United States. Chip-based cardsRfP offers secure
messaging between consumers and billers or merchants, wherein a biller or merchant can request a payment from a consumer through the use of a trusted app, most likely a banking app. RfP is primarily being implemented on top of real-time payments, which are
more secure, hardercontinuing to
copy,grow and
offerflourish as countries around the
opportunity for multiple functions on one card (e.g., debit, credit, electronic purse, identification, health records, etc.). This results in greatercard-not-present fraud (e.g., fraud at eCommerce sites).Single Euro Payments Area (SEPA).The SEPA, primarily focused on the European economic communityworld develop and the U.K.,launch their real-time schemes as noted above. ACI is designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions. The transition to SEPA payment mechanisms will drive more volume to these
systems with the potential to cause banks to review the capabilities of the systems supporting these payments. Our Retail Payments and Real-Time Payments solutions facilitate key functions that help banks and financial intermediaries address these mandated regulations.
European Payment Service Directive (PSD2). PSD2, which was ratified by the European Parliament in 2015, required member states to implement new payments regulations in 2018. The XS2A provision effectively creates a new market opportunity where banks in European Union member countries must provide open API standards to customer data, thus allowing authorized third-party providers to enter the market.
Financial institution consolidation. Consolidation continues on a national and international basis, as financial institutions seek to add market share and increase overall efficiency. Such consolidations have increased, and may continue to increase, in their number, size, and market impact as a result of recent economic conditions affecting the banking and financial industries. There are several potential negative effects of increased consolidation activity. Continuing consolidation of financial institutions may result in a smaller number of existing and potential customers forunique position to deliver this overlay service given our products and services. Consolidation of two ofreal-time payments software, our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products. Additionally, if anon-customer and a customer combine and the combined entity decides to forego future use of our products, our revenue would decline. Conversely, we could benefit from the combination of anon-customer and a customer when the combined entity continues use of our products and, as a larger combined entity, increases its demand for our products and services. We tend to focus on larger financial institutions as customers, often resulting in our solutions being the solutions that survive in the consolidated entity.
Global vendor sourcing. Global and regionalrelationships with banks, financial intermediaries, merchants and corporates are aiming to reduce the costs in supplier management by picking suppliers who can service them across all their geographies instead of allowing each country operation to choose suppliers independently. Ourbillers, and global footprint from both a customer and a delivery perspective enable us to be successful in this global sourced market. However, projects in these environments tend to be more complex and therefore of higher risk.
Electronic payments convergence. As electronic payment volumes grow and pressures to lower overall cost per transaction increase, banks and financial intermediaries are seeking methods to consolidate their payments processing across the enterprise. We believe that the strategy of using SOA to allow forre-use of common electronic payment functions, such as authentication, authorization, routing and settlement, will become more common. Using these techniques, banks and financial intermediaries will be able to reduce costs, increase overall service levels, enableone-to-one marketing in multiple bank channels, leverage volumes for improved pricing and liquidity, and manage enterprise risk. Our product strategy is, in part, focused on this trend, by creating integrated payment functions that can bere-used by multiple bank channels, across both the consumer and wholesale bank. While this trend presents an opportunity for us, it may also expand the competition from third-party electronic payment technology and service providers specializing in other forms of electronic payments. Many of these providers are larger than us and have significantly greater financial, technical and marketing resources.
Mobile banking and payments.There is a growing demand for the ability to carry out banking services or make payments using a mobile phone. Recent statistics from Javelin Strategy & Research, a subsidiary of Greenwich Associates, show that 50% of adults in the United States use their phone for mobile banking. The use of phones for mobile banking is expected to grow to 81% in 2020. Our customers have been making use of existing products to deploy mobile banking, mobile payments, and mobile commerce solutions for their customers in many countries. In addition, ACI has invested in mobile products of our own and via partnerships to support mobile functionality in the marketplace.
Electronic bill payment and presentment. EBPP encompasses all facets of bill payment, including biller direct, where customers initiate payments on biller websites, the consolidator model, where customers initiate payments
real-time connectivity.on a financial institution’s website, andwalk-in bill payment, as one might find in a convenience store. The EBPP market continues to grow as consumers move away from traditional forms of paper-based payments. Nearly three out of four (73%) online payments are made at the billers’ sites rather than through banking websites, up 11% since 2010. The biller-direct solutions are seeing strong growth as billers migrate these services to outsourcers, such as ACI, from legacy systems built in house. We believe that EBPP remains ripe for outsourcing, as a significant amount of biller-direct transactions are still processed in house. As billers seek to manage costs and improve efficiency, we believe that they will continue to look to third-party EBPP vendors that can offer a complete solution for their billing needs.
Several other factors related to our business may have a significant impact on our operating results from year to year. For example, the accounting rules governing the timing of revenue recognition are complex, and it can be difficult to estimate when we will recognize revenue generated by a given transaction. Factors such as creditworthiness of the customer and timing of transfer of control or acceptance of our products may cause revenues related to sales generated in one period to be deferred and recognized in later periods. For arrangements in which services revenue is deferred, related direct and incremental costs may also be deferred. Additionally, while the majority of our contracts are denominated in the U.S. dollar, a substantial portion of our sales are made, and some of our expenses are incurred, in the local currency of countries other than the United States. Fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period.
We continue to seek ways to grow through organic sources, partnerships, alliances, and acquisitions. We continually look for potential acquisitions designed to improve our solutions’ breadth or provide access to new markets. As part of our acquisition strategy, we seek acquisition candidates that are strategic, capable of being integrated into our operating environment, and accretive to our financial performance.
Divestiture
Community Financial Services
On March 3, 2016, we completed the sale of our CFS related assets and liabilities to Fiserv for $200.0 million. The sale of CFS, which was not strategic to our long-term strategy, was part of the Company’s ongoing efforts to expand as a provider of software products and SaaS-based and PaaS-based solutions facilitating real-time electronic and eCommerce payments for large banks, financial intermediaries, merchants and corporates worldwide. The sale included employee agreements and customer contracts as well as technology assets and intellectual property.
For the year ended December 31, 2016, we recognized a netafter-tax gain of $93.4 million on sale of assets to Fiserv.
•Committed Backlog, which includes (1) contracted revenue that will be recognized in future periods (contracted but not recognized) from software license fees, maintenance fees, servicesservice fees, and SaaS and PaaS fees specified in executed contracts (including estimates of variable consideration if required under ASC 606) and included in the transaction price for those contracts, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods and (2) estimated future revenues from software license fees, maintenance fees, services fees, and SaaS and PaaS fees specified in executed contracts.
•Renewal Backlog, which includes estimated future revenues from assumed contract renewals to the extent we believe recognition of the related revenue will occur within the corresponding backlog period.
The adoption of ASC 606 resulted in the following key changes to backlog:
The introduction of a U.S. GAAP requirement to measure and disclose revenue allocated to remaining performance obligations.
A shift in license revenue from Committed Backlog to Renewal Backlog due to the acceleration of license revenue recognition and a corresponding change in the renewal assumptions used to estimate Renewal Backlog.
An adjustment to the amount of license revenue included in Renewal Backlog due to the introduction of the significant financing component concept.
We have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates.
Our
60-month backlog estimates are derived using the following key assumptions:
•License arrangements are assumed to renew at the end of their committed term or under the renewal option stated in the contract at a rate consistent with historical experience. If the license arrangement includes extended payment terms, the renewal estimate is adjusted for the effects of a significant financing component.
•Maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term.
•SaaS and PaaS arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences.
•Foreign currency exchange rates are assumed to remain constant over the60-month backlog period for those contracts stated in currencies other than the U.S. dollar.
•Our pricing policies and practices are assumed to remain constant over the60-month backlog period.
In computing our
60-month backlog estimate, the following items are specifically not taken into account:
•Anticipated increases in transaction, account, or processing volumes by our customers.
•Optional annual uplifts or inflationary increases in recurring fees.
•Services engagements, other than SaaS and PaaS arrangements, are not assumed to renew over the60-month backlog period.
•The potential impact of consolidation activity within our markets and/or customers.
We review our customer renewal experience on an annual basis. The impact of this review and subsequent updateupdates may result in a revision to the renewal assumptions used in computing the60-month backlog estimates. In the event a significant revision to renewal assumptions is determined to be necessary, prior periods will be adjusted for comparability purposes.
The following table sets forth our
60-month backlog estimate, by reportable segment, as of December 31,
2018;2021; September 30,
2018;2021; June 30,
2018;2021; March 31,
2018;2021; and December 31,
20172020 (in millions). Dollar amounts reflect foreign currency exchange rates as of each period end.
We included our60-month backlog estimate without the application of ASC 606. This is a
non-GAAP financial measure
that is being presented to provide comparability across accounting periods. We believe this measure provides useful information to investors and others in understanding and evaluating our financial performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As
Reported | | | Without
Application
of ASC 606 | | | As
Reported | | | Without
Application
of ASC 606 | | | As
Reported | | | Without
Application
of ASC 606 | | | As
Reported | | | Without
Application
of ASC 606 | | | December 31,
2017 | |
| | | December 31, 2018 | | | September 30, 2018 | | | June 30, 2018 | | | March 31, 2018 | |
ACI On Premise | | $ | 1,875 | | | $ | 1,712 | | | $ | 1,775 | | | $ | 1,645 | | | $ | 1,830 | | | $ | 1,681 | | | $ | 1,874 | | | $ | 1,709 | | | $ | 1,700 | |
ACI On Demand | | | 2,299 | | | | 2,298 | | | | 2,401 | | | | 2,400 | | | | 2,472 | | | | 2,472 | | | | 2,513 | | | | 2,512 | | | | 2,404 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,174 | | | $ | 4,010 | | | $ | 4,176 | | | $ | 4,045 | | | $ | 4,302 | | | $ | 4,153 | | | $ | 4,387 | | | $ | 4,221 | | | $ | 4,104 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | As
Reported | | | Without
Application
of ASC 606 | | | As
Reported | | | Without
Application
of ASC 606 | | | As
Reported | | | Without
Application
of ASC 606 | | | As
Reported | | | Without
Application
of ASC 606 | | | December 31,
2017 | |
| | | December 31, 2018 | | | September 30, 2018 | | | June 30, 2018 | | | March 31, 2018 | |
Committed | | $ | 1,832 | | | $ | 2,066 | | | $ | 1,760 | | | $ | 2,015 | | | $ | 1,769 | | | $ | 2,022 | | | $ | 1,879 | | | $ | 2,138 | | | $ | 2,062 | |
Renewal | | | 2,342 | | | | 1,944 | | | | 2,416 | | | | 2,030 | | | | 2,533 | | | | 2,131 | | | | 2,508 | | | | 2,083 | | | | 2,042 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,174 | | | $ | 4,010 | | | $ | 4,176 | | | $ | 4,045 | | | $ | 4,302 | | | $ | 4,153 | | | $ | 4,387 | | | $ | 4,221 | | | $ | 4,104 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31,
2021 | | September 30,
2021 | | June 30,
2021 | | March 31,
2021 | | December 31,
2020 |
| Banks | $ | 2,272 | | | $ | 2,310 | | | $ | 2,248 | | | $ | 2,117 | | | $ | 2,167 | |
| Merchants | 754 | | | 788 | | | 839 | | | 811 | | | 808 | |
| Billers | 3,084 | | | 3,112 | | | 3,094 | | | 3,016 | | | 3,064 | |
| Total | $ | 6,110 | | | $ | 6,210 | | | $ | 6,181 | | | $ | 5,944 | | | $ | 6,039 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31,
2021 | | September 30,
2021 | | June 30,
2021 | | March 31,
2021 | | December 31,
2020 |
| Committed | $ | 2,095 | | | $ | 2,240 | | | $ | 2,283 | | | $ | 2,308 | | | $ | 2,447 | |
| Renewal | 4,015 | | | 3,970 | | | 3,898 | | | 3,636 | | | 3,592 | |
| Total | $ | 6,110 | | | $ | 6,210 | | | $ | 6,181 | | | $ | 5,944 | | | $ | 6,039 | |
Estimates of future financial results require substantial judgment and are based on several assumptions, as described above. These assumptions may turn out to be inaccurate or wrong for reasons outside of management’s control. For example, our customers may attempt to renegotiate or terminate their contracts for many reasons, including mergers, changes in their financial condition, or general changes in economic conditions (e.g. economic declines resulting from COVID-19) in the customer’s industry or geographic location. We may also experience delays in the development or delivery of products or services specified in customer contracts, which may cause the actual renewal rates and amounts to differ from historical experiences. Changes in foreign currency exchange rates may also impact the amount of revenue recognized in future periods. Accordingly, there can be no assurance that amounts included in backlog estimates will generate the specified revenues or that the actual revenues will be generated within the corresponding60-month period. Additionally, because certain components of Committed Backlog and all of Renewal Backlog estimates are operating metrics, the estimates are not required to be subject to the same level of internal review or controls as contracted but not recognized Committed Backlog.
The following tables present the consolidated statements of operations, as well as the percentage relationship to total revenues of items included in our
Consolidated Statementsconsolidated statements of
Operationsoperations (in thousands):
Year Ended December 31,
2018,2021 Compared to Year Ended December 31,
2017 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | |
| | | Amount | | | % of Total
Revenue | | | $ Change
vs 2017 | | | % Change
vs 2017 | | | Amount | | | % of Total
Revenue | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 433,025 | | | | 43 | % | | $ | 7,453 | | | | 2 | % | | $ | 425,572 | | | | 42 | % |
License | | | 280,556 | | | | 28 | % | | | (12,568 | ) | | | -4 | % | | | 293,124 | | | | 29 | % |
Maintenance | | | 219,145 | | | | 22 | % | | | (2,926 | ) | | | -1 | % | | | 222,071 | | | | 22 | % |
Services | | | 77,054 | | | | 8 | % | | | (6,370 | ) | | | -8 | % | | | 83,424 | | | | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 1,009,780 | | | | 100 | % | | | (14,411 | ) | | | -1 | % | | | 1,024,191 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | 430,351 | | | | 43 | % | | | (21,935 | ) | | | -5 | % | | | 452,286 | | | | 44 | % |
Research and development | | | 143,630 | | | | 14 | % | | | 6,709 | | | | 5 | % | | | 136,921 | | | | 13 | % |
Selling and marketing | | | 117,881 | | | | 12 | % | | | 9,996 | | | | 9 | % | | | 107,885 | | | | 11 | % |
General and administrative | | | 107,422 | | | | 11 | % | | | (45,610 | ) | | | -30 | % | | | 153,032 | | | | 15 | % |
Depreciation and amortization | | | 84,585 | | | | 8 | % | | | (4,842 | ) | | | -5 | % | | | 89,427 | | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 883,869 | | | | 88 | % | | | (55,682 | ) | | | -6 | % | | | 939,551 | | | | 92 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 125,911 | | | | 12 | % | | | 41,271 | | | | 49 | % | | | 84,640 | | | | 8 | % |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (41,530 | ) | | | -4 | % | | | (2,517 | ) | | | 6 | % | | | (39,013 | ) | | | -4 | % |
Interest income | | | 11,142 | | | | 1 | % | | | 10,578 | | | | 1876 | % | | | 564 | | | | 0 | % |
Other, net | | | (3,724 | ) | | | 0 | % | | | (1,105 | ) | | | 42 | % | | | (2,619 | ) | | | 0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income (expense) | | | (34,112 | ) | | | -3 | % | | | 6,956 | | | | -17 | % | | | (41,068 | ) | | | -4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 91,799 | | | | 9 | % | | | 48,227 | | | | 111 | % | | | 43,572 | | | | 4 | % |
Income tax expense | | | 22,878 | | | | 2 | % | | | (15,559 | ) | | | -40 | % | | | 38,437 | | | | 4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 68,921 | | | | 7 | % | | $ | 63,786 | | | | 1242 | % | | $ | 5,135 | | | | 1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| Amount | | % of Total
Revenue | | $ Change
vs 2020 | | % Change
vs 2020 | | Amount | | % of Total Revenue |
| Revenues: | | | | | | | | | | | |
| Software as a service and platform as a service | $ | 774,342 | | | 57 | % | | $ | 5,162 | | | 1 | % | | $ | 769,180 | | | 60 | % |
| License | 319,867 | | | 23 | % | | 72,971 | | | 30 | % | | 246,896 | | | 19 | % |
| Maintenance | 210,499 | | | 15 | % | | (1,198) | | | (1) | % | | 211,697 | | | 16 | % |
| Services | 65,890 | | | 5 | % | | (659) | | | (1) | % | | 66,549 | | | 5 | % |
| Total revenues | 1,370,598 | | | 100 | % | | 76,276 | | | 6 | % | | 1,294,322 | | | 100 | % |
| Operating expenses: | | | | | | | | | | | |
| Cost of revenue | 638,871 | | | 47 | % | | 16,412 | | | 3 | % | | 622,459 | | | 48 | % |
| Research and development | 144,310 | | | 11 | % | | 5,017 | | | 4 | % | | 139,293 | | | 11 | % |
| Selling and marketing | 126,539 | | | 9 | % | | 22,972 | | | 22 | % | | 103,567 | | | 8 | % |
| General and administrative | 123,801 | | | 9 | % | | (28,667) | | | (19) | % | | 152,468 | | | 12 | % |
| Depreciation and amortization | 127,180 | | | 9 | % | | (4,611) | | | (3) | % | | 131,791 | | | 10 | % |
| Total operating expenses | 1,160,701 | | | 85 | % | | 11,123 | | | 1 | % | | 1,149,578 | | | 89 | % |
| Operating income | 209,897 | | | 15 | % | | 65,153 | | | 45 | % | | 144,744 | | | 11 | % |
| Other income (expense): | | | | | | | | | | | |
| Interest expense | (45,060) | | | (3) | % | | 11,570 | | | (20) | % | | (56,630) | | | (4) | % |
| Interest income | 11,522 | | | 1 | % | | (106) | | | (1) | % | | 11,628 | | | 1 | % |
| Other, net | (1,294) | | | — | % | | (178) | | | 16 | % | | (1,116) | | | — | % |
| Total other income (expense) | (34,832) | | | (2) | % | | 11,286 | | | (24) | % | | (46,118) | | | (3) | % |
| Income before income taxes | 175,065 | | | 13 | % | | 76,439 | | | 78 | % | | 98,626 | | | 8 | % |
| Income tax expense | 47,274 | | | 3 | % | | 21,308 | | | 82 | % | | 25,966 | | | 2 | % |
| Net income | $ | 127,791 | | | 10 | % | | $ | 55,131 | | | 76 | % | | $ | 72,660 | | | 6 | % |
Total revenue for the year ended December 31,
2018, decreased $14.42021, increased $76.3 million, or
1%6%, as compared to the same period in
2017.2020.
•The applicationimpact of ASC 606certain foreign currencies strengthening against the U.S. dollar resulted in a $2.5$7.3 million decreaseincrease in total revenue forduring the year ended December 31, 2018. Total revenue was $3.7 million higher for the year ended December 31, 2018,2021, as compared to the same period in 2017, due to2020.
•Adjusted for the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of applying ASC 606 and foreign currency, total revenue for the year ended December 31, 2018, decreased $15.62021, increased $69.0 million, or 2%5%, as compared to the same period in 2017, primarily as the result2020.
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue
The Company’s SaaS arrangements allow customers to use certain software solutions (without taking possession of the software) in a single-tenant cloud environment on a subscription basis. The Company’s PaaS arrangements
allow customers to use certain software solutions (without taking possession of the software) in a multi-tenant cloud environment on a subscription or consumption basis. Included in SaaS and PaaS revenue are fees paid by our customers for use of our Biller solutions. Biller-related fees may be paid by our clients or directly by their customers and may be a percentage of the underlying transaction amount, a fixed fee per executed transaction or a monthly fee for each customer enrolled. SaaS and PaaS costs include payment card interchange fees, the amounts payable to banks and payment card processing fees, which are included in cost of revenue in the accompanying consolidated statements of operations. All revenue from SaaS and PaaS arrangements that does not qualify for treatment as a distinct performance obligation, which includesset-up fees, implementation or customization services, and product support services, are included in SaaS and PaaS revenue.
SaaS and PaaS revenue increased $7.5$5.2 million, or 2%1%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. 2020.
•The applicationimpact of ASC 606certain foreign currencies strengthening against the U.S. dollar resulted in a $0.9$3.1 million increase in totalSaaS and PaaS revenue during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the year ended December 31, 2018. Total SaaS and PaaS revenue was $1.82021, increased $2.1 million, higher for the year ended December 31, 2018,as compared to the same period in 2017, due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of applying ASC 606 and foreign currency, total SaaS and PaaS revenue for the year ended December 31, 2018, increased $4.7 million, or 1%, compared to the same period in 2017, which is primarily attributable to new customers adopting our SaaS and PaaS offerings and existing customers adding new functionality or increasing transaction volumes.2020.
Customers purchase the right to license ACI software under multi-year, time-based software license arrangements that vary in length but are generally five years. Under these arrangements the software is installed at the customer’s location (i.e.
on-premise). Within these agreements are specified capacity limits typically based on customer transaction volume. ACI employs measurement tools that monitor the number of transactions processed by customers and if contractually specified limits are exceeded, additional fees are charged for the overage. Capacity overages may occur at varying times throughout the term of the agreement depending on the product, the size of the customer, and the significance of customer transaction volume growth. Depending on specific circumstances, multiple overages or no overages may occur during the term of the agreement.
Included in license revenue are license and capacity fees that are payable at the inception of the agreement or annually (initial license fees). License revenue also includes license and capacity fees payable quarterly or monthly due to negotiated customer payment terms (monthly license fees). Under ASC 606 theThe Company recognizes revenue in advance of billings for software license arrangements with extended payment terms and adjustedadjusts for the effects of the financing component, if significant. Under ASC 605 the Company recognized
License revenue
for those same software license arrangements as the fees became due and payable.Total license revenue decreased $12.6increased $73.0 million, or 4%30%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. 2020.
•The applicationimpact of ASC 606certain foreign currencies weakening against the U.S. dollar resulted in a $0.8 million decrease in totallicense revenue during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of foreign currency, license revenue for the year ended December 31, 2018. Total license revenue was $0.92021, increased $73.8 million, higher for the year ended December 31, 2018,as compared to the same period in 2017, due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of applying ASC 606 and foreign currency, total license revenue for the year ended December 31, 2018, decreased $12.7 million, or 4%, compared to the same period2020.
•The increase in 2017.The decrease in total license revenue was primarily driven by therenewal timing and relative size of license and capacity events during the year ended December 31, 2018,2021, as compared to the same period in 2017.
2020.
Maintenance revenue includes standard, enhanced, and premium maintenancecustomer support and any post contract support fees received from customers for the provision of product support services.
Maintenance revenue decreased $2.9$1.2 million, or 1%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. 2020.
•The applicationimpact of ASC 606foreign currencies strengthening against the U.S. dollar resulted in a $2.0$3.9 million decreaseincrease in totalmaintenance revenue during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of foreign currency, maintenance revenue for the year ended December 31, 2018. Total maintenance revenue was $1.22021, decreased $5.1 million, higher for the year ended December 31, 2018,or 2%, as compared to the same period in 2017, due to the impact2020.
Services revenue includes fees earned through implementation services and other professional services. Implementation services include product installations, product configurations, and custom software modifications (“CSMs”). Other professional services include business consultancy, technical consultancy,
on-site support services,
CSMs, product education, and testing services. These services include new customer implementations as well as existing customer migrations to new products or new releases of existing products.
Services revenue decreased $6.4$0.7 million, or 8%1%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. 2020.
•The applicationimpact of ASC 606foreign currencies strengthening against the U.S. dollar resulted in a $0.5$1.1 million decreaseincrease in totalservices revenue during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of foreign currency, services revenue for the year ended December 31, 2018. Total services revenue was $0.32021, decreased $1.8 million, lower for the year ended December 31, 2018,or 3%, as compared to the same period in 2017, due to the impact of certain foreign currencies weakening against the U.S. dollar. Excluding the impact of applying ASC 606 and foreign currency, total services revenue for the year ended December 31, 2018, decreased $5.5 million, or 7%, compared to the same period in 2017. During the year ended December 31, 2017, we completed or neared completion of several large, complex projects that resulted in recognition of services revenue as the work was performed and the projects were completed. The number and magnitude of such projects was lower during the year ended December 31, 2018.2020.
Total operating expenses for the year ended December 31,
2018, decreased $55.72021, increased $11.1 million, or
6%1%, as compared to the same period in
2017.During2020.
•Total operating expenses for the year ended December 31, 2017, there was $46.72021, included $13.4 million of expense recorded related to significant transactions and cost reduction strategies implemented during the BHMI judgment. period. Total operating expenses for the year ended December 31, 2020, included $44.6 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period and integration of the Speedpay acquisition.
•The applicationimpact of ASC 606foreign currencies strengthening against the U.S. dollar resulted in a $7.5$9.4 million increase in total operating expenses for the year ended December 31, 2018, primarily due to differences in the timing of expense recognition for sales commissions. Total operating expenses were $3.0 million higher for the year ended December 31, 2018,2021, as compared to the same period in 2017, due to2020.
•Adjusted for the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of the BHMI judgment, applying ASC 606,significant transaction-related expenses and foreign currency, total operating expenses for the year ended December 31, 2018, decreased $19.52021, increased $32.9 million, or 2%3%, as compared to the same period in 2017, primarily because of lower cost of revenue and depreciation and amortization expenses, partially offset by higher research and development, selling and marketing, and general and administrative expenses.2020.
Cost of revenue includes costs to provide SaaS and PaaS, services, third-party royalties, amortization of purchased and developed software for resale, the costs of maintaining our software products, as well as the costs required to deliver, install, and support software at customer sites. SaaS and PaaS service costs include payment card interchange fees, amounts payable to banks, and payment card processing fees. Maintenance costs include the efforts associated with providing the customer with upgrades,24-hour help desk, postgo-live (remote) support, and production-type support for software that was previously installed at a customer location. Service costs include human resource costs and other incidental costs such as travel and training required for both prego-live and postgo-live support. Such efforts include project management, delivery, product customization and implementation, installation support, consulting, configuration, andon-site support.
Cost of revenue decreased $21.9increased $16.4 million, or 5%3%, during the year ended December 31, 2018, compared to the same period in 2017. Cost of revenue was $0.8 million higher for the year ended December 31, 2018,2021, as compared to the same period in 2017, due to2020.
•Cost of revenue for the year ended December 31, 2020, included $4.3 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period.
•The impact of foreign currencies strengthening against the U.S. dollar. Excludingdollar resulted in a $3.8 million increase in cost of revenue during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue decreased $22.7increased $16.9 million, or 5%3%, for the year ended December 31, 2018,2021, as compared to the same period in 2017,2020.
•The increase was primarily due to lower personnel and related costs of $29.5 million, partially offset by a $6.8 million increase inhigher payment card interchange and processing fees.fees of $18.3 million, partially offset by lower personnel and related expenses of $3.8 million.
Research and development (“R&D”) expenses are primarily human resource costs related to the creation of new products, improvements made to existing products as well as compatibility with new operating system releases and generations of hardware.
R&D expense increased $6.7$5.0 million, or 5%4%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. 2020.
•R&D expense was $0.5 million higher for the yearyears ended December 31, 2018, as compared2021 and 2020, included $2.4 million and $1.0 million, respectively, of expenses related to significant transactions and cost reduction strategies implemented during the same period in 2017, due to theperiod.
•The impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of foreign currency,dollar resulted in a $1.6 million increase in R&D expense increased $6.2 million, or 5%, forduring the year ended December 31, 2018,2021, as compared to the same period in 2017, primarily due2020.
•Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense increased $2.0 million, or 1%, during the year ended December 31, 2021, as compared to an increasethe same period in personnel and related expenses.2020.
Selling and marketing includes both the costs related to selling our products to current and prospective customers as well as the costs related to promoting the Company, its products and the research efforts required to measure customers’ future needs and satisfaction levels. Selling costs are primarily the human resource and travel costs related to the effort expended to license our products and services to current and potential clients within defined territories and/or industries as well as the management of the overall relationship with customer accounts. Selling costs also include the costs associated with assisting distributors in their efforts to sell our products and services in their respective local markets. Marketing costs include costs incurred to promote the Company and its products, perform or acquire market research to help the Company better understand impending changes in customer demand for and of our products, and the costs associated with measuring customers’ opinions toward the Company, our products and personnel.
Selling and marketing expense increased $10.0$23.0 million, or 9%22%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. 2020.
•The application of ASC 606 resulted in a $7.5 million increase in selling and marketing expense for the year ended December 31, 2018, as compared to the same period in 2017. Selling and marketing expense was $0.8 million higher for the year ended December 31, 2018, as compared to the same period in 2017, due to the impact of foreign currencies strengthening against the U.S. dollar. Excludingdollar resulted in a $1.6 million increase in selling and marketing expense during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of applying ASC 606 and foreign currency, selling and marketing expense increased $1.7$21.4 million, or 2%20%, for the year ended December 31, 2018,2021, as compared to the same period in 2017,2020.
•The increase was primarily due to an increase inhigher personnel and related expenses as the resultand advertising expenses of an increase in total bookings.$17.0 million and $4.4 million, respectively.
General and Administrative
General and administrative expenses are primarily human resource costs including executive salaries and benefits, personnel administration costs, and the costs of corporate support functions such as legal, administrative, human resources, and finance and accounting.
General and administrative expense decreased $45.6$28.7 million, or 30%19%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. During the year ended December 31, 2017, there was $46.7 million of general and administrative expense recorded related to the BHMI judgment. 2020.
•General and administrative expenses were $0.4 million higher for the year ended December 31, 2018, as compared2021 and 2020, included $11.0 million and $39.3 million, respectively, of expenses related to significant transaction and cost reduction strategies implemented during the same period in 2017, due toperiod.
the•The impact of foreign currencies strengthening against the U.S. dollar. Excludingdollar resulted in a $1.4 million increase in general and administrative expense during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of the BHMI judgmentsignificant transaction-related expenses and foreign currency, general and administrative expense increased $0.7decreased $1.8 million, or 1%2%, for the year ended December 31, 2018,2021, as compared to the same period in 2017, primarily due to an increase in personnel and related expenses.2020.
Depreciation and Amortization
Depreciation and amortization decreased $4.8$4.6 million, or 5%3%, during the year ended December 31, 2018,2021, as compared to the same period in 2017. Depreciation and amortization was $0.6 million higher for the year ended December 31, 2018, as compared to the same period in 2017, due to the2020.
•The impact of foreign currencies strengthening against the U.S. dollar. Excludingdollar resulted in a $1.0 million increase in depreciation and amortization expense during the year ended December 31, 2021, as compared to the same period in 2020.
•Adjusted for the impact of foreign currency, depreciation and amortization decreased $5.5$5.6 million, or 6%4%, for the year ended December 31, 2018,2021, as compared to the same period in 2017.2020.
Interest expense for the year ended December 31,
2018, increased $2.52021, decreased $11.6 million, or
6%20%, as compared to the same period in
2017,2020, primarily due to
thewrite-off of $1.7 million of deferredlower comparative debt
issuance costs from the redemption of our 6.375% Senior Notes due 2020 (the “2020 Notes”), as well as higher interest rates on the Term Credit Facility during 2018.balances.
Interest income includes the portion of software license fees paid by customers under extended payment terms that is attributed to the significant financing component. Interest income for the year ended December 31,
2018, increased $10.62021, decreased $0.1 million,
or 1%, as compared to the same period in
2017, primarily due to the impact of adopting and applying ASC 606. Excluding the impact of adopting and applying ASC 606, interest income was flat.2020.
Other, net
consistsis primarily comprised of foreign currency
losstransaction gains and
othernon-operating items. Foreign currency losslosses. Other, net was $1.3 million and $1.1 million of expense for the years ended December 31,
20182021 and
2017, was $3.7 million and $2.6 million, respectively.2020.
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into U.S. Law. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118,Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of December 31, 2018, we have completed our accounting for the tax effects of the enactment of the Tax Act. Refer to Note 13,Income Taxes, in the Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form10-K for further discussion.
The effective tax rates for the years ended December 31, 20182021 and 2017,2020, were approximately 25%27% and 88%26%, respectively. Our effective tax rates vary from our federal statutory rates due to operating in multiple foreign countries where we apply foreign tax laws and rates which differ from those we apply to the income generated from our domestic operations. Of the foreign jurisdictions in which we operate, our December 31, 2018,2021, effective rate was most impacted by our operations in Colombia, Ireland, and Luxembourg,Singapore, and our December 31, 2017,2020, effective tax rate was most impacted by our operations in Ireland, South Africa,Mexico, Singapore, and the United Kingdom. Excluding the impact
Refer to Note 11, Income Taxes, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.
Prior Year Results
For discussion of the Tax Act,year ended December 31, 2020, compared to the effective tax rateyear ended December 31, 2019, see Results of Operations in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2018, was increased by2020.
Segment Results
In January 2021, we made a change in organizational structure to align with our strategic direction. As a result, the expensing of withholding taxes that cannot be credited against the recipient’s tax liability in the country of residence. Excluding the impact of the Tax Act, the effective tax rate for the year ended December 31, 2017, was increased by the inclusion of certain foreign earnings in our U.S. tax return, offset by the tax benefit from foreign operations that are taxed at lower rates than the domestic rate.
Year Ended December 31, 2017, Compared to Year Ended December 31, 2016
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| | | Amount | | | % of Total
Revenue | | | $ Change
vs 2016 | | | % Change
vs 2016 | | | Amount | | | % of Total
Revenue | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 425,572 | | | | 42 | % | | $ | 14,283 | | | | 3 | % | | $ | 411,289 | | | | 41 | % |
Initial license fees (ILFs) | | | 215,002 | | | | 21 | % | | | 11,846 | | | | 6 | % | | | 203,156 | | | | 20 | % |
Monthly license fees (MLFs) | | | 78,122 | | | | 8 | % | | | 7,812 | | | | 11 | % | | | 70,310 | | | | 7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
License | | | 293,124 | | | | 29 | % | | | 19,658 | | | | 7 | % | | | 273,466 | | | | 27 | % |
Maintenance | | | 222,071 | | | | 22 | % | | | (11,405 | ) | | | -5 | % | | | 233,476 | | | | 23 | % |
Services | | | 83,424 | | | | 8 | % | | | (4,046 | ) | | | -5 | % | | | 87,470 | | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 1,024,191 | | | | 100 | % | | | 18,490 | | | | 2 | % | | | 1,005,701 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | 452,286 | | | | 44 | % | | | 7,372 | | | | 2 | % | | | 444,914 | | | | 44 | % |
Research and development | | | 136,921 | | | | 13 | % | | | (32,979 | ) | | | -19 | % | | | 169,900 | | | | 17 | % |
Selling and marketing | | | 107,885 | | | | 11 | % | | | (10,197 | ) | | | -9 | % | | | 118,082 | | | | 12 | % |
General and administrative | | | 153,032 | | | | 15 | % | | | 39,415 | | | | 35 | % | | | 113,617 | | | | 11 | % |
Gain on sale of CFS assets | | | — | | | | 0 | % | | | 151,463 | | | | 100 | % | | | (151,463 | ) | | | -15 | % |
Depreciation and amortization | | | 89,427 | | | | 9 | % | | | (94 | ) | | | 0 | % | | | 89,521 | | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 939,551 | | | | 92 | % | | | 154,980 | | | | 20 | % | | | 784,571 | | | | 78 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 84,640 | | | | 8 | % | | | (136,490 | ) | | | -62 | % | | | 221,130 | | | | 22 | % |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (39,013 | ) | | | -4 | % | | | 1,171 | | | | -3 | % | | | (40,184 | ) | | | -4 | % |
Interest income | | | 564 | | | | 0 | % | | | 34 | | | | 6 | % | | | 530 | | | | 0 | % |
Other, net | | | (2,619 | ) | | | 0 | % | | | (6,724 | ) | | | -164 | % | | | 4,105 | | | | 0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income (expense) | | | (41,068 | ) | | | -4 | % | | | (5,519 | ) | | | 16 | % | | | (35,549 | ) | | | -4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 43,572 | | | | 4 | % | | | (142,009 | ) | | | -77 | % | | | 185,581 | | | | 18 | % |
Income tax expense | | | 38,437 | | | | 4 | % | | | (17,609 | ) | | | -31 | % | | | 56,046 | | | | 6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 5,135 | | | | 1 | % | | $ | (124,400 | ) | | | -96 | % | | $ | 129,535 | | | | 13 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues
Total revenue for the year ended December 31, 2017, increased $18.5 million, or 2%, as compared to the same period in 2016. The increase is the result of a $19.7 million, or 7%, increase in license revenue and a $14.3 million, or 3%, increase in SaaS and PaaS revenue, partially offset by an $11.4 million, or 5%, decrease in maintenance revenue, and a $4.1 million, or 5%, decrease in services revenue.
The CFS divestiture resulted in a $15.4 million decrease in total revenue for the year ended December 31, 2017, as compared to the same period in 2016. Total revenue was $5.0 million higher for the year ended December 31, 2017, compared to the same period in 2016Company reassessed its segment reporting structure due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, total revenue for the year ended December 31, 2017, increased $28.9 million, or 3%, compared to the same period in 2016 primarily as a result of increases in license and SaaS and PaaS revenue partially offset by decreases in maintenance and services revenue.
SaaS and PaaS Revenue
SaaS and PaaS revenue increased $14.3 million, or 3%, during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in a $13.5 million decrease in SaaS and PaaS revenue
during the year ended December 31, 2017. The impact of foreign currencies on SaaS and PaaS revenue during the year ended December 31, 2017, was neutral. Excluding the impact of CFS, total SaaS and PaaS revenue for year ended December 31, 2017, increased $27.8 million, or 7%, compared to the same period in 2016, which is primarily attributable to new customers adopting our SaaS and PaaS-based offerings and existing customers adding new functionality or increasing transaction volumes.
Initial License Revenue
Initial license revenue includes license and capacity revenues that do not recur on a monthly or quarterly basis. Included in initial license revenue are license and capacity fees that are recognizable at the inception of the agreement and license and capacity fees that are recognizable at interim points during the term of the agreement, including those that are recognizable annually due to negotiated customer payment terms.
Initial license revenue increased $11.8 million, or 6%, during the year ended December 31, 2017, as compared to the same period in 2016. Initial license revenue was $4.5 million higher for year ended December 31, 2017, compared to the same period in 2016 due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of foreign currency, initial license revenue for the year ended December 31, 2017, increased $7.3 million, or 4%, compared to the same period in 2016.
The increase in initial license revenue was primarily driven by an increase innon-capacity-related license revenue of $18.5 million partially offset by a decrease in capacity-related license revenue of $11.3 million during the year ended December 31, 2017, compared to the same period in 2016. The changes innon-capacity-related how the Company's chief operating decision maker ("CODM") assesses the Company's performance and capacity-related license revenue were attributable toallocates resources. Beginning with the timing and relative sizefirst quarter of license renewal arrangements that were signed and capacity events that occurred during the year ended December 31, 2017, as compared to the same period in 2016.
Monthly License Revenue
Monthly license revenue is license and capacity revenue that is paid monthly or quarterly due to negotiated customer payment terms as well as initial license and capacity fees that are recognized as revenue ratably over an extended period.
Monthly license revenue increased $7.8 million, or 11%, during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in decreased monthly license revenue of $0.4 million during the year ended December 31, 2017. Total monthly license revenue was $0.4 million lower for the year ended December 31, 2017, compared to the same period in 2016 due to the impact of certain foreign currencies weakening against the U.S. dollar. Excluding the impact of CFS and foreign currency, monthly license revenue for the year ended December 31, 2017, increased $8.5 million, or 12%, compared to the same period in 2016.
The increase in monthly license revenue is primarily attributable to the timing and relative size of license renewal arrangements that were signed during the years ended December 31, 2016 and 2017.
Maintenance Revenue
Maintenance revenue decreased $11.4 million, or 5%, during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in decreased maintenance revenue of $0.4 million during the year ended December 31, 2017. Total maintenance revenue was $0.3 million higher for the year ended December 31, 2017, as compared to the same period in 2016 due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, total maintenance revenue for the year ended December 31, 2017, decreased $11.3 million, or 5%, compared to the same period in 2016.
The decrease in maintenance revenue is primarily attributable to the recognition of cumulative deferred maintenance revenue for certain customer contracts due to meeting required revenue recognition criteria during the year ended December 31, 2016, and certain customers electing to cancel premium maintenance prior to the year ended December 31, 2017. These decreases were partially offset by maintenance revenue from sales of licensed products to new and existing customers prior to and during the year ended December 31, 2017.
Services Revenue
Services revenue decreased $4.1 million, or 5%, during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in decreased services revenue of $1.1 million during the year ended December 31, 2017. Total services revenue was $0.6 million higher for the year ended December 31, 2017, as compared to the same period in 2016 due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, total services revenue for the year ended December 31, 2017, decreased $3.5 million, or 4%, compared to the same period in 2016.
During the year ended December 31, 2016,2021, we completed or neared completion of several large, complex projects that resulted in recognition of services revenue as the work was performed and the projects were completed. The number and magnitude of such projects was lower during the year ended December 31, 2017. Additionally, our customers continue to transition fromon-premise toon-demand software solutions. Services work performed in relation to ouron-demand software solutions is recognized over a longer service period and is classified as SaaS and PaaS revenue.
Operating Expenses
Total operating expenses during the year ended December 31, 2017, increased $3.5 million as compared to the same period in 2016, excluding the gain on sale of CFS assets.
The CFS divestiture resulted in a $15.2 million decrease in total operating expenses for the year ended December 31, 2017, compared to the same period in 2016. In the year ended December 31, 2017, there was $46.7 million of expense recorded in relation to the BHMI judgment. Total operating expenses were $2.1 million higher for the year ended December 31, 2017, compared to the same period in 2016, due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS, the BHMI judgment, and foreign currency, operating expenses decreased $30.1 million, or 3%, for the year ended December 31, 2017, compared to the same period in 2016, principally reflecting decreases in research and development expense and selling and marketing expense, partially offset by an increase in cost of revenue, general and administrative expense, and depreciation and amortization expense.
Cost of Revenue
Cost of revenue increased $7.4 million, or 2%, during the year ended December 31, 2017, compared to the same period in 2016. The CFS divestiture resulted in a decrease of $10.4 million in cost of revenue for the year ended December 31, 2017. Cost of revenue was approximately $0.2 million higher due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, cost of revenue increased $17.6 million, or 4%, for the year ended December 31, 2017, compared to the same period in 2016, primarily due to a $19.8 million increase in payment card interchange and processing fees.
Research and Development
Research and development expense decreased $33.0 million, or 19%, during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in a decrease of $1.6 million in research and development expense for the year ended December 31, 2017. Research and development expenses were $1.0 million higher for the year ended December 31, 2017, compared to the same period in 2016, due to the
impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, research and development expenses decreased $32.4 million, or 19%, for the year ended December 31, 2017, compared to the same period in 2016, primarily due to a decrease in personnel and related expenses, including a $12.3 million decrease in stock-based compensation. Research and development costs were also lower due to a $4.1 million increase in net deferred expenses and a $2.5 million decrease in third-party contractor costs.
Selling and Marketing
Selling and marketing expense decreased $10.2 million, or 9%, during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in a decrease of $1.6 million in selling and marketing expense for the year ended December 31, 2017. Selling and marketing expense was $0.1 million higher for the year ended December 31, 2017, as compared to the same period in 2016, due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, selling and marketing expense decreased $8.7 million, or 7%, for the year ended December 31, 2017, compared to the same period in 2016, primarily due to a decrease in personnel and related expenses as a result of a decrease in new bookings and a $4.0 million decrease in stock-based compensation expense.
General and Administrative
General and administrative expense increased $39.4 million, or 35%, during the year ended December 31, 2017, as compared to the same period in 2016. For the year ended December 31, 2017, $46.7 million of expense was recorded in relation to the BHMI judgment. The CFS divestiture resulted in a decrease in general and administrative expenses of $1.0 million for the year ended December 31, 2017. General and administrative expense was approximately $0.6 million higher for the year ended December 31, 2017, as compared to the same period in 2016, due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS, the BHMI judgment, and foreign currency, general and administrative expense decreased $6.9 million, or 6%, for the year ended December 31, 2017, compared to the same period in 2016.
Gain on Sale of CFS Assets
On March 3, 2016, we completed the sale of our CFS related assets and liabilities to Fiserv for $200.0 million and recognized apre-tax gain of $151.5 million for the year ended December 31, 2016.
Depreciation and Amortization
Depreciation and amortization decreased $0.1 million during the year ended December 31, 2017, as compared to the same period in 2016. The CFS divestiture resulted in a $0.6 million decrease in depreciation and amortization for the year ended December 31, 2017. Depreciation and amortization expense were approximately $0.2 million higher for the year ended December 31, 2017, as compared to the same period in 2016, due to the impact of foreign currencies strengthening against the U.S. dollar. Excluding the impact of CFS and foreign currency, depreciation and amortization expense increased $0.3 million for the year ended December 31, 2017, compared to the same period in 2016.
Other Income and Expense
Interest expense for the year ended December 31, 2017, decreased $1.2 million, or 3%, as compared to the same period in 2016 primarily due to lower comparative debt balances. Interest income was flat year over year.
Other, net consists of foreign currency gain (loss). Foreign currency gain (loss) for the years ended December 31, 2017 and 2016, were a $2.6 million loss and a $4.1 million gain, respectively.
Income Taxes
On December 22, 2017, the Tax Act was signed into U.S. law, which made broad and complex changes to the U.S. tax code affecting 2017 and later years. On December 22, 2017, the SEC staff issued SAB 118, providing guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740,Income Taxes.
The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. We recorded a $15.0 million provisional tax charge for the year ended December 31, 2017, resulting from remeasuring net deferred tax assets and liabilities. We also recorded a $20.9 million provisional tax charge for the year ended December 31, 2017, related to aone-time transition tax on certain unremitted foreign earnings as required by the Tax Act.
The effective tax rates for the years ended December 31, 2017 and 2016, were approximately 88% and 30%, respectively. The effective tax rates vary from our federal statutory rates due to operating in multiple foreign countries where we apply foreign tax laws and rates which differ from those we apply to the income generated from our domestic operations. Of the foreign jurisdictions in which we operate, our December 31, 2017 and 2016, effective tax rates were most impacted by our operations in Ireland, South Africa, and the United Kingdom. Excluding the impact of the Tax Act, the effective tax rate for the year ended December 31, 2017, was increased by the inclusion of certain foreign earnings in our U.S. tax return, offset by the tax benefit from foreign operations that are taxed at lower rates than the domestic rate, The effective tax rate for the year ended December 31, 2016, was increased by the inclusion of certain foreign earnings in our U.S. tax return, offset by the tax benefit from foreign operations that are taxed at lower rates than the domestic rate. The effective tax rate for the year ended December 31, 2016, was also reduced by net release of $9.0 million in valuation allowance primarily related to U.S. foreign tax credits.
Segment Results
We report financial performance based on our new segments, ACI On PremiseBanks, Merchants, and ACI On Demand,Billers, and analyze Segment Adjusted EBITDA as a measure of segment profitability.
Our Chief Executive Officer is also our
chief operating decision maker, or CODM. The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from
the corporate operations.
No operating segments have been aggregated to form the reportable segments.
Banks. ACI On Premise servesprovides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands.
Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who manage their software on site. Theseon-premise customers use the Company’s software to develop sophisticated solutions, which are often part of a larger system located and managed at the customer specified site.service them. These customers require a level of control and flexibility that ACI On Premise solutions can offer, and they have the resources and expertise to take a lead role in managing these solutions.ACI On Demand serves the needs of banks, merchants and corporates who use payments to facilitate their core business. Theseon-demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-tenant environment, SaaS offerings, oroperate in a multi-tenant environment, PaaS offerings.
variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. Our solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop.
Billers. Within the biller segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue.
Revenue is attributed to the reportable segments based upon the product sold and mechanism for delivery to the customer. Expenses are attributed to the reportable segments in one of three methods, (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual products,projects, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities as well as information technology and facilities related expense for which multiple segments benefit. The Company also allocates certain depreciation costs to the segments.activities.
Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’sour segments and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280,Segment Reporting. Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude stock-based compensation, and net other income (expense). During the first quarter of 2018, we changed the presentation of our segment measure of profit and loss. As a result, the 2017 and 2016 segment disclosures have been recast to conform with the 2018 presentation.
Corporate and unallocated expenses
consists ofincludes global facilities and information technology costs and long-term product roadmap expenses in addition to the corporate overhead costs that are not allocated to reportable segments.
TheseThe overhead costs relate to human resources, finance, legal, accounting,
and merger and acquisition
activity,activity. These costs along with depreciation and
other costs thatamortization and stock-based compensation are not considered when management evaluates segment performance.
The following is selected financial data for
the Company’sour reportable segments for the periods indicated (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Revenues | | | | | | | | | | | | |
ACI On Premise | | $ | 576,755 | | | $ | 598,590 | | | $ | 591,252 | |
ACI On Demand | | | 433,025 | | | | 425,601 | | | | 399,033 | |
Corporate and other | | | — | | | | — | | | | 15,416 | |
| | | | | | | | | | | | |
Total revenue | | $ | 1,009,780 | | | $ | 1,024,191 | | | $ | 1,005,701 | |
| | | | | | | | | | | | |
Segment Adjusted EBITDA | | | | | | | | | | | | |
ACI On Premise | | $ | 323,902 | | | $ | 347,094 | | | $ | 312,188 | |
ACI On Demand | | | 12,015 | | | | (1,832 | ) | | | (2,624 | ) |
Depreciation and amortization | | | (97,350 | ) | | | (102,224 | ) | | | (103,454 | ) |
Stock-based compensation expense | | | (20,360 | ) | | | (13,683 | ) | | | (43,613 | ) |
Corporate and unallocated expenses | | | (92,296 | ) | | | (144,715 | ) | | | 58,633 | |
Interest, net | | | (30,388 | ) | | | (38,449 | ) | | | (39,654 | ) |
Other, net | | | (3,724 | ) | | | (2,619 | ) | | | 4,105 | |
| | | | | | | | | | | | |
Income before income taxes | | $ | 91,799 | | | $ | 43,572 | | | $ | 185,581 | |
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
ACI On Premise | | $ | 11,634 | | | $ | 13,094 | | | $ | 14,581 | |
ACI On Demand | | | 31,541 | | | | 34,171 | | | | 29,385 | |
Corporate | | | 54,175 | | | | 54,959 | | | | 59,488 | |
| | | | | | | | | | | | |
Total depreciation and amortization | | $ | 97,350 | | | $ | 102,224 | | | $ | 103,454 | |
| | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | |
ACI On Premise | | $ | 4,348 | | | $ | 2,234 | | | $ | 6,894 | |
ACI On Demand | | | 4,338 | | | | 2,230 | | | | 6,876 | |
Corporate and other | | | 11,674 | | | | 9,219 | | | | 29,843 | |
| | | | | | | | | | | | |
Total stock-based compensation expense | | $ | 20,360 | | | $ | 13,683 | | | $ | 43,613 | |
| | | | | | | | | | | | |
ACI On Premise
| | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | |
| Revenues | | | | | |
| Banks | $ | 625,125 | | | $ | 558,498 | | | |
| Merchants | 152,988 | | | 149,342 | | | |
| Billers | 592,485 | | | 586,482 | | | |
| Total revenue | $ | 1,370,598 | | | $ | 1,294,322 | | | |
| Segment Adjusted EBITDA | | | | | |
| Banks | $ | 372,949 | | | $ | 331,445 | | | |
| Merchants | 54,266 | | | 53,383 | | | |
| Billers | 129,048 | | | 135,144 | | | |
| Depreciation and amortization | (133,393) | | | (140,316) | | | |
| Stock-based compensation expense | (27,242) | | | (29,602) | | | |
| Corporate and unallocated expenses | (185,731) | | | (205,310) | | | |
| Interest, net | (33,538) | | | (45,002) | | | |
| Other, net | (1,294) | | | (1,116) | | | |
| Income before income taxes | $ | 175,065 | | | $ | 98,626 | | | |
Banks Segment Adjusted EBITDA decreased $23.2increased $41.5 million for the year ended December 31, 2018,2021, compared to the same period in 2017. The application of ASC 606 resulted in a $3.8 million decrease in Segment Adjusted EBITDA. Excluding the impact of applying ASC 606, ACI On Premise Segment Adjusted EBITDA decreased $19.4 million2020, primarily due to a $18.5 million decrease in revenue and a $1.6$66.6 million increase in revenue, partially offset by a $25.1 million increase in cash operating expenses.expense.
Merchants Segment Adjusted EBITDA increased
$13.8$0.9 million for the year ended December 31,
2018,2021, compared to the same period in
2017. The application of ASC 606 resulted in a $3.6 million decrease in Segment Adjustment EBITDA. Excluding the impact of applying ASC 606, ACI On Demand Segment Adjusted EBITDA increased $17.5 million2020, primarily due to a
$6.5$3.6 million increase in
revenues andrevenue, partially offset by a
$11.4$2.7 million
decreaseincrease in
cash operating
expenses.ACI On Premiseexpense.
Billers Segment Adjusted EBITDA increased $34.9decreased $6.1 million for the year ended December 31, 2017,2021, compared to the same period in 2016,2020, primarily due to a $19.7$12.1 million increase in license revenue,cash operating expense, partially offset by a $11.4$6.0 million decreaseincrease in maintenance revenue, and a $27.7 million decreaserevenue.
Prior Year Results
For discussion of 2020 compared to 2019, see Segment Results in operating expenses.ACI On Demand Segment Adjusted EBITDA increased $0.8 millionPart II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2017, compared to the same period in 2016, primarily due to a $26.6 million increase in revenue, offset by a $25.9 million increase in operating expenses.
Corporate and unallocated expenses included 1) the BHMI judgment of $46.7 million recognized during the year ended December 31, 2017, and 2) revenue and operating income and the gain on sale of CFS assets and liabilities of $15.4 million and $151.7 million, respectively, recognized during the year ended December 31, 2016.
2020.
Liquidity and Capital Resources
Our primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet the interest and principal requirements of our outstanding indebtedness; and (iii) to fund acquisitions, capital expenditures, and lease payments. We believe these needs will be satisfied using cash flow generated by our operations, cash and cash equivalents, and available borrowings under our revolving credit
facility.Available Liquidity
The following table sets forthfacility over the next 12 months and beyond.
Our cash requirements in the future may be financed through additional equity or debt financings. However, the disruption in the capital markets caused by the COVID-19 pandemic could make any new financing more challenging, and there can be no assurance that such financings will be obtained on commercially reasonable terms, or at all. We believe our available liquidity will allow us to manage the anticipated impact of COVID-19 on our business operations for the periods indicated (in thousands): | | | | | | | | |
| | | December 31, | |
| | | 2018 | | | 2017 | |
Cash and cash equivalents | | $ | 148,502 | | | $ | 69,710 | |
Availability under revolving credit facility | | | 500,000 | | | | 498,000 | |
| | | | | | | | |
Total liquidity | | $ | 648,502 | | | $ | 567,710 | |
| | | | | | | | |
The increaseforeseeable future, which could include reductions in totalrevenue and delays in payments from customers and partners. We are compliant with our debt covenants and do not anticipate an inability to service our debt. As the challenges posed by COVID-19 on our business and the economy as a whole evolve, we continue to evaluate our liquidity is primarily attributableand financial position in light of further developments, particularly those relating to positive operating cash flows of $183.9 million, offset by repurchases of common stock of $54.5 million and $43.9 million of payments to purchase property and equipment and software and distribution rights.
COVID-19
.
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of December 31, 2018,2021, we had $148.5$122.1 million inof cash and cash equivalents, of which $80.8$59.7 million was held by our foreign subsidiaries. If these funds were needed for our operations in the U.S.,United States, we may potentially be required to accrue and pay foreign and U.S. state income taxes to repatriate these funds. As of December 21, 2018, we considered31, 2021, only the earnings in our Indian foreign subsidiaries to beare indefinitely reinvested. We consider theThe earnings of all other foreign entities to beare no longer indefinitely reinvested. In additional to the Indian foreign earnings, weWe are also permanently reinvested for outside book/tax basis differencedifferences related to foreign subsidiaries. These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of December 31, 2018.2021.
Available Liquidity
The following table sets forth our available liquidity for the periods indicated (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Cash and cash equivalents | $ | 122,059 | | | $ | 165,374 | |
| Availability under revolving credit facility | 498,500 | | | 443,500 | |
| Total liquidity | $ | 620,559 | | | $ | 608,874 | |
The increase in total liquidity is primarily attributable to positive operating cash flows of $220.5 million, partially offset by $45.4 million of payments to purchase property and equipment and software and distribution rights, $39.0 million of repayments on the Term Loans and $107.4 million of payments related to stock repurchases. We also repaid a net $55.0 million on the Revolving Credit Facility.
The Company and ACI Payments, Inc., a wholly owned subsidiary, maintain a $75.0 million uncommitted overdraft facility with Bank of America, N.A. The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process. As of December 31, 2021, the full $75.0 million was available.
Stock Repurchase Program
Our board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorizes additional funds for the program. In December 2021, the board approved the repurchase of the Company's common stock of up to $250.0 million, in place of the remaining purchase amounts previously authorized.
We repurchased 3,000,000 shares for $107.4 million under our stock repurchase program during the year ended December 31, 2021. Under the program to date, we have repurchased 49,357,495 shares for approximately $719.7 million. As of December 31, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $216.3 million.
Subsequent to December 31, 2021, the Company has repurchased additional shares under the repurchase program.
Our stock repurchase authorization does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, cash requirements for acquisitions, debt repayment obligations, our stock price, and global economic and market conditions. Our stock repurchases may be affected from time to time through open market purchases and pursuant to a Rule 10b5-1 plan and they may be accelerated, suspended, delayed or discontinued at any time. See Note 7, Common Stock and Treasury Stock, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.
The following table sets forth summary cash flow data for the periods indicated (in thousands).
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Net cash provided by (used in): | | | | | | | | | | | | |
Operating activities | | $ | 183,932 | | | $ | 146,197 | | | $ | 99,830 | |
Investing activities | | | (45,360 | ) | | | (54,414 | ) | | | 129,633 | |
Financing activities | | | (57,704 | ) | | | (98,148 | ) | | | (251,076 | ) |
2018 compared to 2017
| | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| Net cash provided by (used in): | | | |
| Operating activities | $ | 220,473 | | | $ | 314,895 | |
| Investing activities | (45,368) | | | (30,699) | |
| Financing activities | (256,878) | | | (159,889) | |
Cash
FlowFlows from Operating Activities
Net
The primary source of operating cash flows is cash collections from our customers for purchase and renewal of licensed software products and various services including software and platform as a service, maintenance, and other professional services. Our primary uses of operating cash flows includes employee expenditures, taxes, interest payments, leased facilities,
Cash flows provided by operating activities
were $94.4 million lower for the year ended December 31,
2018, was $183.9 million compared to $146.2 million during the same period in 2017. The comparative period increase was primarily due to the payment of the BHMI judgment in 2017 that did not repeat in 2018, as well as timing of customer billings and receipts for the year ended December 31, 2018,2021, compared to the same period in
2017.2020, due to the timing of working capital. Our current policy is to use our operating cash flow primarily for funding capital expenditures, lease payments, stock repurchases, and acquisitions.
Cash
FlowFlows from Investing Activities
Net
The changes in cash flows used byfrom investing activities forprimarily relate to the timing of our purchases and investments in capital and other assets, including strategic acquisitions, that support our growth.
During the year ended December 31,
2018, was $45.4 million compared to $54.4 million during the same period in 2017. During 2018,2021, we used
cash of $43.9$45.4 million to purchase software, property, and equipment,
as compared to
$54.4$46.6 million during the same period in
2017.2020.
Cash
FlowFlows from Financing Activities
Net
The changes in cash flows used byfrom financing activities forprimarily relate to borrowings and repayments related to our debt instruments and other debt, stock repurchases, and net proceeds related to employee stock programs.
During 2021, we repaid a net $55.0 million on the
year ended December 31, 2018, was $57.7Revolving Credit Facility and $39.0 million
comparedon the Term Loans. In addition, we used $107.4 million to
$98.1 million during the same period in 2017. During 2018,repurchase common stock and we received proceeds of
$400.0$12.3 million from the
issuance of the 2026 Notes. We used $300.0 million of the proceeds to redeem, in full, the Company’s outstanding 6.375% Senior Notes due 2020 (“2020 Notes”) and repaid $109.3 million on the Term Credit Facility. In addition, during 2018, we received proceeds of $22.8 million from the exercisesexercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan,
andas amended. We also used
$2.6$14.8 million for the repurchase of
restricted stockstock-based compensation awards for tax
withholdings.withholdings and $37.8 million for settlement assets and liabilities due to processing timing. During
2018,2020, we
also used $54.5 million to repurchase common stock. During 2017, we received net proceeds of $29.0 million on the Term Credit Facility and repaid a net
of $86.0$184.0 million on the Revolving Credit
Facility.Facility and $39.0 million on the Term Loans. In addition,
during 2017, we used
$37.4$28.9 million to repurchase
shares of common
stock. During 2017,stock, and we
also received proceeds of
$16.8$15.7 million from the
exercisesexercise of stock options and
the issuance of common stock under our 2017 Employee Stock Purchase Plan,
andas amended. We also used
$5.3$11.6 million for the repurchase of
restricted stockstock-based compensation awards for tax
withholdings.2017withholdings and received $101.7 million from settlement assets and liabilities due to processing timing.
Prior Year Results
For discussion of 2020 compared to 2016Cash Flow from Operating Activities
Net cash flows provided by operating activities2019, see
Liquidity and Capital Resources in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2017, was $146.2 million compared to $99.8 million during the same period in 2016. The comparative period increase was primarily due to the timing of customer billings and receipts for the year ended December 31, 2017, compared to the same period in 2016.2020. Cash Flow from Investing Activities
During 2017, we used cash of $54.4 million to purchase software, property and equipment compared to $63.1 million during the same period in 2016. During 2016, we received net proceeds of $199.5 million from the sale of the CFS related assets and liabilities.
Cash Flow from Financing Activities
Net cash flows used by financing activities for the year ended December 31, 2017, was $98.1 million compared to $251.1 million during the same period in 2016. During 2017, we received net proceeds of $29.0 million on the Term Credit Facility and repaid a net of $86.0 million on the Revolving Credit Facility. We used $37.4 million to repurchase shares of common stock during the year ended December 31, 2017. In addition, during the year ended December 31, 2017, we received proceeds of $16.8 million from the exercises of stock options and issuance of common stock under our 2017 Employee Stock Purchase Plan, and used $5.3 million for the repurchase of restricted stock for tax withholdings. During 2016, we used the proceeds from the CFS divestiture to partially fund the repayment of $166.0 million on the revolver portion of the Credit Facility and $95.3 million of the term portion of the Credit Facility. Additionally, we used $60.1 million to repurchase shares of common stock during the year ended December 31, 2016. In addition, during the year ended December 31, 2016, we received proceeds of $12.3 million from the exercises of stock options and the issuance of common stock under our 1999 Employee Stock Purchase Plan, as amended, and used $3.0 million for the repurchase of restricted stock and performance shares for tax withholdings.
Debt
Credit Agreement
As of December 31, 2018, we had $285.0 million outstanding under our Term Credit Facility, with up to $500.0 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended. The amount of unused borrowings available varies in accordance with the terms of the agreement. The Credit Agreement contains certain affirmative and negative covenants, including limitations on the incurrence of indebtedness, asset dispositions, acquisitions, investments, dividends, and other restricted payments, liens, and transactions with affiliates. The Credit Agreement also contains financial covenants related to the maximum permitted leverage ratio and the minimum interest coverage ratio. The facility does not contain any subjective acceleration features, does not have any required payment or principal reduction schedules, and is included as a long-term liability in our consolidated balance sheet. At December 31, 2018, (and at all times during this period) we were in compliance with our debt covenants. The interest rate in effect at December 31, 2018, was 4.27%.
Senior Notes
On August 21, 2018, we completed a $400.0 million offering of the 2026 Notes at an issue price of 100% of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750%, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2019. Interest accrued from August 21, 2018. The 2026 Notes will mature on August 15, 2026.
We used the net proceeds of the offering described above to redeem, in full, our outstanding 2020 Notes, including accrued interest, and repaid a portion of the outstanding amount under the Term Credit Facility.
Stock Repurchase Program
In 2005, our board approved a stock repurchase program authorizing us, as market and business conditions warrant, to acquire our common stock and periodically authorize additional funds for the program. In February 2018, the board approved the repurchase of up to $200.0 million of our common stock in place of the remaining purchase amounts previously authorized.
We repurchased 2,346,427 shares for $54.5 million under the program during the year ended December 31, 2018. Under the program to date, we have repurchased 44,129,393 shares for approximately $547.8 million. As of December 31, 2018, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $176.6 million.
There is no guarantee as to the exact number of shares we will repurchase. Repurchased shares are returned to the status of authorized but unissued shares of common stock. In March 2005, our board approved a plan underRule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of shares of common stock under the existing stock repurchase program. Under our Rule10b5-1 plan, we have delegated authority over the timing and amount of repurchases to an independent broker who does not have access to inside information about the Company. Rule10b5-1 allows us, through the independent broker, to purchase shares at times when we ordinarily would not be in the market because of self-imposed trading blackout periods, such as the time immediately preceding the end of the fiscal quarter through a period of three business days following our quarterly earnings release.
Contractual Obligations and Commercial Commitments
We lease office space and equipment under operating leases that run through October 2028. Additionally, we have entered into a Credit Agreement that matures in 2022 and have issued Senior Notes that mature in 2026.
Contractual
Our largest contractual obligations as of December 31, 2018,2021, include the following:
•principal payments related to our Credit Agreement that are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | Total | | | Less than
1 year | | | 1-3 years | | | 3-5 years | | | More than
5 years | |
Operating lease obligations | | $ | 77,578 | | | $ | 16,925 | | | $ | 24,750 | | | $ | 14,707 | | | $ | 21,196 | |
Term credit facility | | | 284,959 | | | | 23,747 | | | | 55,409 | | | | 205,803 | | | | — | |
Senior notes | | | 400,000 | | | | — | | | | — | | | | — | | | | 400,000 | |
Term credit facility interest (1) | | | 33,659 | | | | 11,788 | | | | 20,406 | | | | 1,465 | | | | — | |
Senior notes interest (2) | | | 172,500 | | | | 23,000 | | | | 46,000 | | | | 46,000 | | | | 57,500 | |
Financed internally used software (3) | | | 9,376 | | | | 2,500 | | | | 4,688 | | | | 2,188 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 978,072 | | | $ | 77,960 | | | $ | 151,253 | | | $ | 270,163 | | | $ | 478,696 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Based upon the Credit Facility debt outstanding and interest rate in effect at December 31, 2018, of 4.27%.
|
| (2) | Based upon 2026 Notes issued of $400.0 million with an annual interest rate of 5.750%.
|
| (3) | During the year ended December 31, 2018, we financed certain internally-used software multi-year license agreements for $11.9 million with annual payments through June 2023. As of December 31, 2018, $9.4 million is outstanding, of which $2.5 million and $6.9 million is included in other current liabilities and other noncurrent liabilities, respectively, in our consolidated balance sheet as of December 31, 2018.
|
We are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes under ASC 740,Income Taxes. The liability for unrecognized tax benefits at December 31, 2018, is $28.4 million.
Off-Balance Sheet Arrangements
Settlement Accounts
We enter into agreements with certain clients to process payment funds on their behalf. When an automated clearing house or automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account, which is a trust
account maintained for the benefit of our clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back” transactions are designed to settle at the same time, usually overnight, such that we receive the funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the benefit of our clients which are separate from our corporate assets. As we do not take ownership of the funds, the settlement accounts are not included in our consolidated balance sheet. We are entitled tosheet and the related periodic interest earnedpayments;
•semi-annual interest payments on our 2026 Notes and the fund balances. The collection of interest on these settlement accountsultimate principal payment that is consideredincluded in our determination ofconsolidated balance sheet;
•scheduled payments related to liabilities for certain multi-year license agreements for internal-use software that are included in our fee structure for clients and represents a portion of the payment for services performed by us. The amount of settlement funds as of December 31, 2018 and 2017, were $256.5 million and $238.9 million, respectively.We do not have any otherconsolidated balance sheet;
•operating lease obligations that meet the definition of anoff-balance sheet arrangementare included in our consolidated balance sheet; and
•other contractual commitments associated with agreements that are enforceable and legally binding.
In addition, we have or are reasonably likely to have a material effectgross unrecognized income tax benefits, including related interest and penalties, recorded on our consolidated financial statements.balance sheet, the nature of which is uncertain with respect to settlement or release with the relevant tax authorities. See Note 11,
Income Taxes, of our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.
Notes 4, Debt, 12, Leases, and 13, Commitments and Contingencies, of our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K provide additional information regarding our contractual obligations and contingencies.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be proper and reasonable under the circumstances. We continually evaluate the appropriateness of estimates and assumptions used in the preparation of our consolidated financial statements. Actual results could differ from those estimates.
The following key accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the consolidated financial statements. See Note 1,Nature of Business and Summary of Significant Accounting Policies, in the and Note 2, Revenue, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for a further discussion of revenue recognition and other significant accounting policies.policies and revenue recognition.
In accordance with ASC 606, Revenue From Contracts with Customers, revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expectswe expect to be entitled to receive in exchange for those products and services.The Company’s
Our software license arrangements provide the customer with the right to use functional intellectual property for the duration of the contract term. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software
license unless these services are determined to significantly modify the software.license. Significant judgment is required to determine the stand-alone selling price (“SSP”) for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that
the Company expectswe expect to be entitled to receive in exchange for the related product and/or service. As the selling prices of
the Company’sour software licenses are highly variable,
the Company estimateswe estimate SSP of
itsour software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services.
The Company usesWe use a range of amounts to estimate SSP for maintenance and services. These ranges are based on
standalonestand-alone sales and vary based on the type of service and geographic region. If the SSP of a performance obligation is not directly observable,
the Companywe will maximize observable inputs to determine its SSP.
When a software license arrangement contains payment terms that are extended beyond one year, a significant financing component may exist. The significant financing component is calculated as the difference between the stated value and present value of the software license fees and is recognized as interest income over the extended payment period. Judgment is used in determining: (1) whether the financing component in a software license agreement is significant and, if so, (2) the discount rate used in calculating the significant financing component.
We assess the significance of the financing component based on the ratio of license fees paid over time to total license fees. If determined to be significant, the financing component is calculated using a rate that discounts the license fees to the cash selling price.
The Company’s
Our SaaS-based and PaaS-based arrangements represent a single promise to provide continuous access to its software solutions and their processing capabilities in the form of a service through one of
the Company’sour data centers. These arrangements may include fixed and/or variable consideration. Fixed consideration is recognized over the term of the arrangement and variable consideration, which is a function of transaction volume or another usage-based measure, generally meets the
direct allocation
methodobjective and revenue is recognized as the usage occurs.
The Company applies
We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the creditworthiness of the customer, economic conditions in the customer’s industry and geographic location, and general economic conditions.
Certain of our arrangements are through unrelated distributors or sales agents. For software license arrangements in which
the Company actswe act as a distributor of another company’s product, and in certain circumstances,
modifiesmodify or
enhancesenhance the product, revenues are recorded on a gross basis. These include arrangements in which
the Company takeswe take control of the products and
isare responsible for providing the product or service. For software license arrangements in which
the Company actswe act as a sales agent for another company’s product, revenues are recorded on a net basis. Judgment is required in evaluating the facts and circumstances of our relationship with the distributor or sales agent as well as our operating history and practices that can impact the timing of revenue recognition related to these arrangements. For software license arrangements in which
the Company utilizeswe utilize a third-party distributor or sales agent,
the Company recognizeswe recognize revenue upon transfer of control of the software license(s) to the third-party distributor or sales agent.
We may execute more than one contract or agreement with a single
customer.customer at or near the same time. The separate contracts or agreements may be viewed as one combined arrangement or separate agreements for revenue recognition purposes. We evaluate whether the agreements were negotiated as a package with a single commercial objective, whether the products or services promised in the agreements represent a single performance obligation, or whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement to reach appropriate conclusions regarding whether such arrangements are related or separate. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
Allowance for Doubtful Accounts
We maintain a general allowance for doubtful accounts based on our historical experience, along with additional customer-specific allowances. We regularly monitor credit risk exposures in our consolidated receivables. In estimating the necessary level of our allowance for doubtful accounts, management considers the aging of our accounts receivable, the creditworthiness of our customers, economic conditions within the customer’s industry, and general economic conditions, among other factors. Should any of these factors change, the estimates made by management would also change, which in turn would impact the level of our future provision for doubtful accounts. Specifically, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, additional customer-specific provisions for doubtful accounts may be required. Also, should deterioration occur in general economic conditions, or within a particular industry or region in which we have a number of customers, additional provisions for doubtful accounts may be recorded to reserve for potential future losses. Any such additional provisions would reduce operating income in the periods in which they were recorded.
Intangible Assets and Goodwill
Our business acquisitions typically result in the recording of intangible assets. As of December 31, 20182021 and 2017,2020, our intangible assets, excluding goodwill, net of accumulated amortization, were $168.1$283.0 million and
$191.3 $322.0 million, respectively. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect the consolidated financial statements. We assess potential impairments to intangible assets when there is evidence that events or changes in circumstances indicate the carrying amount of an asset may not be recovered. Judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of our businesses, market conditions, and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions used, including estimates of future cash flows, volumes, market penetration and discount rates, are consistent with our internal planning. If these estimates or their related assumptions change in the future, we may be required to record an impairment charge on all or a portion of our intangible assets. Furthermore, we cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on our reported asset values. Future events could cause us to conclude that impairment indicators exist and that intangible assets associated with acquired businesses are impaired. Any resulting impairment loss could have an impact on our results of operations.
Other intangible assets are amortized using the straight-line method over periods ranging from
three yearsfour to 20 years.
As of December 31, 20182021 and 2017,2020, our goodwill was $909.7 million.$1.3 billion. In accordance with ASC 350,Intangibles – Goodwill and Other,we assess goodwill for impairment annually during the fourth quarter of our fiscal year using October 1 balances, or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. We evaluate goodwill at the reporting unit level and have identified our reportable segments, ACI On PremiseBanks, Merchants, and ACI On Demand,Billers, as our reporting units. Recoverability of goodwill is measured using a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow valuation model is common practice in impairment testing in the absence of available transactional market evidence to determine the fair value.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections, and terminal value rates. Discount rates, growth rates, and cash flow projections are the most sensitive and susceptible to change, as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data, as well as Company-specific risk factors. Operational management, considering industry and Company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. If the calculated fair value is less than the current carrying value, impairment of the reporting unit may exist. The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to
athe reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded to write down the carrying value. The calculated fair value substantially exceeds the current carrying value for all reporting units. No reporting units were deemed to be at risk of failing Step 1 of the goodwill impairment test under ASC 350.
We apply the provisions of ASC 805,Business Combinations, in the accounting for our acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships, covenants not to compete, and acquired developed technologies; brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in our product portfolio; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.
On
March 23, 2016,June 9, 2020, upon recommendation of our board,
stockholders approved the
2016ACI Worldwide, Inc. 2020 Equity and
Performance Incentive
Compensation Plan (the
“2016 Incentive“2020 Plan”). The
2016 Incentive2020 Plan authorizes the board to provide for equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, our common stock ("awards"). The purpose of the 2020 Plan is
intended to meet our objective of balancing stockholder concerns about dilution with the need to provide
appropriate incentives
and rewards for service and/or performance by providing awards to
achieve Company performance objectives. The 2016 Incentive Plan was adopted by the stockholders on June 14, 2016.non-employee directors, officers, other employees, and certain consultants and other service providers of us and our subsidiaries. Following the
adoptionapproval of
the 2020 Plan, the 2016 Incentive Plan
the 2005 Equity and Performance Incentive Plan, as amended, (the “2005 Incentive Plan”) was terminated. Termination of the
20052016 Incentive Plan did not affect any equity awards outstanding under the
2016 Incentive Plan or 2005 Incentive Plan.
In accordance with ASC 718,Compensation – Stock Compensation, stock-based compensation expense for stock option awards is estimated at the grant date based on the award’s fair value, as calculated by the Black-Scholes option-pricing model, and is recognized as expense ratably over the requisite service period. The Black-Scholes option-pricing model requires various highly judgmental assumptions, including volatility and expected option life. If any assumptions used in the Black-Scholes option-pricing model change significantly, stock-based compensation expense may differ materially for future awards from that recorded for existing awards.
Supplemental stock options granted pursuant to the 2005 Incentive Plan were granted at an exercise price not less than the market value per share of our common stock on the date of grant. These options vest, if at all, based upon (i) tranche one – any time after the third anniversary date if the stock has traded at 133% of the exercise price for at least 20 consecutive trading days, (ii) tranche two – any time after the fourth anniversary date if the stock has traded at 167% of the exercise price for at least 20 consecutive trading days, and (iii) tranche three – any time after the fifth anniversary date if the stock has traded at 200% of the exercise price for at least 20 consecutive trading days. The employees must remain employed with us as of the anniversary date for supplemental stock options to vest. The exercise price of these options is the closing market price on the date the awards were granted. To determine the grant date fair value of the supplemental stock options, a Monte Carlo simulation model was used.
Long-term incentive program performance share awards (“LTIP performance shares”) are earned, if at all, based on the achievement over a specified period of performance goals related to certain performance metrics. We estimate the fair value of LTIPs based upon the market price of our stock on the date of grant. On a quarterly basis, management evaluates the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the consolidated financial statements.
Restricted share awards (“RSAs”) generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. Under each arrangement, shares are issued without direct cost to the employee. We estimate the fair value of RSAs based upon the market price of our stock on the date of grant. The RSA grants provide for the payment of dividends on our common stock, if any, to the participant during the requisite service period, and the participant has voting rights for each share of common stock.
Total shareholder return awards (“TSRs”) are performance shares that are earned, if at all, based upon our total shareholder return as compared to a group of peer companies over a three-year performance period. The award
payout can range from 0% to 200%. To determine the grant date fair value of TSRs, a Monte Carlo simulation model is used. We recognize compensation expense for the TSRs over a three-year performance period based on the grant date fair value.
Restricted share unit awards (“RSUs”) generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. Under each arrangement, RSUs are issued without direct cost to the employee on the vesting date. We estimate the fair value of RSUs based upon the market price of our stock on the date of grant. We recognize compensation expense for RSUs on a straight-line basis over the requisite service period.
The assumptions utilized in the Black-Scholes option-pricing and Monte Carlo simulation models, as well as the description of the plans the stock-based awards are granted under are described in further detail in Note 11,6,Stock-Based Compensation Plans, in theto our Notes to Consolidated Financial Statements.Statements in Part IV, Item 15 of this Form 10-K.
Accounting for Income Taxes
Accounting for income taxes requires significant judgments in the development of estimates used in income tax calculations. Such judgments include, but are not limited to, the likelihood we would realize the benefits of net operating loss carryforwards and/or foreign tax credit carryforwards, the adequacy of valuation allowances, and the rates used to measure transactions with foreign subsidiaries. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. The judgments and estimates used are subject to challenge by domestic and foreign taxing authorities.
We account for income taxes in accordance with ASC 740,Income Taxes. As part of our process of determining current tax liability, we exercise judgment in evaluating positions we have taken in our tax returns. We periodically assess our tax exposures and establish, or adjust, estimated unrecognized benefits for probable assessments by taxing authorities, including the IRS,Internal Revenue Service, and various foreign and state authorities. Such unrecognized tax benefits represent the estimated provision for income taxes expected to ultimately be paid. It is possible that either domestic or foreign taxing authorities could challenge those judgments or positions and draw conclusions that would cause us to incur tax liabilities in excess of, or realize benefits less than, those currently recorded. In addition, changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate.
To the extent recovery of deferred tax assets is not more likely than not, we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Although we have considered future taxable income along with prudent and feasible tax planning strategies in assessing the need for a valuation allowance, if we should determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to deferred tax assets would be charged to income in the period any such determination was made. Likewise, in the event we are able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to deferred tax assets would increase income in the period any such determination was made.
New Accounting Standards Recently Adopted
For information with respectrelated to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1,Nature of Business and Summary of Significant Accounting Policiesin the, to our Notes to Consolidated Financial Statements.Statements in Part IV, Item 15 of this Form 10-K.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Excluding the impact of changes in interest rates and the uncertainty in the global financial markets
and economy due to ongoing impacts of the COVID-19 pandemic, there have been no material changes to our market risk for the year ended December 31,
2018.2021. We conduct business in all parts of the world and are thereby exposed to market risks related to fluctuations in foreign currency exchange rates. The U.S. dollar is the single largest currency in which our revenue contracts are denominated. Any decline in the value of local foreign currencies against the U.S. dollar results in our products and services being more expensive to a potential foreign customer. In those instances where our goods and services have already been sold, receivables may be more difficult to collect. Additionally, in jurisdictions where the revenue contracts are denominated in U.S. dollars and operating expenses are incurred in the local currency, any decline in the value of the U.S. dollar will have an unfavorable impact to operating margins. At times, we enter into revenue contracts that are denominated in the country’s local currency, primarily in Australia, Canada, the United Kingdom,
and other European
countries.countries, Brazil, India, and Singapore. This practice serves as a natural hedge to finance the local currency expenses incurred in those locations. We have not entered into any foreign currency hedging transactions. We do not purchase or hold any derivative financial instruments for speculation or arbitrage.
The primary objective of our cash investment policy is to preserve principal without significantly increasing risk. If we maintained similar cash investments for a period of one year based on our cash investments and interest rates at December 31,
2018,2021, a hypothetical ten percent increase or decrease in effective interest rates would increase or decrease interest income by
approximatelyless than $0.1 million annually.
We had approximately
$685.0 million$1.1 billion of debt outstanding at December 31,
2018,2021, with
$400.0 million in Senior Notes and $285.0$678.2 million outstanding under our Credit
Facility.Facility and $400.0 million in 2026 Notes. Our Credit Facility has a floating rate, which was 2.10% at December 31, 2021. Our 2026 Notes are fixed-rate long-term debt obligations with a 5.750% interest rate.
Our Credit Facility has a floating rate, which was 4.27% at December 31, 2018. A hypothetical ten percent increase or decrease in effective interest rates would increase or decrease interest expense related to the Credit Facility by approximately
$1.2$1.4 million.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required consolidated financial statements and notes thereto are included in this annual report and are listed in Part IV, Item 15.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. | CONTROLS AND PROCEDURES
|
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision
of and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report, December 31,
2018.2021.
In connection with our evaluation of disclosure controls and procedures, we have concluded that our disclosure controls and procedures are effective as of December 31,
2018.2021.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. GAAP. Under the supervision of, and with the participation of our Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of internal control over financial reporting as of December 31, 2018.2021.
Management based its assessment on criteria established in “Internal Control Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31,
2018.2021.
The effectiveness of our internal control over financial reporting as of December 31,
2018,2021, has been audited by Deloitte & Touche, LLP, an independent registered public accounting firm, and Deloitte & Touche, LLP has issued an attestation report on our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
On October 1, 2018, as part of a phased implementation, we upgraded our financial enterprise resource planning (“ERP”) system, which required management to modify existing internal controls over financial reporting during the quarter ended December 31, 2018. This included modifications to our existing internal controls over billing and revenue recognition for a subset of our PaaS business. Management will continue to evaluate its internal control over financial reporting as the implementation of the financial ERP system is fully executed.
There have beenwere no additional changes during our quarter ended December 31, 2018, in our internal control over financial reporting (as defined inRules 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors
and Stockholders of
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ACI Worldwide, Inc. and subsidiaries (the “Company”) as of December 31, 2018,2021, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established inInternal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31,
2018,2021, of the Company and our report dated February
28, 2019,24, 2022, expressed an unqualified opinion on those financial
statements and included an explanatory paragraph regarding the Company’s adoption of FASB Accounting Standards Update2014-09,Revenue from Contracts with Customers, effective January 1, 2018.statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
February 28, 201924, 2022
ITEM 9B. | OTHER INFORMATION
|
ITEM 9B. OTHER INFORMATION
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information under the heading “Executive Officers of the Registrant” in Part 1, Item 1 of this Form
10-K is incorporated herein by reference.
The
other information required by this
item with respect to our directorsItem 10 is
included in the section entitled “Nominees” under “Proposal 1 – Election of Directors” inincorporated by reference from our Proxy Statement for the Annual Meeting of Stockholders to be held on June
11, 20191, 2022 (the
“2019“2022 Proxy
Statement”Statement“),
and is incorporated herein by reference.Information included inunder the sectionsections entitled “Section“Proposal 1 – Election of Directors,” “Information Regarding Security Ownership – Section 16(a) Beneficial Ownership Reporting Compliance” in our 2019 Proxy Statement is incorporated herein by reference.
Information related to the audit committee and the audit committee financial expert is included in the section entitled “Report of Audit Committee” in our 2019 Proxy Statement and is incorporated herein by reference. In addition, the information included in the sections entitled “Board Committees and Committee Meetings,Compliance,” “Shareholder Recommendations for Director Nominees,” and “Shareholder Nomination Process” within the “Corporate Governance” section of our 2018 Proxy Statement is incorporated herein by reference.
Code of Business Conduct and Code of Ethics
We have adopted aCorporate Governance – Code of Business Conduct and Ethics, for our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer,” and controller), and employees. We have also adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers (the “Code of Ethics”), which applies to our Chief Executive Officer, our Chief Financial Officer, our Chief Accounting Officer, Controller, and persons performing similar functions. The full text of both the Code of Business Conduct and Ethics and Code of Ethics is published on our website atwww.aciworldwide.com in the “Investors“Corporate Governance – Corporate Governance” section. We intend to disclose future amendments to, or waivers from, certain provisions of the Code of Business Conduct and Ethics and the Code of Ethics on our website promptly following the adoption of such amendment or waiver.
Board Committees.”ITEM 11. | EXECUTIVE COMPENSATION
|
ITEM 11. EXECUTIVE COMPENSATION
Information included in the sections entitled “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation,” and “Compensation Committee Interlocks and Insider Participation” in our
20192022 Proxy Statement is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information included in the sections entitled “Information Regarding Security Ownership” in our
20192022 Proxy Statement is incorporated herein by reference.
Information included in the section entitled “Information Regarding Equity“Equity Compensation Plans”Plan Information” in our 20192022 Proxy Statement is incorporated herein by reference.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information included in the section entitled “Certain Relationships and Related Transactions” in our
20192022 Proxy Statement is incorporated herein by reference.
Information included in the sections entitled “Director Independence” and “Board Committees and Committee Meetings” in the “Corporate Governance” section of our
20192022 Proxy Statement is incorporated by reference.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information included in the sections entitled “Independent Registered Public Accounting Firm Fees” and”Pre-Approval “Pre-Approval of Audit andNon-Audit Services” under “Proposal 2 – Ratification of Appointment of the Company’s Independent Registered Public Accounting Firm” in our 20192022 Proxy Statement is incorporated herein by reference.
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this annual report on Form
10-K:
(1) Financial Statements. The following index lists consolidated financial statements and notes thereto filed as part of this annual report on Form10-K:
(2) Financial Statement Schedules. All schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits. A list of exhibits filed or furnished with this report on Form10-K (or incorporated by reference to exhibits previously filed by ACI) is provided in the accompanying Exhibit Index.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors
and Stockholders of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ACI Worldwide, Inc. and subsidiaries (the “Company”) as of December 31,
20182021 and
2017,2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2018,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
20182021 and
2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2018,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2021, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2019,24, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.Change in Accounting Principle
As discussed in Note 1 to the financial statements, effective January 1, 2018, the Company adopted FASB Accounting Standards Update2014-09,Revenue from Contracts with Customers, using the modified retrospective approach.
These financial statements are the responsibility of the
Company’sCompany's management. Our responsibility is to express an opinion on the
Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company’s software license arrangements provide the customer with the right to use functional intellectual property (as it exists at the point in time at which the license is granted) for the duration of the contract term. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license.
Significant judgment is exercised by the Company in determining revenue recognition for these customer arrangements, and includes the following:
•Determination of the term of a software license arrangement when early termination rights are provided to the customer.
•Determination of whether products and/or services are considered distinct performance obligations that should be accounted for separately.
•Determination of whether the financing component in a software licensing arrangement is significant and, if so, the discount rate used in calculating the significant financing component.
•Assessment of whether the extension of payment terms in a software licensing arrangement results in variable consideration and, if so, the amount to be included in the transaction price.
•Determination of the standalone selling price for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that the Company expects to be entitled to in exchange for the related product and/or service. As the selling prices of the Company’s software licenses are highly variable, the Company estimates standalone selling prices of its software licenses using the residual approach when the software license is sold with other services and observable standalone selling prices exist for the other services.
Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for software license arrangements was extensive and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s accounting for software license arrangements included the following, among others:
•We tested the effectiveness of controls over the review of software license arrangements, including, among others, the determination of the contract term, identification of performance obligations, determination of significant financing component, estimation of variable consideration, and determination of standalone selling prices, including those controls over the determination that software license pricing is highly variable.
•We selected a sample of software license arrangements and performed the following, among others:
•Obtained contract source documents for each selection, including separate contracts or agreements that should be combined with the selected arrangement, and other documents that were part of the arrangement.
•Tested management’s determination of the contract term, identification of performance obligations, determination of significant financing component, estimation of variable consideration, and determination of standalone selling prices.
•Evaluated the reasonableness of the methodology and estimates used by management and the appropriateness of its revenue recognition conclusions for these key judgment areas.
•Tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.
•We evaluated management’s determination that software license pricing is highly variable by obtaining management’s highly variable analysis and performing the following:
•Testing the completeness of management’s analysis by tracing a selection of known data points from an independent internal source into the highly variable analysis.
•Testing the accuracy of management’s analysis by selecting a sample of contracts from the highly variable analysis, obtaining the contract and price detail, and evaluating whether discounts were appropriately included in the analysis.
•Testing the mathematical accuracy of management’s calculations.
/s/ DELOITTE & TOUCHE LLP
February
28, 201924, 2022
We have served as the Company’s auditor since 2009.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| | | | | | | | |
| | | December 31, | |
| | | 2018 | | | 2017 | |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 148,502 | | | $ | 69,710 | |
Receivables, net of allowances of $3,912 and $4,799, respectively | | | 348,182 | | | | 262,845 | |
Recoverable income taxes | | | 6,686 | | | | 7,921 | |
Prepaid expenses | | | 23,277 | | | | 23,219 | |
Other current assets | | | 39,830 | | | | 58,126 | |
| | | | | | | | |
Total current assets | | | 566,477 | | | | 421,821 | |
| | | | | | | | |
Noncurrent assets | | | | | | | | |
Accrued receivables, net | | | 189,010 | | | | — | |
Property and equipment, net | | | 72,729 | | | | 80,228 | |
Software, net | | | 137,228 | | | | 155,386 | |
Goodwill | | | 909,691 | | | | 909,691 | |
Intangible assets, net | | | 168,127 | | | | 191,281 | |
Deferred income taxes, net | | | 27,048 | | | | 66,749 | |
Other noncurrent assets | | | 52,145 | | | | 36,483 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 2,122,455 | | | $ | 1,861,639 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 39,602 | | | $ | 34,718 | |
Employee compensation | | | 38,115 | | | | 48,933 | |
Current portion of long-term debt | | | 20,767 | | | | 17,786 | |
Deferred revenue | | | 104,843 | | | | 107,543 | |
Income taxes payable | | | 5,239 | | | | 9,898 | |
Other current liabilities | | | 88,054 | | | | 102,904 | |
| | | | | | | | |
Total current liabilities | | | 296,620 | | | | 321,782 | |
| | | | | | | | |
Noncurrent liabilities | | | | | | | | |
Deferred revenue | | | 51,292 | | | | 51,967 | |
Long-term debt | | | 650,989 | | | | 667,943 | |
Deferred income taxes, net | | | 31,715 | | | | 16,910 | |
Other noncurrent liabilities | | | 43,608 | | | | 38,440 | |
| | | | | | | | |
Total liabilities | | | 1,074,224 | | | | 1,097,042 | |
| | | | | | | | |
Commitments and contingencies (Note 14) | | | | | | | | |
| | |
Stockholders’ equity | | | | | | | | |
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at December 31, 2018 and 2017 | | | — | | | | — | |
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at December 31, 2018 and 2017 | | | 702 | | | | 702 | |
Additionalpaid-in capital | | | 632,235 | | | | 610,345 | |
Retained earnings | | | 863,768 | | | | 550,866 | |
Treasury stock, at cost, 24,401,694 and 23,428,324 shares at December 31, 2018 and 2017, respectively | | | (355,857 | ) | | | (319,960 | ) |
Accumulated other comprehensive loss | | | (92,617 | ) | | | (77,356 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 1,048,231 | | | | 764,597 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 2,122,455 | | | $ | 1,861,639 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| ASSETS | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 122,059 | | | $ | 165,374 | |
| Receivables, net of allowances of $2,861 and $3,912, respectively | 320,405 | | | 342,879 | |
| Settlement assets | 452,396 | | | 605,008 | |
| Prepaid expenses | 24,698 | | | 24,288 | |
| Other current assets | 17,876 | | | 17,365 | |
| Total current assets | 937,434 | | | 1,154,914 | |
| Noncurrent assets | | | |
| Accrued receivables, net | 276,164 | | | 215,772 | |
| Property and equipment, net | 63,050 | | | 64,734 | |
| Operating lease right-of-use assets | 47,825 | | | 41,243 | |
| Software, net | 157,782 | | | 196,456 | |
| Goodwill | 1,280,226 | | | 1,280,226 | |
| Intangible assets, net | 283,004 | | | 321,983 | |
| Deferred income taxes, net | 50,778 | | | 57,476 | |
| Other noncurrent assets | 62,478 | | | 54,099 | |
| TOTAL ASSETS | $ | 3,158,741 | | | $ | 3,386,903 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities | | | |
| Accounts payable | $ | 41,312 | | | $ | 41,223 | |
| Settlement liabilities | 451,575 | | | 604,096 | |
| Employee compensation | 51,379 | | | 48,560 | |
| Current portion of long-term debt | 45,870 | | | 34,265 | |
| Deferred revenue | 84,425 | | | 95,849 | |
| Other current liabilities | 79,594 | | | 81,612 | |
| Total current liabilities | 754,155 | | | 905,605 | |
| Noncurrent liabilities | | | |
| Deferred revenue | 25,925 | | | 33,564 | |
| Long-term debt | 1,019,872 | | | 1,120,742 | |
| Deferred income taxes, net | 36,122 | | | 40,504 | |
| Operating lease liabilities | 43,346 | | | 39,958 | |
| Other noncurrent liabilities | 34,544 | | | 39,933 | |
| Total liabilities | 1,913,964 | | | 2,180,306 | |
| Commitments and contingencies (Note 13) |
| |
0 |
| 0Stockholders’ equity | | | |
| Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at December 31, 2021 and 2020 | — | | | — | |
| Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at December 31, 2021 and 2020 | 702 | | | 702 | |
| Additional paid-in capital | 688,313 | | | 682,431 | |
| Retained earnings | 1,131,281 | | | 1,003,490 | |
| Treasury stock, at cost, 24,795,009 and 23,412,870 shares at December 31, 2021 and 2020, respectively | (475,972) | | | (387,581) | |
| Accumulated other comprehensive loss | (99,547) | | | (92,445) | |
| Total stockholders’ equity | 1,244,777 | | | 1,206,597 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,158,741 | | | $ | 3,386,903 | |
The accompanying notes are an integral part of the consolidated financial statements.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Revenues | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 433,025 | | | $ | 425,572 | | | $ | 411,289 | |
License | | | 280,556 | | | | 293,124 | | | | 273,466 | |
Maintenance | | | 219,145 | | | | 222,071 | | | | 233,476 | |
Services | | | 77,054 | | | | 83,424 | | | | 87,470 | |
| | | | | | | | | | | | |
Total revenues | | | 1,009,780 | | | | 1,024,191 | | | | 1,005,701 | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Cost of revenue (1) | | | 430,351 | | | | 452,286 | | | | 444,914 | |
Research and development | | | 143,630 | | | | 136,921 | | | | 169,900 | |
Selling and marketing | | | 117,881 | | | | 107,885 | | | | 118,082 | |
General and administrative | | | 107,422 | | | | 153,032 | | | | 113,617 | |
Gain on sale of CFS assets | | | — | | | | — | | | | (151,463 | ) |
Depreciation and amortization | | | 84,585 | | | | 89,427 | | | | 89,521 | |
| | | | | | | | | | | | |
Total operating expenses | | | 883,869 | | | | 939,551 | | | | 784,571 | |
| | | | | | | | | | | | |
Operating income | | | 125,911 | | | | 84,640 | | | | 221,130 | |
| | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | |
Interest expense | | | (41,530 | ) | | | (39,013 | ) | | | (40,184 | ) |
Interest income | | | 11,142 | | | | 564 | | | | 530 | |
Other, net | | | (3,724 | ) | | | (2,619 | ) | | | 4,105 | |
| | | | | | | | | | | | |
Total other income (expense) | | | (34,112 | ) | | | (41,068 | ) | | | (35,549 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 91,799 | | | | 43,572 | | | | 185,581 | |
Income tax expense | | | 22,878 | | | | 38,437 | | | | 56,046 | |
| | | | | | | | | | | | |
Net income | | $ | 68,921 | | | $ | 5,135 | | | $ | 129,535 | |
| | | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | | |
Basic | | $ | 0.59 | | | $ | 0.04 | | | $ | 1.10 | |
Diluted | | $ | 0.59 | | | $ | 0.04 | | | $ | 1.09 | |
Weighted average common shares outstanding | | | | | | | | | | | | |
Basic | | | 116,057 | | | | 118,059 | | | | 117,533 | |
Diluted | | | 117,632 | | | | 119,444 | | | | 118,847 | |
(1) | The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenues | | | | | |
| Software as a service and platform as a service | $ | 774,342 | | | $ | 769,180 | | | $ | 677,669 | |
| License | 319,867 | | | 246,896 | | | 288,261 | |
| Maintenance | 210,499 | | | 211,697 | | | 213,409 | |
| Services | 65,890 | | | 66,549 | | | 78,955 | |
| Total revenues | 1,370,598 | | | 1,294,322 | | | 1,258,294 | |
| Operating expenses | | | | | |
| Cost of revenue (1) | 638,871 | | | 622,459 | | | 617,453 | |
| Research and development | 144,310 | | | 139,293 | | | 146,573 | |
| Selling and marketing | 126,539 | | | 103,567 | | | 123,684 | |
| General and administrative | 123,801 | | | 152,468 | | | 135,296 | |
| Depreciation and amortization | 127,180 | | | 131,791 | | | 111,532 | |
| Total operating expenses | 1,160,701 | | | 1,149,578 | | | 1,134,538 | |
| Operating income | 209,897 | | | 144,744 | | | 123,756 | |
| Other income (expense) | | | | | |
| Interest expense | (45,060) | | | (56,630) | | | (64,033) | |
| Interest income | 11,522 | | | 11,628 | | | 11,967 | |
| Other, net | (1,294) | | | (1,116) | | | 520 | |
| Total other income (expense) | (34,832) | | | (46,118) | | | (51,546) | |
| Income before income taxes | 175,065 | | | 98,626 | | | 72,210 | |
| Income tax expense | 47,274 | | | 25,966 | | | 5,148 | |
| Net income | $ | 127,791 | | | $ | 72,660 | | | $ | 67,062 | |
| Income per common share | | | | | |
| Basic | $ | 1.09 | | | $ | 0.62 | | | $ | 0.58 | |
| Diluted | $ | 1.08 | | | $ | 0.62 | | | $ | 0.57 | |
| Weighted average common shares outstanding | | | | | |
| Basic | 117,407 | | | 116,397 | | | 116,175 | |
| Diluted | 118,647 | | | 118,079 | | | 118,571 | |
(1)The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
The accompanying notes are an integral part of the consolidated financial statements.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Net income | | $ | 68,921 | | | $ | 5,135 | | | $ | 129,535 | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustments, net of income taxes | | | (15,261 | ) | | | 16,744 | | | | (22,524 | ) |
| | | | | | | | | | | | |
Total other comprehensive income (loss): | | | (15,261 | ) | | | 16,744 | | | | (22,524 | ) |
| | | | | | | | | | | | |
Comprehensive income | | $ | 53,660 | | | $ | 21,879 | | | $ | 107,011 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income | $ | 127,791 | | | $ | 72,660 | | | $ | 67,062 | |
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustments | (7,102) | | | (862) | | | 1,034 | |
| Total other comprehensive income (loss) | (7,102) | | | (862) | | | 1,034 | |
| Comprehensive income | $ | 120,689 | | | $ | 71,798 | | | $ | 68,096 | |
The accompanying notes are an integral part of the consolidated financial statements.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Additional
Paid-in Capital | | | Retained
Earnings | | | Treasury Stock | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Total | |
Balance as of December 31, 2015 | | $ | 702 | | | $ | 561,379 | | | $ | 416,851 | | | $ | (252,956 | ) | | $ | (71,576 | ) | | $ | 654,400 | |
Net income | | | — | | | | — | | | | 129,535 | | | | — | | | | — | | | | 129,535 | |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (22,524 | ) | | | (22,524 | ) |
Stock-based compensation | | | — | | | | 43,613 | | | | — | | | | — | | | | — | | | | 43,613 | |
Shares issued and forfeited, net, under stock plans including income tax benefits | | | — | | | | (5,204 | ) | | | — | | | | 18,260 | | | | — | | | | 13,056 | |
Repurchase of 3,020,926 shares of common stock | | | — | | | | — | | | | — | | | | (60,089 | ) | | | — | | | | (60,089 | ) |
Repurchase of restricted stock for tax withholdings | | | — | | | | — | | | | — | | | | (2,975 | ) | | | — | | | | (2,975 | ) |
Cumulative effect of accounting change, ASU2016-09 | | | — | | | | 556 | | | | (655 | ) | | | — | | | | — | | | | (99 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2016 | | | 702 | | | | 600,344 | | | | 545,731 | | | | (297,760 | ) | | | (94,100 | ) | | | 754,917 | |
Net income | | | — | | | | — | | | | 5,135 | | | | — | | | | — | | | | 5,135 | |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 16,744 | | | | 16,744 | |
Stock-based compensation | | | — | | | | 13,683 | | | | — | | | | — | | | | — | | | | 13,683 | |
Shares issued and forfeited, net, under stock plans including income tax benefits | | | — | | | | (3,682 | ) | | | — | | | | 20,498 | | | | — | | | | 16,816 | |
Repurchase of 1,653,573 shares of common stock | | | — | | | | — | | | | — | | | | (37,387 | ) | | | — | | | | (37,387 | ) |
Repurchase of restricted stock for tax withholdings | | | — | | | | — | | | | — | | | | (5,311 | ) | | | — | | | | (5,311 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | | | 702 | | | | 610,345 | | | | 550,866 | | | | (319,960 | ) | | | (77,356 | ) | | | 764,597 | |
Net income | | | — | | | | — | | | | 68,921 | | | | — | | | | — | | | | 68,921 | |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (15,261 | ) | | | (15,261 | ) |
Stock-based compensation | | | — | | | | 20,360 | | | | — | | | | — | | | | — | | | | 20,360 | |
Shares issued and forfeited, net, under stock plans including income tax benefits | | | — | | | | 1,530 | | | | — | | | | 21,218 | | | | — | | | | 22,748 | |
Repurchase of 2,346,427 shares of common stock | | | — | | | | — | | | | — | | | | (54,527 | ) | | | — | | | | (54,527 | ) |
Repurchase of restricted stock for tax withholdings | | | — | | | | — | | | | — | | | | (2,588 | ) | | | — | | | | (2,588 | ) |
Cumulative effect of accounting change, ASC 606 | | | — | | | | — | | | | 243,981 | | | | — | | | | — | | | | 243,981 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2018 | | $ | 702 | | | $ | 632,235 | | | $ | 863,768 | | | $ | (355,857 | ) | | $ | (92,617 | ) | | $ | 1,048,231 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other
Comprehensive Income (Loss) | | Total |
| Balance as of December 31, 2018 | $ | 702 | | | $ | 632,235 | | | $ | 863,768 | | | $ | (355,857) | | | $ | (92,617) | | | $ | 1,048,231 | |
| Net income | — | | | — | | | 67,062 | | | — | | | — | | | 67,062 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 1,034 | | | 1,034 | |
| Stock-based compensation | — | | | 36,763 | | | — | | | — | | | — | | | 36,763 | |
| Shares issued and forfeited, net, under stock plans | — | | | (1,340) | | | — | | | 17,821 | | | — | | | 16,481 | |
| Repurchase of 1,228,102 shares of common stock | — | | | — | | | — | | | (35,617) | | | — | | | (35,617) | |
| Repurchase of stock-based compensation awards for tax withholdings | — | | | — | | | — | | | (3,986) | | | — | | | (3,986) | |
| Balance as of December 31, 2019 | 702 | | | 667,658 | | | 930,830 | | | (377,639) | | | (91,583) | | | 1,129,968 | |
| Net income | — | | | — | | | 72,660 | | | — | | | — | | | 72,660 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (862) | | | (862) | |
| Stock-based compensation | — | | | 29,602 | | | — | | | — | | | — | | | 29,602 | |
| Shares issued and forfeited, net, under stock plans | — | | | (14,829) | | | — | | | 30,507 | | | — | | | 15,678 | |
| Repurchase of 1,000,000 shares of common stock | — | | | — | | | — | | | (28,881) | | | — | | | (28,881) | |
| Repurchase of stock-based compensation awards for tax withholdings | — | | | — | | | — | | | (11,568) | | | — | | | (11,568) | |
| Balance as of December 31, 2020 | 702 | | | 682,431 | | | 1,003,490 | | | (387,581) | | | (92,445) | | | 1,206,597 | |
| Net income | — | | | — | | | 127,791 | | | — | | | — | | | 127,791 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (7,102) | | | (7,102) | |
| Stock-based compensation | — | | | 27,242 | | | — | | | — | | | — | | | 27,242 | |
| Shares issued and forfeited, net, under stock plans | — | | | (21,360) | | | — | | | 33,820 | | | — | | | 12,460 | |
| Repurchase of 3,000,000 shares of common stock | — | | | — | | | — | | | (107,378) | | | — | | | (107,378) | |
| Repurchase of stock-based compensation awards for tax withholdings | — | | | — | | | — | | | (14,833) | | | — | | | (14,833) | |
| Balance as of December 31, 2021 | $ | 702 | | | $ | 688,313 | | | $ | 1,131,281 | | | $ | (475,972) | | | $ | (99,547) | | | $ | 1,244,777 | |
The accompanying notes are an integral part of the consolidated financial statements.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 68,921 | | | $ | 5,135 | | | $ | 129,535 | |
Adjustments to reconcile net income to net cash flows from operating activities: | | | | | | | | | | | | |
Depreciation | | | 23,805 | | | | 24,871 | | | | 22,584 | |
Amortization | | | 73,545 | | | | 77,353 | | | | 80,870 | |
Amortization of deferred debt issuance costs | | | 4,637 | | | | 4,286 | | | | 5,567 | |
Deferred income taxes | | | (5,734 | ) | | | 21,660 | | | | 17,702 | |
Stock-based compensation expense | | | 20,360 | | | | 13,683 | | | | 43,613 | |
Gain on sale of CFS assets | | | — | | | | — | | | | (151,463 | ) |
Other | | | 2,007 | | | | 435 | | | | 806 | |
Changes in operating assets and liabilities, net of impact of acquisitions: | | | | | | | | | | | | |
Receivables | | | (14,760 | ) | | | (8,243 | ) | | | (76,460 | ) |
Accounts payable | | | 5,766 | | | | (1,700 | ) | | | (13,920 | ) |
Accrued employee compensation | | | (9,684 | ) | | | 94 | | | | 18,060 | |
Current income taxes | | | (5,115 | ) | | | (4,227 | ) | | | 14,510 | |
Deferred revenue | | | 14,219 | | | | 439 | | | | 3,015 | |
Other current and noncurrent assets and liabilities | | | 5,965 | | | | 12,411 | | | | 5,411 | |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | 183,932 | | | | 146,197 | | | | 99,830 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property and equipment | | | (18,265 | ) | | | (25,717 | ) | | | (40,812 | ) |
Purchases of software and distribution rights | | | (25,628 | ) | | | (28,697 | ) | | | (22,268 | ) |
Proceeds from sale of CFS assets | | | — | | | | — | | | | 199,481 | |
Acquisition of businesses, net of cash acquired | | | — | | | | — | | | | 232 | |
Other | | | (1,467 | ) | | | — | | | | (7,000 | ) |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | (45,360 | ) | | | (54,414 | ) | | | 129,633 | |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | 3,098 | | | | 2,958 | | | | 2,987 | |
Proceeds from exercises of stock options | | | 19,674 | | | | 13,872 | | | | 9,325 | |
Repurchase of restricted stock for tax withholdings | | | (2,588 | ) | | | (5,311 | ) | | | (2,975 | ) |
Repurchases of common stock | | | (54,527 | ) | | | (37,387 | ) | | | (60,089 | ) |
Proceeds from senior notes | | | 400,000 | | | | — | | | | — | |
Redemption of senior notes | | | (300,000 | ) | | | — | | | | — | |
Proceeds from revolving credit facility | | | 109,000 | | | | 67,000 | | | | 76,000 | |
Repayments of revolving credit facility | | | (111,000 | ) | | | (153,000 | ) | | | (166,000 | ) |
Proceeds from term portion of credit agreement | | | — | | | | 415,000 | | | | — | |
Repayments of term portion of credit agreement | | | (109,289 | ) | | | (386,040 | ) | | | (95,293 | ) |
Payment for debt issuance costs | | | (7,319 | ) | | | (5,340 | ) | | | (655 | ) |
Payments on other debt and capital leases | | | (4,753 | ) | | | (9,900 | ) | | | (14,376 | ) |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (57,704 | ) | | | (98,148 | ) | | | (251,076 | ) |
| | | | | | | | | | | | |
Effect of exchange rate fluctuations on cash | | | (2,076 | ) | | | 322 | | | | (4,873 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 78,792 | | | | (6,043 | ) | | | (26,486 | ) |
Cash and cash equivalents, beginning of period | | | 69,710 | | | | 75,753 | | | | 102,239 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 148,502 | | | $ | 69,710 | | | $ | 75,753 | |
| | | | | | | | | | | | |
Supplemental cash flow information | | | | | | | | | | | | |
Income taxes paid, net | | $ | 32,205 | | | $ | 37,817 | | | $ | 19,081 | |
Interest paid | | $ | 35,300 | | | $ | 34,976 | | | $ | 35,053 | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 127,791 | | | $ | 72,660 | | | $ | 67,062 | |
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | | |
| Depreciation | 20,900 | | | 24,728 | | | 24,092 | |
| Amortization | 112,493 | | | 115,588 | | | 98,477 | |
| Amortization of operating lease right-of-use assets | 10,515 | | | 23,448 | | | 15,934 | |
| Amortization of deferred debt issuance costs | 4,685 | | | 4,802 | | | 4,128 | |
| Deferred income taxes | 3,733 | | | 3,349 | | | (22,140) | |
| Stock-based compensation expense | 27,242 | | | 29,602 | | | 36,763 | |
| Other | 855 | | | 6,017 | | | 5,175 | |
| Changes in operating assets and liabilities, net of impact of acquisitions: | | | | | |
| Receivables | (43,830) | | | 8,793 | | | (19,054) | |
| Accounts payable | 1,408 | | | 2,484 | | | (7,703) | |
| Accrued employee compensation | 3,674 | | | 18,491 | | | (10,829) | |
| Deferred revenue | (17,332) | | | 9,421 | | | (37,561) | |
| Other current and noncurrent assets and liabilities | (31,661) | | | (4,488) | | | (21,739) | |
| Net cash flows from operating activities | 220,473 | | | 314,895 | | | 132,605 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property and equipment | (20,582) | | | (17,804) | | | (23,099) | |
| Purchases of software and distribution rights | (24,786) | | | (28,829) | | | (24,915) | |
| Acquisition of businesses, net of cash acquired | — | | | — | | | (757,268) | |
| Other | — | | | 15,934 | | | (25,199) | |
| Net cash flows from investing activities | (45,368) | | | (30,699) | | | (830,481) | |
| Cash flows from financing activities: | | | | | |
| Proceeds from issuance of common stock | 3,440 | | | 3,759 | | | 3,591 | |
| Proceeds from exercises of stock options | 8,862 | | | 11,924 | | | 12,985 | |
| Repurchase of stock-based compensation awards for tax withholdings | (14,833) | | | (11,568) | | | (3,986) | |
| Repurchase of common stock | (107,378) | | | (28,881) | | | (35,617) | |
| | | | | |
| | | | | |
| Proceeds from revolving credit facility | 35,000 | | | 30,000 | | | 280,000 | |
| Repayments of revolving credit facility | (90,000) | | | (214,000) | | | (41,000) | |
| Proceeds from term portion of credit agreement | — | | | — | | | 500,000 | |
| Repayments of term portion of credit agreement | (38,950) | | | (38,950) | | | (28,900) | |
| Payment for debt issuance costs | — | | | — | | | (12,830) | |
| Payments on or proceeds from other debt, net | (15,185) | | | (13,854) | | | (7,020) | |
| Net (decrease) increase in settlement assets and liabilities | (37,834) | | | 101,681 | | | 1,127 | |
| Net cash flows from financing activities | (256,878) | | | (159,889) | | | 668,350 | |
| Effect of exchange rate fluctuations on cash | 533 | | | (57) | | | (1,495) | |
| Net (decrease) increase in cash and cash equivalents | (81,240) | | | 124,250 | | | (31,021) | |
| Cash and cash equivalents, including settlement deposits, beginning of period | 265,382 | | | 141,132 | | | 172,153 | |
| Cash and cash equivalents, including settlement deposits, end of period | $ | 184,142 | | | $ | 265,382 | | | $ | 141,132 | |
| Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets | | | | | |
| Cash and cash equivalents | $ | 122,059 | | | $ | 165,374 | | | $ | 121,398 | |
| Settlement deposits | 62,083 | | | 100,008 | | | 19,734 | |
| Total cash and cash equivalents, including settlement deposits | $ | 184,142 | | | $ | 265,382 | | | $ | 141,132 | |
| Supplemental cash flow information | | | | | |
| Income taxes paid, net | $ | 46,166 | | | $ | 27,760 | | | $ | 27,727 | |
| Interest paid | $ | 40,071 | | | $ | 51,991 | | | $ | 58,980 | |
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
ACI Worldwide, Inc., a Delaware corporation, and its subsidiaries (collectively referred to as “ACI” or the “Company”) develop, market, install, and support a broad line of software products and services primarily focused on facilitating electronic payments. In addition to its own products, the Company distributes or acts as a sales agent for software developed by third parties. These products and services are used principally by banks
financialand intermediaries, merchants, and
corporates,billers, both in domestic and international markets.
Consolidated Financial Statements
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
The Company’s outstanding capital stock consists of a single class of common stock. Each share of common stock is entitled to one vote for each matter subject to a stockholder’s vote and to dividends, if and when declared by the board of directors (the “board”).
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash and cash equivalents includes holdings in checking, savings, money market, and overnight sweep accounts, all of which have daily maturities, as well as time deposits with maturities of three months or less at the date of purchase. The carrying amounts
Revision of Prior Period Financial Statements
As of December 31, 2021, the Company has revised the previously reported consolidated statements of cash flows to include settlement deposits in total cash and cash equivalents
and settlement receivables and settlement liabilities net activity in cash flows from financing activities, both of which were previously included in cash flows from operating activities. This immaterial revision did not have an effect on
theits previously reported consolidated balance sheets,
approximate fair value.Other Current Assetsstatements of operations, statements of comprehensive income, or statements of stockholders' equity.
A summary of the revisions to the previously reported balances are presented in the table below for comparative purposes (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| As reported | | Revision adjustment | | As revised |
| Cash flows from operating activities: | | | | | |
| Other current and noncurrent assets and liabilities | $ | 16,919 | | | $ | (21,407) | | | $ | (4,488) | |
| Net cash flows from operating activities | 336,302 | | | (21,407) | | | 314,895 | |
| | | | | |
| Cash flows from financing activities: | | | | | |
| Net increase in settlement assets and liabilities | $ | — | | | $ | 101,681 | | | $ | 101,681 | |
| Net cash flows from financing activities | (261,570) | | | 101,681 | | | (159,889) | |
| | | | | |
| Net increase in cash and cash equivalents | $ | 43,976 | | | $ | 80,274 | | | $ | 124,250 | |
| Cash and cash equivalents, including settlement deposits, beginning of period | 121,398 | | | 19,734 | | | 141,132 | |
| Cash and cash equivalents, including settlement deposits, end of period | 165,374 | | | 100,008 | | | 265,382 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| As reported | | Revision adjustment | | As revised |
| Cash flows from operating activities: | | | | | |
| Other current and noncurrent assets and liabilities | $ | (16,695) | | | $ | (5,044) | | | $ | (21,739) | |
| Net cash flows from operating activities | 137,649 | | | (5,044) | | | 132,605 | |
| | | | | |
| Cash flows from financing activities: | | | | | |
| Net increase in settlement assets and liabilities | $ | — | | | $ | 1,127 | | | $ | 1,127 | |
| Net cash flows from financing activities | 667,223 | | | 1,127 | | | 668,350 | |
| | | | | |
| Net decrease in cash and cash equivalents | $ | (27,104) | | | $ | (3,917) | | | $ | (31,021) | |
| Cash and cash equivalents, including settlement deposits, beginning of period | 148,502 | | | 23,651 | | | 172,153 | |
| Cash and cash equivalents, including settlement deposits, end of period | 121,398 | | | 19,734 | | | 141,132 | |
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic and available information continues to be evolving. The Company has experienced changes in volumes for certain Merchant and Biller customers and has received limited requests for extended payment terms under existing contracts. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as our customers curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain.
The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.
Other Current Liabilities
| | | | | | | | |
| | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Settlement deposits | | $ | 23,651 | | | $ | 22,282 | |
Settlement receivables | | | 8,605 | | | | 30,063 | |
Other | | | 7,574 | | | | 5,781 | |
| | | | | | | | |
Total other current assets | | $ | 39,830 | | | $ | 58,126 | |
| | | | | | | | |
| | | | | | | | |
| | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Settlement payables | | $ | 31,605 | | | $ | 48,953 | |
Accrued interest | | | 8,407 | | | | 7,291 | |
Vendor financed licenses | | | 3,551 | | | | 1,862 | |
Royalties payable | | | 11,318 | | | | 9,264 | |
Other | | | 33,173 | | | | 35,534 | |
| | | | | | | | |
Total other current liabilities | | $ | 88,054 | | | $ | 102,904 | |
| | | | | | | | |
Other current liabilities include the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Vendor financed licenses | $ | 12,521 | | | $ | 12,901 | |
| Operating lease liabilities | 11,518 | | | 13,438 | |
| Accrued interest | 8,776 | | | 8,745 | |
| Royalties payable | 4,102 | | | 3,959 | |
| Other | 42,677 | | | 42,569 | |
| Total other current liabilities | $ | 79,594 | | | $ | 81,612 | |
Settlement Assets and Liabilities
Individuals and businesses settle their obligations to the Company’s various
clients, primarily utility and other public-sectorBiller clients using credit or debit cards or via automated clearing house (“ACH”) payments. The Company creates a receivable for the amount due from the credit or debit card
companyprocessor and an offsetting payable to the client.
OnceUpon confirmation
is received that the funds have been received, the Company settles the obligation to the client. Due to timing, in some instances, the Company may
(1) receive the funds into bank accounts controlled by and in the Company’s name that are not disbursed to its clients by the end of the day, resulting in a settlement deposit on the Company’s
books.books and (2) disburse funds to its clients in advance of receiving funds from the credit or debit card processor, resulting in a net settlement receivable position.
Off Balance Sheet Settlement Accounts
The Company also enters into agreements with certain
Biller clients to process payment funds on their behalf. When an ACH or automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account, which is a trust account maintained for the benefit of the Company’s clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back” transactions are designed to settle at the same time, usually overnight, such that the Company receives the funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the benefit of the client which is separate from the Company’s corporate assets. As the Company does not take ownership of the funds,
thethese settlement accounts are not included in the Company’s balance sheet. The Company is entitled to interest earned on the fund balances. The collection of interest on these settlement accounts is considered in the Company’s determination of its fee structure for clients and represents a portion of the payment for services performed by the Company. The amount of settlement funds as of December 31,
20182021 and
2017,2020, were
$256.5$272.8 million and
$238.9$246.8 million, respectively.
Property and equipment are stated at cost. Depreciation of these assets is generally computed using the straight-line method over their estimated useful lives based on asset class. As of December 31,
20182021 and
2017,2020, net property and equipment consisted of the following (in thousands):
| | | | | | | | | | | | |
| | | Useful Lives | | | 2018 | | | 2017 | |
Computer and office equipment | | | 3- 5 years | | | $ | 129,359 | | | $ | 123,804 | |
Leasehold improvements | |
| Lesser of useful life of improvement or
remaining life of lease |
| | | 32,096 | | | | 32,364 | |
Furniture and fixtures | | | 7 years | | | | 12,500 | | | | 12,158 | |
Building and improvements | | | 7- 30 years | | | | 14,381 | | | | 12,651 | |
Land | | | Non depreciable | | | | 1,785 | | | | 1,785 | |
| | | | | | | | | | | | |
| | | | | | | 190,121 | | | | 182,762 | |
Less: accumulated depreciation | | | | | | | (117,392 | ) | | | (102,534 | ) |
| | | | | | | | | | | | |
Property and equipment, net | | | | | | $ | 72,729 | | | $ | 80,228 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| Useful Lives | | 2021 | | 2020 |
| Computer and office equipment | 3 - 5 years | | $ | 127,352 | | | $ | 133,346 | |
| Leasehold improvements | Lesser of useful life of improvement or remaining life of lease | | 34,460 | | | 29,535 | |
| Building and improvements | 7 - 30 years | | 14,853 | | | 14,588 | |
| Furniture and fixtures | 7 years | | 9,733 | | | 8,539 | |
| Land | Non-depreciable | | 1,785 | | | 1,785 | |
| Property and equipment, gross | | | 188,183 | | | 187,793 | |
| Less: accumulated depreciation | | | (125,133) | | | (123,059) | |
| Property and equipment, net | | | $ | 63,050 | | | $ | 64,734 | |
Software may be for internal use or available for sale.resale. Costs related to certain software, which is available for sale,resale, are capitalized in accordance with Accounting Standards Codification (“ASC”)985-20,Costs of Software to be Sold, Leased, or Marketed, when the resulting product reaches technological feasibility. The Company generally determines technological feasibility when it has a detailed program design that takes product function, feature and technical requirements to their most detailed, logical form and is ready for coding. The Company does not typically capitalize costs related to software available for saleresale as technological feasibility generally coincides with general availability of the software. The Company capitalizes the costs of software developed or obtained for internal use in accordance with ASC350-40, Internal Use Software. The Company expenses all costs incurred during the preliminary project stage of its development and capitalizes the costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the software are capitalized if it is determined that these upgrades or enhancements add additional functionality to the software. Costs incurred during the application development stage include purchased software licenses, implementation costs, consulting costs, and payroll-related costs for projects that qualify for capitalization. All other costs, primarily related to maintenance and minor software fixes, are expensed as incurred.
Amortization of software costs to be sold or marketed externallyfor resale is determined on aproduct-by-product basis and begins when the product is available for licensing to customers. The annual amortization shall beis computed using the greater of the amount computed using (a) the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for that productexpected to be derived from the software or (b) the straight-line method over the remaining estimated economicuseful life of the product,generally five to ten years, including the period being reported on. Due to competitive pressures, it may be possible that the estimates of anticipated future gross revenue or remaining estimated economicuseful life of the software product will be reduced significantly. As a result, the carrying amount of the software product may be reduced accordingly. Amortization ofinternal-use software is generally computed using the straight-line method over estimated useful lives of three to teneight years.
The Company applies the provisions of ASC 805,Business Combinations, in the accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, it records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships, covenants not to compete and acquired developed technologies, brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in our product portfolio, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.
ASC 820,Fair Value Measurements and Disclosures,(“ (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC
820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
•Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
•Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the fair value hierarchy). The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities. The fair value of the Company’s 5.750% Senior Notes due 2026 (“2026 Notes”) was
$395.0$419.0 million and $424.5 million as of December 31,
2018. The fair value of the Company’s 6.375% Senior Notes due2021 and 2020,
(“2020 Notes”) was $305.7 million as of December 31, 2017.respectively.
The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy).
Goodwill and Other Intangibles
In accordance with ASC 350,Intangibles – Goodwill and Other, the Company assesses goodwill for impairment annually during the fourth quarter of its fiscal year using October 1 balances or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company evaluates goodwill at the reporting unit level, usingand as discussed in Note 10, Segment Information, in January 2021, it announced a change in organizational structure to better align with the discounted cash flow valuation modelCompany’s strategic direction. This change also resulted in a change in reporting units to coincide with the new operating segments—Banks, Merchants, and allocatesBillers. The Company allocated goodwill to thesethe new reporting units using a relative fair value approach. During this assessment, management relies on a number of factors, including operating results, business plans, and anticipated future cash flows. The Company has identified its reportable segments, ACI On Premise and ACI On Demand, as the reporting units. As of December 31, 2018 and 2017, the Company’sapproach with total goodwill of $909.7$1.3 billion allocated $725.9 million was allocated to its twoBanks, $137.3 million to Merchants, and $417.0 million to Billers. In addition, the Company performed an assessment of potential goodwill impairment for all reporting units with $725.9 allocatedimmediately prior to ACI On Premisethe reallocation and $183.8 million allocated to ACI On Demand.determined that no impairment was indicated.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates, and cash flow projections are the most sensitive and susceptible to change, as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital (“WACC”). The WACC considers market and industry data as well as company-specific risk factors. Operational management, considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period, assuming a constant WACC and low, long-term growth rates. If the recoverability test indicates potential impairment, the Company calculates an implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to athe reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded to write down the carrying
value. The calculated fair value substantially exceeded the current carrying value for all reporting units for all periods.
Other intangible assets, which include customer relationships and trademarks and trade names, are amortized using the straight-line method over periods ranging from three yearsfour to 20 years. The Company reviews its other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Equity Method Investment
In July 2019, the Company invested $18.3 million for a 30% non-controlling financial interest in a payment technology and services company in India. The Company accounted for this investment using the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures. The Company records its share of earnings and losses in the investment on a one-quarter lag basis. Accordingly, the Company recorded an investment of $19.3 million, which is included in other noncurrent assets in the consolidated balance sheet as of December 31, 2021 and 2020.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be recoverable. An impairment loss is recorded if the sum of the future cash flows expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset. The amount of the impairment charge is measured based upon the fair value of the asset group.
The Company accounts for shares of its common stock that are repurchased without intent to retire as treasury stock. Such shares are recorded at cost and reflected separately on the consolidated balance sheets as a reduction of stockholders’ equity. The Company issues shares of treasury stock upon exercise of stock options, issuance of restricted share
awards and restricted share units, payment of earned performance shares, and for issuances of common stock pursuant to the Company’s employee stock purchase plan. For purposes of determining the cost of the treasury shares
re-issued, the Company uses the average cost method.
Stock-Based Compensation Plans
In accordance with ASC 718,Compensation – Stock Compensation,, ("ASC 718") the Company recognizes stock-based compensation expense for awards that are probable of vesting on a straight-line basis over the requisite service period of the award, which is generally the vesting term. Stock-based compensation expense is recorded in operating expenses depending on where the respective individual’s compensation is recorded. The Company generally utilizes the Black–Scholes option–pricing model to determine the fair value of stock options on the date of grant. To determine the grant date fair value of the supplemental stock options and total shareholder return awards (“TSRs”), a Monte Carlo simulation model was used.The assumptions utilized in the Black-Scholes option-pricing and Monte Carlo simulation models, as well as the description of the plans the stock-based awards are granted under, are described in further detail in Note 11,6, Stock-Based Compensation Plans.
Translation of Foreign Currencies
The Company’s foreign subsidiaries typically use the local currency of the countries in which they are located as their functional currency. Their assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rates during the period. Translation gains and losses are reflected in the consolidated financial statements as a component of accumulated other comprehensive income (loss). Transaction gains and losses, including those related to intercompany accounts, that are not considered to be of a long-term investment nature are included in the determination of net income. Transaction gains and losses, including those related to intercompany accounts, that are considered to be of a long-term investment nature are reflected in the consolidated financial statements as a component of accumulated other comprehensive income (loss).
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company periodically assesses its tax exposures and establishes, or adjusts, estimated unrecognized tax benefits for probable assessments by taxing authorities, including the Internal Revenue Service,
(“IRS”), and various foreign and state authorities. Such unrecognized tax benefits represent the estimated provision for income taxes expected to ultimately be paid.
New Accounting Standards Recently Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update(“ASU”) 2014-09, Revenue from Contracts with Customers (codified as “ASC 606”) as well as other clarifications and technical guidance related to this new revenue standard, includingASC 340-40, Other Assets and Deferred Costs – Contracts with Customers. ASC 606 superseded the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance. The Company adopted ASC 606 andASC 340-40 on January 1, 2018 (the effective date) using the modified retrospective transition method which required an adjustment to retained earnings for the cumulative effect of applying ASC 606 to active contracts as of the adoption date. For active contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating the transaction price in accordance with the practical expedient permitted under ASC 606. The cumulative effect of applying ASC 606 to active contracts as of the adoption date was an increase to retained earnings of $244.0 million.In August 2016,December 2019, the FASB issuedASU 2016-15, Statement2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, an update that addresses how certain cash receipts and cash payments are presented and classifiedits initiative to reduce complexity in the statement of cash flows. Among the cash flow matters addressed in the update are payments for costs related to debt prepayments or extinguishments, payments related to settlement of certain types of debt instruments, payments of contingent consideration made after a business combination, proceeds from insurance claims and corporate-owned life insurance policies, and distributions received from equity method investees, among others.accounting standards. The amendments are applied using a retrospective transition method to each period presented, unless impracticable for specific cash flow matters, in which case the amendments would be applied prospectively as of the earliest date practicable. The Company adoptedASU 2016-15 as of January 1, 2018. The adoption ofASU 2016-15 was not material to the consolidated statement of cash flows.In October 2016, the FASB issuedASU 2016-16, Intra-Entity Transfers of Assets Other than Inventory, tothis update simplify the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Previously, U.S. GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition was an exception to the principle of comprehensive recognition of current and deferred income taxes in U.S. GAAP. The limited amount of authoritative guidance about the exception led to diversity in practice and is a source of complexity in financial reporting, particularly for an intra-entity transfer of intellectual property. Under the amendments ofASU 2016-16, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, this amendment eliminates the exception for an intra-entity transfer of an asset other than inventory. The amendments to this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adoptedASU 2016-16 as of January 1, 2018. The adoption ofASU 2016-16 had no impact on the consolidated balance sheet, results of operations, or statement of cash flows.
In June 2018, the FASB issued ASU2018-07,Improvements to Nonemployee Share-Based Payment Accounting,as a part of its simplification initiative. ASU2018-07 expands the scope ofby removing certain exceptions within ASC 718,Compensation – Stock Compensation,to include share-based payment transactions for acquiring goods and services from nonemployees. The Company elected to early adopt ASU2018-07, the adoption of which was not material to the consolidated balance sheet, results of operations, or statement of cash flows.
In August 2018, the FASB issuedASU 2018-05, Intangibles – Goodwill and Other –Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2018-05”). The purpose of the update was to reduce potential diversity in practice and provide specific guidance on how to account for implementation costs incurred in a cloud computing arrangement.ASU 2018-05 applies the same guidance inASC 350-40, Intangibles – Goodwill and Other –Internal-Use Software, to determine implementation costs to capitalize versus costs that are to be expensed as incurred. This ASU will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company elected to early adoptASU 2018-05 during the year ended December 31, 2018. The adoption had no impact on the consolidated balance sheet, results of operations, or statement of cash flows.
Recently Issued Accounting Standards Not Yet Effective
In February 2016, the FASB issuedASU 2016-02, Leases (codified as “ASC 842”). ASC 842 requires lessees to recognizeright-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with lease terms of more than 12 months. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. The Company will adopt the standard effective January 1, 2019 (the effective date) using the optional transition method to not apply the new lease standard in the comparative periods presented and will elect the ‘practical expedient package’, which permits the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs. ASC 842 also provides practical expedients for the Company’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. As such, for those leases that qualify, we will not recognize ROU assets or lease liabilities as part of the transition adjustment or in the future. The Company also expects to elect the practical expedient to not separate lease andnon-lease components for all our leases.
The Company established a cross-functional project team to assess implementing changes to its systems, processes, and controls, in conjunction with a comprehensive review of existing lease agreements. To determine ACI’s lease population, the team reviewed leases included in the current ASC 840 minimum lease payments disclosure740, as well as supplier contracts, including cloud computing, print, mail servicesclarify and colocation agreements for potential embedded leases. The Company has determined that the adoption of ASC 842 primarily relates to its real estate leases for office and datacenter facilities.
The Company expects the adoption of ASC 842 will have a material impact on its consolidated balance sheet as its rights and obligations from its existing operating leases will be recognized on the balance sheet as assets and liabilities. As of December 31, 2018, the Company’s undiscounted minimum commitments under noncancelable operating leases was approximately $77.6 million. The Company does not expect the adoption of ASC 842 to have a material effect on its results of operations, stockholders’ equity, or statement of cash flows.
Based on currently available information, the Company expects to recognize operating lease liabilities and ROU assets of $65 million – $75 million and $60 million – $70 million, respectively. The expected operating lease liabilities were calculated based on the present value of the remaining minimum lease payments for existing operating leases as of December 31, 2018. The expected ROU assets will reflect adjustments for derecognition of deferred leasing incentives and prepaid rents.
In February 2018, the FASB issued ASU2018-02,Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU provides an option to reclassify stranded tax effects within accumulatedsimplify other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 U.S. Tax Cuts and Jobs Act (or portion thereof) is recorded. This ASU requires disclosure of a descriptionaspects of the accounting policy for releasing income tax effects from AOCI; whether election is madetaxes to reclassify the stranded income tax effects from the 2017 U.S. Tax Cuts and Jobs Act; and information about the income tax effects that are reclassified. Thispromote consistency among reporting entities. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2018.2020. The Company does not expect theadopted ASU 2019-12 as of January 1, 2021. The adoption of ASU2018-02 to 2019-12 did not have a material effectimpact on itsthe Company's consolidated balance sheet, results of operations, or statement of cash flows.
financial statements.In accordance with ASC 606, Revenue From Contracts With Customers, revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to receivebe entitled to in exchange for those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
Contract Combination. The Company may execute more than one contract or agreement with a single customer.customer at or near the same time. The separate contracts or agreements may be viewed as one combined arrangement or separate agreements for revenue recognition purposes. In order to reach appropriate conclusions regarding whether such agreements should be combined, the Company evaluates whether the agreements were negotiated as a package with a single commercial objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the product(s) or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Arrangements. The Company’s SaaS-based and PaaS-based arrangements, including implementation, support and other services, represent a single promise to provide continuous access (i.e. a stand-ready performance obligation) to its software solutions and their processing capabilities in the form of a service through one of the Company’s data centers. As each day of providing access to the software solution(s) is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its SaaS-based and PaaS-based arrangements is comprised of a series of distinct service periods. The Company’s SaaS-based and PaaS-based arrangements may include fixed consideration, variable consideration, or a combination of the two. Fixed consideration is recognized over the term of the arrangement or longer if the fixed consideration relates to a material right. A material right would be a separate performance obligation. The Company estimates the standalonestand-alone selling price for a material right by reference to the services expected to be provided and the corresponding expected consideration. Variable consideration in these arrangements is typically a function of transaction volume or another usage-based measure. Depending upon the structure of a particular arrangement, the Company: (1) allocates the variable amount to each distinct service period within the series and recognizes revenue as each distinct service period is performed, (i.e. direct allocation), (2) estimates total variable consideration at contract inception (giving consideration to any constraints that may apply and updating the estimates as new information becomes available) and recognizes the total transaction price over the period to which it relates, or (3) applies the ‘right to invoice’ practical expedient and recognizes revenue based on the amount invoiced to the customer during the period.
License Arrangements. The Company’s software license arrangements provide the customer with the right to use functional intellectual property (as it exists at the point in time at which the license is granted) for the duration of the contract term. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software.license.
Payment terms for the Company’s software license arrangements generally include fixed license and capacity fees that are payable up front or over time. These arrangements may also include incremental usage-based fees that are payable when the customer exceeds its contracted license capacity limits. The Company accounts for capacity overages as a usage-based royalty that is recognized when the usage occurs.
When a software license arrangement contains payment terms that are extended beyond one year, a significant financing component may exist. The significant financing component is calculated as the difference between the stated value and present value of the software license fees and is recognized as interest income over the extended payment period. The total fixed software license fee net of the significant financing component is recognized as revenue at the point in time when the software is transferred to the customer.
For those software license arrangements that include customer-specific acceptance provisions, such provisions are generally presumed to be substantive and the Company does not recognize revenue until the earlier of the receipt of a written customer acceptance, objective demonstration that the delivered product meets the customer-specific acceptance criteria, or the expiration of the acceptance period. The Company recognizes revenues on such arrangements upon the earlier of receipt of written acceptance or the first production use of the software by the customer.
For software license arrangements in which the Company acts as a distributor of another company’s product, and in certain circumstances, modifies or enhances the product, revenues are recorded on a gross basis. These include arrangements in which the Company takes control of the products and is responsible for providing the product or service. For software license arrangements in which the Company acts as a sales agent for another company’s product, revenues are recorded on a net basis. These include arrangements in which the Company does not take control of products and is not responsible for providing the product or service.
For software license arrangements in which the Company utilizes a third-party distributor or sales agent, the Company recognizes revenue upon transfer of control of the software license(s) to the third-party distributor or sales agent.
The Company’s software license arrangements typically provide the customer with a standard
90-day assurance-type warranty. These warranties do not represent an additional performance obligation as services beyond assuring that the software license complies with agreed-upon specifications are not provided.
Software license arrangements typically include an initial post contract customer support (maintenance or “PCS”) term of one year with subsequent renewals for additional years within the initial license period. The Company’s promise to those customers who elect to purchase PCS represents a stand-ready performance obligation that is distinct from the license performance obligation and recognized over the PCS term.
The Company also provides various professional services to customers with software licenses. These include project management, software implementation, and software modification services. Revenues from arrangements to provide professional services are generally distinct from the other promises in the contract(s) and are recognized as the related services are performed. Consideration
payablereceived under these arrangements is either fixed fee or on a
time-and-materials basis, which represents variable consideration that must be estimated using the most likely amount based on the range of hours expected to be incurred in providing the services.
The Company estimates the
standalonestand-alone selling price (“SSP”) for maintenance and professional services based on observable
standalonestand-alone sales. The Company applies the residual approach to estimate the SSP for software licenses.
Refer to Note 10,Segment Information, for further details, including disaggregation of revenue based on primary solution category and geographic location.
The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information.
The Company also applies judgment in determining the term of an arrangement when early termination rights are provided to the customer.
The Company’s software license arrangements with its customers often include multiple promises to transfer licensed software products and services. Determining whether the products and/or services are distinct performance obligations that should be accounted for separately may require significant judgment.
The Company’s SaaS and PaaS arrangements may include variable consideration in the form of usage-based fees. If the arrangement that includes variable consideration in the form of usage-based fees does not meet the allocation exception for variable consideration, the Company estimates the amount of variable consideration at the outset of the arrangement using either the expected value or most likely amount method, depending on the specifics of each arrangement. These estimates are constrained to the extent that it is probable that a significant reversal of incremental revenue will not occur and are updated each reporting period as additional information becomes available.
Judgment is used in determining: (1) whether the financing component in a software license agreement is significant and, if so, (2) the discount rate used in calculating the significant financing component. The Company assesses the significance of the financing component based on the ratio of license fees paid over time to total license fees. If determined to be significant, the financing component is calculated using a rate that discounts the license fees to the cash selling price.
Judgment is also used in assessing whether the extension of payment terms in a software license arrangement results in variable consideration and, if so, the amount to be included in the transaction price. The Company applies the portfolio approach to
estimatingestimate the amount of variable consideration in these arrangements using the most likely amount method that is based on the Company’s historical collection experience under similar arrangements.
Significant judgment is required to determine the SSP for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that the Company expects to
receivebe entitled to in exchange for the related product and/or service. As the selling prices of the Company’s software licenses are highly variable, the Company estimates SSP of its software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services. The Company uses a range of amounts to estimate SSP for maintenance and services. These ranges are based on
standalonestand-alone sales and vary based on the type of service and geographic region. If the SSP of a performance obligation is not directly observable, the Company will maximize observable inputs to determine its SSP.
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an accrued receivable when revenue is recognized prior to invoicing and the Company’s right to consideration only requires the passage of time, or deferred revenue when revenue is recognized subsequent to invoicing.
Total receivables represent amounts billed and amounts earned that are to be billed in the future (i.e., accrued receivables). Included in accrued receivables are services and SaaS and PaaS revenues earned in the current period but billed in the following period and amounts due under multi-year software license arrangements with extended payment terms for which the Company has an unconditional right to invoice and receive payment subsequent to invoicing.
| | | | | | | | |
| | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Billed receivables | | $ | 239,275 | | | $ | 240,137 | |
Allowance for doubtful accounts | | | (3,912 | ) | | | (4,799 | ) |
| | | | | | | | |
Billed receivables, net | | $ | 235,363 | | | $ | 235,338 | |
| | | | | | | | |
Accrued receivables | | | 336,858 | | | | 27,507 | |
Significant financing component | | | (35,029 | ) | | | — | |
| | | | | | | | |
Total accrued receivables, net | | | 301,829 | | | | 27,507 | |
Less current accrued receivables | | | 123,053 | | | | 27,507 | |
Less current significant financing component | | | (10,234 | ) | | | — | |
| | | | | | | | |
Total long-term accrued receivables, net | | $ | 189,010 | | | $ | — | |
| | | | | | | | |
Total receivables, net | | $ | 537,192 | | | $ | 262,845 | |
| | | | | | | | |
Total receivables, net is comprised of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Billed receivables | $ | 162,479 | | | $ | 179,177 | |
| Allowance for doubtful accounts | (2,861) | | | (3,912) | |
| Billed receivables, net | 159,618 | | | 175,265 | |
| Current accrued receivables, net | 160,787 | | | 167,614 | |
| Long-term accrued receivables, net | 276,164 | | | 215,772 | |
| Total accrued receivables, net | 436,951 | | | 383,386 | |
| Total receivables, net | $ | 596,569 | | | $ | 558,651 | |
One customer accounted for 13.8% of the Company's consolidated receivables balance as of December 31, 2021. No customer accounted for more than 10% of the Company’s consolidated receivables balance as of December 31,
2018 and 2017.2020.
The Company maintains a generalan allowance for doubtful accounts for expected future credit losses that is calculated based on historical experience, along with additional customer -specific allowances.current economic trends, and expectations of near term economic trends. The Company regularly monitors its credit risk exposures in consolidated receivables. In estimating the necessary level
The following reflects activity in the Company’s allowance for doubtful accounts receivable for the periods indicated (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Balance, beginning of period | | $ | (4,799 | ) | | $ | (3,873 | ) | | $ | (5,045 | ) |
Provision increase | | | (1,505 | ) | | | (2,086 | ) | | | (1,595 | ) |
Amounts written off, net of recoveries | | | 2,269 | | | | 1,305 | | | | 2,551 | |
Foreign currency translation adjustments and other | | | 123 | | | | (145 | ) | | | 216 | |
| | | | | | | | | | | | |
Balance, end of period | | $ | (3,912 | ) | | $ | (4,799 | ) | | $ | (3,873 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Balance, beginning of period | $ | (3,912) | | | $ | (5,149) | | | $ | (3,912) | |
| Provision (increase) decrease | 1,125 | | | 374 | | | (2,561) | |
| Amounts written off, net of recoveries | (82) | | | 941 | | | 1,368 | |
| Foreign currency translation adjustments and other | 8 | | | (78) | | | (44) | |
| Balance, end of period | $ | (2,861) | | | $ | (3,912) | | | $ | (5,149) | |
Provision
increases(increases) decreases recorded in general and administrative expense during the years ended December 31,
2018, 2017,2021, December 31, 2020, and
2016,2019, reflect
increases(increases) decreases in the allowance for doubtful accounts based upon collection experience,
in the geographic regions in which the Company conducts business, net of collection of customer-specific receivables that were previously reserved for as doubtful of collection.
Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and PaaS services in advance of recording the related revenue.
Changes in deferred revenue were as follows (in thousands):
| | | | |
| | | Deferred
Revenue | |
Balance, January 1, 2018 | | $ | 145,344 | |
Deferral of revenue | | | 215,188 | |
Recognition of deferred revenue | | | (200,061 | ) |
Foreign currency translation | | | (4,336 | ) |
| | | | |
Balance, December 31, 2018 | | $ | 156,135 | |
| | | | |
| | | | | |
| Balance, December 31, 2019 | $ | 118,939 | |
| Deferral of revenue | 149,363 | |
| Recognition of deferred revenue | (141,313) | |
| Foreign currency translation | 2,424 | |
| Balance, December 31, 2020 | 129,413 | |
| Deferral of revenue | 154,419 | |
| Recognition of deferred revenue | (171,530) | |
| Foreign currency translation | (1,952) | |
| Balance, December 31, 2021 | $ | 110,350 | |
Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include:
•Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty.
•SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient.
SaaS and PaaS revenue from variable consideration that will be recognized in accordance withexpedient or meets the direct allocation method.
objective.
Revenue allocated to remaining performance obligations was
$666.4$818.2 million as of December 31,
2018,2021, of which the Company expects to recognize approximately 48% over the next 12 months and the remainder thereafter.
During the year ended December 31,
2018,2021, the revenue recognized by the Company from performance obligations satisfied in previous periods was
$29.6$21.0 million.
Costs to Obtain and Fulfill a Contract
The Company accounts for costs to obtain and fulfill its contracts in accordance with ASC
340-40.
The Company capitalizes certain of its sales commissions that meet the definition of incremental costs of obtaining a contract and for which the amortization period is greater than one year. The costs associated with those sales commissions
isare capitalized during the period in which the Company becomes obligated to pay the commissions and
isare amortized over the period in which the related products or services are transferred to the customer. As of December 31,
2018, $1.32021 and 2020, $3.0 million and
$11.7$1.3 million of these costs are included in other current assets,
respectively, and
$11.0 million and $6.2 million of these costs are included in other
non-current noncurrent assets, respectively, on the consolidated balance sheets. During the
yearyears ended December 31,
2018,2021 and 2020, the Company recognized
$8.4$5.2 million and $4.7 million of sales commission expense,
respectively, related to the amortization of these costs, which is included in selling and marketing
expense.expense on the consolidated statements of operations.
The Company capitalizes costs incurred to fulfill its contracts that: (1) relate directly to the arrangement, (2) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the arrangement, and (3) are expected to be recovered through revenue generated under the arrangement. Contract fulfillment costs are expensed as the Company transfers the related services to the customer. As of December 31, 2018,2021 and 2020, $0.2 million and $12.6less than $0.1 million of these costs are included in other current assets, and $10.1 million and $9.5 million of these costs are included in othernon-current noncurrent assets, respectively, on the consolidated balance sheets. The amounts capitalized primarily relate to direct costs that enhance resources under the Company’s SaaS and PaaS arrangements. During the yearyears ended December 31, 2018,2021 and 2020, the Company recognized $4.7$4.5 million and $4.4 million of expense, respectively, related to the amortization of these costs, which is included in cost of revenue.
Financial Statement Effectrevenue on the consolidated statements of Applying ASC 606
Asoperations.
3. Acquisition
Speedpay
On May 9, 2019, the
modified retrospective transition method does not resultCompany acquired Speedpay, a subsidiary of The Western Union Company (“Western Union”), for $754.1 million in
recastcash, including working capital adjustments, pursuant to a Stock Purchase Agreement, among the Company, Western Union, and ACI Worldwide Corp., a wholly owned subsidiary of the
prior yearCompany. The Company has included the financial results of Speedpay in the consolidated financial statements
ASC 606 requiresfrom the date of acquisition. The combination of the Company
to provide additional disclosures for the amount by which each financial statement line item is affected by adoption of the standard and
explanation of the reasons for significant changes.The financial statement line items affected by adoption of ASC 606 are as follows (in thousands):
| | | | | | | | | | | | |
| | | December 31, 2018 | |
| | | As Reported | | | Without
Application of
ASC 606 | | | Effect of Change
Higher / (Lower) | |
Assets | | | | | | | | | | | | |
Receivables, net of allowances | | $ | 348,182 | | | $ | 272,409 | | | $ | 75,773 | |
Recoverable income taxes | | | 6,686 | | | | 13,539 | | | | (6,853 | ) |
Prepaid expenses | | | 23,277 | | | | 24,018 | | | | (741 | ) |
Other current assets | | | 39,830 | | | | 38,717 | | | | 1,113 | |
Accrued receivables, net | | | 189,010 | | | | — | | | | 189,010 | |
Deferred income taxes, net | | | 27,048 | | | | 61,554 | | | | (34,506 | ) |
Other noncurrent assets | | | 52,145 | | | | 41,590 | | | | 10,555 | |
Liabilities | | | | | | | | | | | | |
Deferred revenue | | | 104,843 | | | | 134,565 | | | | (29,722 | ) |
Income taxes payable | | | 5,239 | | | | 5,472 | | | | (233 | ) |
Other current liabilities | | | 88,054 | | | | 88,288 | | | | (234 | ) |
Deferred income taxes, net | | | 31,715 | | | | 10,178 | | | | 21,537 | |
Stockholders’ equity | | | | | | | | | | | | |
Total stockholders’ equity | | | 1,048,231 | | | | 805,228 | | | | 243,003 | |
| |
| | | Year Ended December 31, 2018 | |
| | | As Reported | | | Without
Application of
ASC 606 | | | Effect of Change
Higher / (Lower) | |
Revenues | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 433,025 | | | $ | 432,095 | | | $ | 930 | |
License | | | 280,556 | | | | 281,355 | | | | (799 | ) |
Maintenance | | | 219,145 | | | | 221,189 | | | | (2,044 | ) |
Services | | | 77,054 | | | | 77,595 | | | | (541 | ) |
Operating expenses | | | | | | | | | | | | |
Selling and marketing | | | 117,881 | | | | 110,417 | | | | 7,464 | |
Other income (expense) | | | | | | | | | | | | |
Interest income | | | 11,142 | | | | 831 | | | | 10,311 | |
Other, net | | | (3,724 | ) | | | (3,274 | ) | | | (450 | ) |
Income tax provision | | | | | | | | | | | | |
Income tax expense (benefit) | | | 22,878 | | | | 22,981 | | | | (103 | ) |
The following summarizes the significant changes resulting from the adoption of ASC 606 compared to if the Company had continued to recognize revenues under ASC985-605,Revenue Recognition: Software (ASC 605).
Receivables, Deferred Revenue, License and Maintenance Revenue, and Interest Income
The change in receivables, deferred revenue, license and maintenance revenue, and interest income is due to a change in the timing and the amount of recognition for software license revenues under ASC 606.
Under ASC 605, the Company recognized revenue upon delivery provided (i) there is persuasive evidence of an arrangement, (ii) collection of the fee is considered probable, and (iii) the fee is fixed or determinable. For software license arrangements in which a significant portion of the fee is dueSpeedpay bill pay solutions serves more than 12 months after delivery or when payment terms are significantly beyond4,000 customers across the Company’s standard business practice,United States, bringing expanded reach in existing and complementary market segments such as consumer finance, insurance, healthcare, higher education, utilities, government, and mortgage. The acquisition of Speedpay increased the license fee is deemed not fixed or determinable. For software license arrangements in which the fee is not considered fixed or determinable, the license is recognized as revenue as payments become due and payable, provided all other conditions for revenue recognition have been met.
License revenue under ASC 605 includes revenue from software license arrangements with extended payment terms for which the due and payable pattern of recognition was applied and revenue from renewals of software license arrangements in the period during which the renewal is signed. Under ASC 606, license revenue from these software license arrangements with extended payment terms is accelerated (i.e. upfront recognition) and adjusted for the effects of the financing component, if significant. The significant financing component in these software license arrangements is recognized as interest income over the extended payment period. As many of these software license arrangements were active as of the date the Company adopted ASC 606, the license fees are included in the Company’s cumulative adjustment to retained earnings. Under ASC 606, revenue for license renewals is recognized when the customer can begin to use and benefit from the license, which is generally at the commencement of the license renewal period.
Other Current Assets, Other Noncurrent Assets, and Selling and Marketing
Under ASC 606, certainscale of the Company’s sales commissions meetBiller business and allows the definitionacceleration of incremental costs of obtaining a contract. Accordingly, these costs are capitalizedplatform innovation through increased research and development and investment in ACI's Biller platform infrastructure.
To fund the expense is recognized as the related goods or services are transferred to the customer. Prior to the adoption of ASC 606,acquisition, the Company recognized sales commission expenses as they were incurred.Deferred Income Taxes, Net
The changeamended its existing Credit Agreement, dated February 24, 2017, for an additional $500.0 million senior secured term loan (“Delayed Draw Term Loan”), in deferred income taxes is primarily dueaddition to the deferred tax effects resulting from the adjustment to retained earnings for the cumulative effect of applying ASC 606 to active contracts as of the adoption date.
The adoption of ASC 606 had no impact in total on the Company’s cash flows from operations.
3. Divestiture
Community Financial Services
On March 3, 2016, the Company completed the sale of its Community Financial Services (“CFS”) related assets and liabilities to Fiserv, Inc. (“Fiserv”) for $200.0 million. The sale of CFS, which was not strategic to the Company’s long-term strategy, is part of the Company’s ongoing efforts to expand as a provider of software products, SaaS-based solutions, and PaaS-based solutions facilitating real-time electronic and eCommerce payments for large banks, financial intermediaries, and merchants and corporates worldwide. The sale included employee agreements and customer contracts, as well as technology assets and intellectual property.
For the year ended December 31, 2016, the Company recognized a netafter-tax gain of $93.4drawing $250.0 million on the saleavailable Revolving Credit Facility. See Note 4,
Debt, for terms of assets to Fiserv. This gain includes final post-closing adjustments pursuantthe Credit Agreement. The remaining acquisition consideration was funded with cash on hand.
The Company expensed approximately $22.2 million of costs related to the
definitive transaction agreementacquisition of
$0.5 million recognized during the year ended December 31, 2016.The Company and Fiserv also entered into a Transition Services Agreement (“TSA”), whereby the Company continues to perform certain functions on Fiserv’s behalf during a migration period. The TSA is meant to reimburse the Company for direct costs incurred to provide such functions, which are no longer generating revenue for the Company.
4. Software and Other Intangible Assets
At December 31, 2018, software net book value totaled $137.2 million, net of $252.2 million of accumulated amortization. Included in this net book value amount is software for resale of $27.5 million and software acquired or developed for internal use of $109.7 million.
At December 31, 2017, software net book value totaled $155.4 million, net of $230.7 million of accumulated amortization. Included in this net book value amount is software for resale of $40.9 million and software acquired or developed for internal use of $114.5 million.
Amortization of software for resale is computed using the greater of (a) the ratio of current revenues to total current and future revenues expected to be derived from the software or (b) the straight-line method over an estimated useful life of generally three to ten years. Software for resale amortization expense totaled $12.8 million during both the years ended December 31, 2018 and 2017, and totaled $13.9 millionSpeedpay for the year ended December 31, 2016.2019. These software amortization expense amountscosts, which consist primarily of investment bank, consulting, and legal fees, are reflectedincluded in cost of revenuegeneral and administrative expenses in the accompanying consolidated statements of operations.
Amortization
Speedpay contributed approximately $227.7 million in total revenue and $24.9 million in total operating income for the year ended December 31, 2019.
In connection with the acquisition, the Company recorded the following amounts based upon the finalized purchase price allocation as follows (in thousands, except weighted average useful lives):
| | | | | | | | | | | | | | |
| | Amount | | Weighted Average Useful Lives |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 135 | | | |
| Receivables, net of allowances | | 17,658 | | | |
| Settlement assets | | 239,604 | | | |
| Prepaid expenses | | 317 | | | |
| Other current assets | | 19,585 | | | |
| Total current assets acquired | | 277,299 | | | |
| Noncurrent assets: | | | | |
| Goodwill | | 366,508 | | | |
| Software | | 113,600 | | | 7 years |
| Customer relationships | | 208,500 | | | 15 years |
| Trade names | | 10,900 | | | 5 years |
| Other noncurrent assets | | 3,745 | | | |
| Total assets acquired | | 980,552 | | | |
| Current liabilities: | | | | |
| Accounts payable | | 6,623 | | | |
| Settlement liabilities | | 212,892 | | | |
| Employee compensation | | 1,959 | | | |
| Other current liabilities | | 3,802 | | | |
| Total current liabilities acquired | | 225,276 | | | |
| Noncurrent liabilities: | | | | |
| Other noncurrent liabilities | | 1,219 | | | |
| Total liabilities acquired | | 226,495 | | | |
| Net assets acquired | | $ | 754,057 | | | |
Unaudited Pro Forma Financial Information
The pro forma financial information in the table below presents the combined results of operations for internal useACI and Speedpay as if the acquisition had occurred January 1, 2019. The pro forma information is computed usingshown for illustrative purposes only and is not necessarily indicative of future results of operations of the straight-line method over anCompany or results of operations of the Company that would have actually occurred had the transaction been in effect for the periods presented. This pro forma information is not intended to represent or be indicative of actual results had the acquisition occurred as of the beginning of each period, and does not reflect potential synergies, integration costs, or other such costs or savings.
Certain pro forma adjustments have been made to net income for the year ended December 31, 2019, to give effect to estimated useful life of generally three to ten years. Software for internal useadjustments that remove the amortization expense recorded duringon eliminated Speedpay historical identifiable intangible assets, add amortization expense for the value of acquired identified intangible assets (primarily acquired software, customer relationships, and trademarks), and add estimated interest expense on the Company’s additional Delayed Draw Term Loan and Revolving Credit Facility borrowings. Additionally, certain transaction expenses that are a direct result of the acquisition have been excluded. The years ended December 31, 2018, 2017,2021 and 2016, totaled $41.7 million, $45.2 million, and $45.7 million, respectively. These software amortization expense amounts2020, are reflected in depreciation and amortizationnot presented, as Speedpay is included in the Company's consolidated statementsresults for both periods.
The
carrying amount and accumulated amortization offollowing is the
Company’s other intangible assets subject to amortization at each balance sheet date are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | | December 31, 2017 | |
| | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Balance | | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Balance | |
Customer relationships | | $ | 297,991 | | | $ | (131,187 | ) | | $ | 166,804 | | | $ | 305,218 | | | $ | (116,677 | ) | | $ | 188,541 | |
Trademarks and tradenames | | | 16,348 | | | | (15,025 | ) | | | 1,323 | | | | 16,646 | | | | (13,906 | ) | | | 2,740 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 314,339 | | | $ | (146,212 | ) | | $ | 168,127 | | | $ | 321,864 | | | $ | (130,583 | ) | | $ | 191,281 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other intangible assets amortization expense recorded duringunaudited summarized pro forma financial information for the yearsyear ended December 31, 2018, 2017, and 2016, totaled $19.0 million, $19.4 million, and $21.2 million, respectively.
Based on capitalized intangible assets at December 31, 2018, and assuming no impairment of these intangible assets, estimated amortization expense amounts in future fiscal years are as follows2019 (in thousands)thousands, except per share data):
| | | | | | | | |
Fiscal Year Ending December 31, | | Software
Amortization | | | Other
Intangible
Assets
Amortization | |
2019 | | $ | 49,229 | | | $ | 21,825 | |
2020 | | | 39,014 | | | | 20,944 | |
2021 | | | 25,382 | | | | 20,451 | |
2022 | | | 12,228 | | | | 20,303 | |
2023 | | | 6,349 | | | | 20,000 | |
Thereafter | | | 5,026 | | | | 64,604 | |
| | | | | | | | |
Total | | $ | 137,228 | | | $ | 168,127 | |
| | | | | | | | |
5. | | | | | |
| Year Ended December 31, 2019 |
| Pro forma revenue | $ | 1,382,957 | |
| Pro forma net income | $ | 82,003 | |
| Pro forma income per share: | |
| Basic | $ | 0.71 | |
| Diluted | $ | 0.69 | |
As of December 31,
2018,2021, the Company had
$285.0$678.2 million and $400.0 million outstanding under its Term
Credit FacilityLoans and Senior Notes, respectively, with up to
$500.0$498.5 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as
amended.amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement. The amount of unused borrowings actually available varies in accordance with the terms of the agreement.
On February 24, 2017,April 5, 2019, the Company (and its wholly-owned subsidiaries, ACI Worldwide Corp. and ACI Payments, Inc. entered into an amendedthe Second Amended and restated credit agreementRestated Credit Agreement (the “Credit Agreement”), replacingwith the existing agreement, with a syndicate of financial institutions, as lenders, and Bank of America, N.A., as Administrative Agent, providingadministrative agent for revolving loans, swingline loans, lettersthe lenders, to amend and restate the Company's existing agreement, as amended, dated February 24, 2017. The amended Credit Agreement permitted the Company to borrow up to $500.0 million in the form of credit,an additional senior secured term loan; extended the revolver and the existing term loan maturity date from February 24, 2022, to April 5, 2024; increased the maximum consolidated senior secured net leverage ratio covenant from 3.50:1.00 to 3.75:1.00; and increased the maximum consolidated total net leverage ratio covenant from 4.25:1.00 to 5.00:1.00, with subsequent decreases occurring every three quarters thereafter for a term loan. specified period of time; among other things. In connection with amending the Credit Agreement, the Company incurred and paid debt issuance costs of $12.8 million during the year ended December 31, 2019.
The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans,
and (b) a five-year
$415.0$279.0 million senior secured term loan facility (the
“Term Credit Facility”“Initial Term Loan”) and (c) a five-year $500.0 million Delayed Draw Term Loan (together with the Initial Term Loan, the "Term Loans", and together with
the Initial Term Loan and the Revolving Credit Facility, the “Credit Facility”). The Credit Agreement also allows the Company to request optional incremental term loans and increases in the revolving commitment.
The loans under the Credit Facility may be made to the Company, and the letters of credit under the Revolving Credit Facility may be issued on behalf of the Company. On February 24, 2017, the Company borrowed an aggregate principal amount of $12.0 million under the Revolving Credit Facility and borrowed $415.0 million under the Term Credit Facility.
At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the
Administrative Agentadministrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1% or (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for a
one-month interest period, adjusted for certain additional costs plus 1% or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs plus an applicable margin. Based on the calculation of the applicable consolidated total leverage ratio, the applicable margin for borrowings under the Credit Facility is between 0.25% to 1.25% with respect to base rate borrowings and between 1.25% and 2.25% with respect to LIBOR rate borrowings. Interest is due and payable monthly. The interest rate in effect
at December 31, 2018, for the Credit Facility
as of December 31, 2021, was
4.27%2.10%.
The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees.
The Company’s obligations under the Credit Facility and cash management arrangements entered into with lenders under the Credit Facility (or affiliates thereof) and the obligations of the subsidiary guarantors are secured by first-priority security interests in substantially all assets of the Company and any guarantor, including 100% of the capital stock of ACI Worldwide Corp. and each domestic subsidiary of the Company, each domestic subsidiary of any guarantor, and 65% of the voting capital stock of each foreign subsidiary of the Company that is directly owned by the Company or a guarantor, in each case subject to
certain exclusions set forth in the credit documentation governing the Credit Facility.
On October 9, 2018, the Company entered into the first amendment to theThe collateral agreement of the Credit
Agreement. This amendmentAgreement, as amended, released the lien on certain assets of
OfficialACI Payments,
Corporation (“OPAY”)Inc., our electronic bill presentment and payment affiliate, to allow
OPAYACI Payments, Inc. to comply with certain eligible securities and unencumbered asset requirements related to money transmitter or transfer license rules and regulations.
The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict the Company’s ability and as applicable, theits subsidiaries' ability of its subsidiaries to: create, incur, assume or suffer
to exist any additional indebtedness; create, incur, assume or suffer to exist any liens; enter into agreements and other arrangements that include negative pledge clauses; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; create restrictions on the payment of dividends or other distributions by subsidiaries; make investments, loans, advances and acquisitions; merge, consolidate or enter into any similar combination or sell assets, including equity interests of the subsidiaries; enter into sale and leaseback transactions; directly or indirectly engage in transactions with affiliates; alter in any material respect the character or conduct of the business; enter into amendments of or waivers under subordinated indebtedness, organizational documents and certain other material agreements; and hold certain assets and incur certain liabilities.
Letter of Credit
On August 12, 2020, the Company and ACI Payments, Inc. entered into a standby letter of credit (the “Letter of Credit”), under the terms of the Credit Agreement, for $1.5 million. The Letter of Credit, currently effective through July 31, 2022, will automatically renew for successive one-year renewal terms unless Bank of America, N.A. provides written notice of its intent to terminate the agreement at least 90 days prior to the end of the remaining renewal term. The Letter of Credit reduces the maximum available borrowings under the Revolving Credit Facility to $498.5 million. Upon expiration of the Letter of Credit, maximum borrowings would return to $500.0 million.
Expected Discontinuation of LIBOR
The administrator of LIBOR has announced it will cease publication of the one-week and two-month LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining U.S. dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the first publication of SOFR rates was released in April 2018.
The Company is evaluating the potential impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including SOFR. The Company's Credit Agreement is currently indexed to U.S dollar LIBOR and the maturity date of the Credit Agreement extends beyond June 30, 2023. The Credit Agreement contemplates the discontinuation of LIBOR and provides options for the Company in such an event. The Company will continue to actively assess the related opportunities and risks involved in this transition.
On August 21, 2018, the Company completed a $400.0 million offering of the 2026 Notes at an issue price of 100% of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750%, payable semi-annually in arrears on February 15 and August 15 of each year,
commencingwhich commenced on February 15, 2019.
Interest accrued from August 21, 2018. The 2026 Notes will mature on August 15, 2026.
In connection with the issuance of the 2026 Notes, the Company incurred and paid debt issuance costs of $7.3 million as of December 31, 2018.The Company used the net proceeds of the offering described above to redeem, in full, the Company’s outstanding 2020 Notes, including accrued interest, and repaid a portion of the outstanding amount under the Term Credit Facility.
Maturities on
long-term debt outstanding at December 31,
2018,2021, are as follows (in thousands):
| | | | |
Fiscal year ending December 31, | | | |
2019 | | $ | 23,747 | |
2020 | | | 23,747 | |
2021 | | | 31,662 | |
2022 | | | 205,803 | |
2023 | | | — | |
Thereafter | | | 400,000 | |
| | | | |
Total | | $ | 684,959 | |
| | | | |
The Credit Agreement and 2026 Notes also contain certain customary mandatory prepayment provisions. As specified in the Credit Agreement and 2026 Notes agreement, if certain events shall occur, the Company may be required to repay all or a portion of the amounts outstanding under the Credit Facility or 2026 Notes.
The Credit Facility will mature on February 24, 2022, and the 2026 Notes will mature on August 15, 2026.
| | | | | |
| Fiscal Year Ending December 31, | |
| 2022 | $ | 50,431 | |
| 2023 | 69,906 | |
| 2024 | 557,823 | |
| 2025 | — | |
| 2026 | 400,000 | |
| Thereafter | — | |
| Total | $ | 1,078,160 | |
The Revolving Credit Facility and 2026 Notes do not amortize. The Term
Credit Facility doesLoans do amortize, with principal payable in consecutive quarterly installments.
The Credit Agreement and 2026 Notes contain certain customary affirmative covenants and negative covenants that limit or restrict, subject to certain exceptions, the incurrence of liens, indebtedness of subsidiaries, mergers, advances, investments, acquisitions, transactions with affiliates, change in nature of business, and the sale of the assets. In addition, the Credit Agreement and 2026 Notes contain certain customary mandatory prepayment provisions. The Company is also required to maintain a consolidated leverage ratio at or below a specified amount and an interest coverage ratio at or above a specified amount. As specified in the Credit Agreement and 2026 Notes agreement, if an event of default shallcertain events occur and be continuing,continue, the Company may be required to repay all amounts outstanding under the Credit Facility and 2026 Notes. As of December 31, 2018,2021, and at all times during the period, the Company was in compliance with its financial debt covenants.
Total debt is comprised of the following (in thousands):
| | | | | | | | |
| | | December 31,
2018 | | | December 31,
2017 | |
Term credit facility | | $ | 284,959 | | | $ | 394,250 | |
Revolving credit facility | | | — | | | | 2,000 | |
5.750% Senior Notes, due August 2026 | | | 400,000 | | | | — | |
6.375% Senior Notes, due August 2020 | | | — | | | | 300,000 | |
Debt issuance costs | | | (13,203 | ) | | | (10,521 | ) |
| | | | | | | | |
Total debt | | | 671,756 | | | | 685,729 | |
Less current portion of term credit facility | | | 23,747 | | | | 20,750 | |
Less current portion of debt issuance costs | | | (2,980 | ) | | | (2,964 | ) |
| | | | | | | | |
Total long-term debt | | $ | 650,989 | | | $ | 667,943 | |
| | | | | | | | |
Other
During
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Term loans | $ | 678,160 | | | $ | 717,110 | |
| Revolving credit facility | — | | | 55,000 | |
| 5.750% Senior Notes, due August 2026 | 400,000 | | | 400,000 | |
| Debt issuance costs | (12,418) | | | (17,103) | |
| Total debt | 1,065,742 | | | 1,155,007 | |
| Less: current portion of term loans | 50,431 | | | 38,950 | |
| Less: current portion of debt issuance costs | (4,561) | | | (4,685) | |
| Total long-term debt | $ | 1,019,872 | | | $ | 1,120,742 | |
Overdraft Facility
In 2019, the year endedCompany and ACI Payments, Inc. entered in to an uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at the federal funds effective rate plus 2.25% based on the Company’s average outstanding balance and the frequency in which overdrafts occur. The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process. Amounts outstanding on the overdraft facility are included in other current liabilities in the consolidated balance sheet. As of December 31, 2018,2021, there was $75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2020, there was no amount outstanding on the overdraft facility.
Other
The Company
financedfinances certain multi-year license agreements for
internally-used software for $11.9 million with annual payments through June 2023. As of December 31, 2018, $9.4 million is outstanding, of which $2.5 million and $6.9 million is included in other current liabilities and other noncurrent liabilities, respectively, in the accompanying consolidated balance sheet as of December 31, 2018. Theseinternal-use software. Upon execution, these arrangements
have beenare treated as a
non-cash investing and financing activity for purposes of the consolidated
statementstatements of cash flows.
6. Corporate Restructuring and Other Organizational Changes
Lease Terminations
During the year ended As of December 31, 2017, the Company ceased use2021, $2.9 million was outstanding under license agreements previously entered into, all of a portion of its leased facilitieswhich is included in Edison, NJ; Chantilly, VA; Charlotte, NC; Parsippany, NJ; and Waltham, MA. As a result, the Company recorded additional expense of $2.4 million, which was recorded in general and administrative expensesother current liabilities in the consolidated statementsbalance sheet. As of operations for the year ended December 31, 2017.
During the year ended December 31, 2016, the Company ceased use2020, $7.8 million was outstanding, of a portion of its leased facilities in Watford, U.K.; Providence, RI; Chantilly, VA; and West Hills, CA. As a result, the Company recorded additional expense of $5.0 million, which was recorded in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2016.
The components of corporate restructuring and other reorganization activities from the acquisitions are included in the following table (in thousands):
| | | | |
| | | Facility
Closures | |
Balance, December 31, 2016 | | $ | 4,559 | |
Restructuring charges (adjustments) incurred, net | | | 2,447 | |
Amounts paid during the period | | | (1,285 | ) |
Foreign currency translation adjustments | | | 224 | |
| | | | |
Balance, December 31, 2017 | | $ | 5,945 | |
Amounts paid during the period | | | (1,732 | ) |
Foreign currency translation adjustments | | | (86 | ) |
| | | | |
Balance, December 31, 2018 | | $ | 4,127 | |
| | | | |
Of the $4.1 million facility closure liability, $1.6$5.6 million and $2.5$2.2 million is recordedwas included in other current liabilities and other noncurrent liabilities, respectively, in the consolidated balance sheet at December 31, 2018.
sheet. 5. Software and
Treasury StockIn 2005, the Company’s board approved a stock repurchase program authorizing the Company, as marketOther Intangible Assets
The carrying amount and
business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program. In February 2018, the board approved the repurchase of up to $200.0 millionaccumulated amortization of the
Company’s common stock, in place of the remaining purchase amounts previously authorized.The Company repurchased 2,346,427 shares for $54.5 million under the program for the year ended December 31, 2018. Under the programCompany's software assets subject to amortization at each balance sheet date the Company has repurchased 44,129,393 shares for approximately $547.8 million. As of December 31, 2018, the maximum remaining amount authorized for purchase under the stock repurchase program was $176.6 million.
During the year ended September 30, 2006, the Company began to issue shares of treasury stock upon exercise of stock options, payment of earned performance shares, issuance of restricted share awards (“RSAs”), vesting of restricted share units (“RSUs”), and for issuances of common stock pursuant to the Company’s employee stock purchase plan. Treasury shares issued during the year ended December 31, 2016, included 797,140; 148,322; and 470,029 shares issued pursuant to stock option exercises, RSA grants, and retention restricted share award (“retention RSA”) grants, respectively. Treasury shares issued during the year ended December 31, 2017, included 1,204,559 and 560,174 shares issued pursuant to stock option exercises and RSA grants, respectively. Treasury shares issued during the year ended December 31, 2018, included 1,379,704 and 10,000 shares issued pursuant to stock option exercises and RSUs vested, respectively.
8. Earnings Per Share
Basic earnings per share is computed in accordance with ASC 260,Earnings per Share,based on weighted average outstanding common shares. Diluted earnings per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options and RSUs.
The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings per shareare as follows (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 116,057 | | | | 118,059 | | | | 117,533 | |
Add: Dilutive effect of stock options and RSUs | | | 1,575 | | | | 1,385 | | | | 1,314 | |
| | | | | | | | | | | | |
Diluted weighted average shares outstanding | | | 117,632 | | | | 119,444 | | | | 118,847 | |
| | | | | | | | | | | | |
The diluted earnings per share computation excludes 2.2 million, 3.9 million, and 6.1 million options to purchase shares and contingently issuable shares
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Gross Carrying
Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying
Amount | | Accumulated Amortization | | Net Balance |
| Software for internal use | $ | 440,242 | | | $ | (283,109) | | | $ | 157,133 | | | $ | 430,330 | | | $ | (240,717) | | | $ | 189,613 | |
| Software for resale | 127,904 | | | (127,255) | | | 649 | | | 130,261 | | | (123,418) | | | 6,843 | |
| Total software | $ | 568,146 | | | $ | (410,364) | | | $ | 157,782 | | | $ | 560,591 | | | $ | (364,135) | | | $ | 196,456 | |
Software for internal use amortization expense recorded during the years ended December 31,
2018, 2017,2021, 2020, and
2016, respectively, as their effect would be anti-dilutive.Common stock outstanding as of December 31, 2018 and 2017, was 116,123,361 and 117,096,731, respectively.
9. Other, Net
Other, net is comprised of foreign currency transaction losses of $3.72019, totaled $69.3 million, $70.0 million, and $2.6$55.6 million, for the years ended December 31, 2018 and 2017, respectively, and foreign currency transaction gains of $4.1 million for the year ended December 31, 2016.
10. Segment Information
The Company reports financial performance based on its segments, ACI On Premise and ACI On Demand, and analyzes Segment Adjusted EBITDA as a measure of segment profitability.
The Company’s Chief Executive Officer is also the chief operating decision maker, or CODM. The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from Corporate operations.
ACI On Premise serves customers who manage theirrespectively. These software on site. Theseon-premise customers use the Company’s software to develop sophisticated solutions, whichamortization expense amounts are often part of a larger system located and managed at the customer specified site. These customers require a level of control and flexibility that ACI On Premise solutions can offer, and they have the resources and expertise to take a lead rolereflected in managing these solutions.
ACI On Demand serves the needs of banks and merchants and corporates who use payments to facilitate their core business. Theseon-demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-tenant environment, SaaS offerings, or in a multi-tenant environment, PaaS offerings.
Revenue is attributed to the reportable segments based upon the product sold and mechanism for delivery to the customer. Expenses are attributed to the reportable segments in one of three methods, (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual products, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities as well as information technology and facilities related expense for which multiple segments benefit. The Company also allocates certain depreciation costs to the segments.
Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’s segments and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280,Segment Reporting. Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude stock-based compensation, and net other income (expense). Duringin the first quarterconsolidated statements of 2018, the Company changed the presentation of its segment measure of profit and loss. As a result, the 2017 and 2016 segment disclosures have been recast to conform with the 2018 presentation.
Corporate and unallocated expenses consists of the corporate overhead costs that are not allocated to reportable segments. These overhead costs relate to human resources, finance, legal, accounting, merger and acquisition activity, and other costs that are not considered when management evaluates segment performance. For the year ended December 31, 2017, Corporate and unallocated expenses included $46.7 million of general and administrativeoperations.
Software for resale amortization expense for the legal judgment discussed in Note 14. For the year ended December 31, 2016, Corporate and unallocated expenses includes revenue and operating income from the operations and sale of CFS related assets and liabilities of $15.4 million and $151.7 million, respectively.
The following is selected financial data for the Company’s reportable segments for the periods indicated (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Revenues | | | | | | | | | | | | |
ACI On Premise | | $ | 576,755 | | | $ | 598,590 | | | $ | 591,252 | |
ACI On Demand | | | 433,025 | | | | 425,601 | | | | 399,033 | |
Corporate and other | | | — | | | | — | | | | 15,416 | |
| | | | | | | | | | | | |
Total revenue | | $ | 1,009,780 | | | $ | 1,024,191 | | | $ | 1,005,701 | |
| | | | | | | | | | | | |
Segment Adjusted EBITDA | | | | | | | | | | | | |
ACI On Premise | | $ | 323,902 | | | $ | 347,094 | | | $ | 312,188 | |
ACI On Demand | | | 12,015 | | | | (1,832 | ) | | | (2,624 | ) |
Depreciation and amortization | | | (97,350 | ) | | | (102,224 | ) | | | (103,454 | ) |
Stock-based compensation expense | | | (20,360 | ) | | | (13,683 | ) | | | (43,613 | ) |
Corporate and unallocated expenses | | | (92,296 | ) | | | (144,715 | ) | | | 58,633 | |
Interest, net | | | (30,388 | ) | | | (38,449 | ) | | | (39,654 | ) |
Other, net | | | (3,724 | ) | | | (2,619 | ) | | | 4,105 | |
| | | | | | | | | | | | |
Income before income taxes | | $ | 91,799 | | | $ | 43,572 | | | $ | 185,581 | |
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
ACI On Premise | | $ | 11,634 | | | $ | 13,094 | | | $ | 14,581 | |
ACI On Demand | | | 31,541 | | | | 34,171 | | | | 29,385 | |
Corporate | | | 54,175 | | | | 54,959 | | | | 59,488 | |
| | | | | | | | | | | | |
Total depreciation and amortization | | $ | 97,350 | | | $ | 102,224 | | | $ | 103,454 | |
| | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | |
ACI On Premise | | $ | 4,348 | | | $ | 2,234 | | | $ | 6,894 | |
ACI On Demand | | | 4,338 | | | | 2,230 | | | | 6,876 | |
Corporate | | | 11,674 | | | | 9,219 | | | | 29,843 | |
| | | | | | | | | | | | |
Total stock-based compensation expense | | $ | 20,360 | | | $ | 13,683 | | | $ | 43,613 | |
| | | | | | | | | | | | |
Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information.
The following is revenue by primary geographic market and primary solution category for the Company’s reportable segments for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | |
| | | ACI
On Premise | | | ACI
On Demand | | | Total | | | ACI
On Premise | | | ACI
On Demand | | | Total | |
Primary Geographic Markets | | | | | | | | | | | | | | | | | | | | | | | | |
Americas - United States | | $ | 131,382 | | | $ | 369,097 | | | $ | 500,479 | | | $ | 175,682 | | | $ | 365,553 | | | $ | 541,235 | |
Americas - Other | | | 61,969 | | | | 9,577 | | | | 71,546 | | | | 72,802 | | | | 9,429 | | | | 82,231 | |
EMEA | | | 296,157 | | | | 48,889 | | | | 345,046 | | | | 270,388 | | | | 47,872 | | | | 318,260 | |
Asia Pacific | | | 87,247 | | | | 5,462 | | | | 92,709 | | | | 79,718 | | | | 2,747 | | | | 82,465 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 576,755 | | | $ | 433,025 | | | $ | 1,009,780 | | | $ | 598,590 | | | $ | 425,601 | | | $ | 1,024,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Primary Solution Categories | | | | | | | | | | | | | | | | | | | | | | | | |
Bill Payments | | $ | — | | | $ | 275,526 | | | $ | 275,526 | | | $ | — | | | $ | 271,421 | | | $ | 271,421 | |
Digital Channels | | | 35,231 | | | | 40,342 | | | | 75,573 | | | | 47,973 | | | | 46,063 | | | | 94,036 | |
Merchant Payments | | | 30,153 | | | | 59,789 | | | | 89,942 | | | | 26,430 | | | | 50,523 | | | | 76,953 | |
Payments Intelligence | | | 42,647 | | | | 46,497 | | | | 89,144 | | | | 33,203 | | | | 47,123 | | | | 80,326 | |
Real-Time Payments | | | 92,068 | | | | 2,193 | | | | 94,261 | | | | 70,087 | | | | 2,785 | | | | 72,872 | |
Retail Payments | | | 376,656 | | | | 8,678 | | | | 385,334 | | | | 420,897 | | | | 7,686 | | | | 428,583 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 576,755 | | | $ | 433,025 | | | $ | 1,009,780 | | | $ | 598,590 | | | $ | 425,601 | | | $ | 1,024,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | | | Year Ended December 31, 2016 | |
| | | | | | | | | ACI
On Premise | | | ACI
On Demand | | | Other
Corporate | | | Total | |
Primary Geographic Markets | | | | | | | | | | | | | | | | | | | | | | | | |
Americas - United States | | | | | | | | | | $ | 164,058 | | | $ | 347,957 | | | $ | 15,416 | | | $ | 527,431 | |
Americas - Other | | | | | | | | | | | 110,463 | | | | 6,255 | | | | — | | | | 116,718 | |
EMEA | | | | | | | | | | | 217,576 | | | | 43,584 | | | | — | | | | 261,160 | |
Asia Pacific | | | | | | | | | | | 99,155 | | | | 1,237 | | | | — | | | | 100,392 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | $ | 591,252 | | | $ | 399,033 | | | $ | 15,416 | | | $ | 1,005,701 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Primary Solution Categories | | | | | | | | | | | | | | | | | | | | | | | | |
Bill Payments | | | | | | | | | | $ | — | | | $ | 255,540 | | | $ | — | | | $ | 255,540 | |
Digital Channels | | | | | | | | | | | 49,617 | | | | 59,597 | | | | 15,416 | | | | 124,630 | |
Merchant Payments | | | | | | | | | | | 29,311 | | | | 35,315 | | | | — | | | | 64,626 | |
Payments Intelligence | | | | | | | | | | | 24,665 | | | | 42,984 | | | | — | | | | 67,649 | |
Real-Time Payments | | | | | | | | | | | 70,289 | | | | 705 | | | | — | | | | 70,994 | |
Retail Payments | | | | | | | | | | | 417,370 | | | | 4,892 | | | | — | | | | 422,262 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | $ | 591,252 | | | $ | 399,033 | | | $ | 15,416 | | | $ | 1,005,701 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Digital Channels revenue includes $15.4 million fromCFS-related assets for the year ended December 31, 2016.
The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands):
| | | | | | | | |
| | | December 31, | |
| | | 2018 | | | 2017 | |
Long lived assets | | | | | | | | |
United States | | $ | 811,435 | | | $ | 759,513 | |
Other | | | 717,495 | | | | 613,556 | |
| | | | | | | | |
| | $ | 1,528,930 | | | $ | 1,373,069 | |
| | | | | | | | |
No single customer accounted for more than 10% of the Company’s consolidated revenuesrecorded during the years ended December 31, 2018, 2017,2021, 2020, and 2016. No other country outside2019, totaled $6.2 million, $8.5 million, and $11.0 million, respectively. These software amortization expense amounts are reflected in cost of revenue in the United States accounted for more than 10%consolidated statements of operations.
The carrying amount and accumulated amortization of the Company’s consolidated revenuesother intangible assets subject to amortization at each balance sheet date are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Gross Carrying
Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying
Amount | | Accumulated Amortization | | Net Balance |
| Customer relationships | $ | 507,962 | | | $ | (230,152) | | | $ | 277,810 | | | $ | 512,389 | | | $ | (197,787) | | | $ | 314,602 | |
| Trademarks and trade names | 23,839 | | | (18,645) | | | 5,194 | | | 24,115 | | | (16,734) | | | 7,381 | |
| Total other intangible assets | $ | 531,801 | | | $ | (248,797) | | | $ | 283,004 | | | $ | 536,504 | | | $ | (214,521) | | | $ | 321,983 | |
Other intangible assets amortization expense recorded during the years ended December 31,
2018, 2017,2021, 2020, and
2016.11.2019, totaled $37.0 million, $37.1 million, and $31.9 million, respectively.
Based on capitalized intangible assets as of December 31, 2021, estimated amortization expense amounts in future fiscal years are as follows (in thousands):
| | | | | | | | | | | | | | |
| Fiscal Year Ending December 31, | | Software
Amortization | | Other Intangible
Assets Amortization |
| 2022 | | $ | 61,357 | | | $ | 36,639 | |
| 2023 | | 42,647 | | | 36,320 | |
| 2024 | | 26,081 | | | 31,811 | |
| 2025 | | 19,852 | | | 23,237 | |
| 2026 | | 7,789 | | | 23,237 | |
| Thereafter | | 56 | | | 131,760 | |
| Total | | $ | 157,782 | | | $ | 283,004 | |
6. Stock-Based Compensation Plans
Employee Stock Purchase Plan
On April 6, 2017, the board approved the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which was approved by shareholders at the 2017 Annual Shareholder meeting. The 2017 ESPP provides employees with an opportunity to purchase shares of the Company’s common stock.
The 1999 Employee Stock Purchase Plan terminated upon the August 1, 2017, effective date of the 2017 ESPP. Under the Company’s 2017 ESPP, a total of 3,000,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. Participating employees are permitted to designate up to the lesser of $25,000 or 10% of their annual base compensation for the purchase of common stock under the ESPP. Purchases under the ESPP are made one calendar month after the end of each fiscal quarter. The price for shares of common stock purchased under the ESPP is 85% of the stock’s fair market value on the last business day of the three-month participation period.
Shares issued under the ESPP during the years ended December 31, 2018, 2017, and 2016, totaled 148,520; 158,194; and 188,453, respectively.
Additionally, the discount offered pursuant to the Company’s ESPP discussed above is 15%, which exceeds the 5%
non-compensatory guideline in ASC 718 and exceeds the Company’s estimated cost of raising capital. Consequently, the entire 15% discount to employees is deemed to be compensatory for purposes of calculating expense using a fair value method. Compensation expense related to the ESPP for
each of the years ended December 31,
2018, 2017,2021, 2020, and
2016,2019, was approximately
$0.5 million.$0.6 million, $0.7 million, and $0.6 million, respectively.
Stock Incentive Plans – Active Plans
2016
2020 Equity and
Performance Incentive
Compensation Plan
On March 23, 2016,June 9, 2020, upon recommendation of the board, stockholders approved the ACI Worldwide, Inc. 2020 Equity and Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan authorizes the board to provide for equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, the Company’s common stock ("awards"). The purpose of the 2020 Plan is to provide incentives and rewards for service and/or performance by providing awards to non-employee directors, officers, other employees, and certain consultants and other service providers of the Company and its subsidiaries. Following the approval of the 2020 Plan, the 2016 Equity and Performance Incentive Plan (the “2016 Incentive Plan”). The was terminated. Termination of the 2016 Incentive Plan is intendeddid not affect any equity awards outstanding under the 2016 Incentive Plan.
Subject to meetadjustment and share counting rules as described in the 2020 Plan, a total of 6,658,754 shares of common stock are available for awards granted under the 2020 Plan. Shares underlying certain awards under the 2020 Plan, the Company’s objective2005 Equity and Performance Incentive Plan (the "2005 Incentive Plan"), and the 2016 Incentive Plan (each including as amended or amended and restated) that are cancelled or forfeited, expire, are settled for cash, or are unearned after June 9, 2020, will again be available under the 2020 Plan.
The board generally will be able to amend the 2020 Plan, subject to stockholder approval in certain circumstances, as described in the 2020 Plan.
2016 Equity and Performance Incentive Plan
The Company's 2016 Incentive Plan provided for the grant of
balancing stockholder concerns about dilution with the need to provide appropriate incentives to achieve Companyincentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, performance
objectives.awards, and other awards. The 2016 Incentive Plan was adopted by the stockholders on June 14, 2016. Following the adoption of the 2016 Incentive Plan, the 2005
Equity and Performance Incentive Plan
as amended (the “2005 Incentive Plan”) was terminated.
Termination of the 2005 Incentive Plan did not affect any equity awards outstanding under the 2005 Incentive Plan.The 2016 Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted share and restricted share units, performance shares and performance units, and other awards (“awards”). Subject to adjustment in certain circumstances, the maximum number of shares of common stock that may bewas issued or transferred in connection with awards granted under the 2016 Incentive Plan
will be was the sum of (i) 8,000,000 shares of common stock and (ii) any shares of common stock that arewere represented by options previously granted under the 2005 Incentive Plan which arewere subsequently forfeited, expire,expired, or are canceledcancelled without delivery of common stock or which resultresulted in the forfeiture or relinquishment of common stock back to the Company. To the extent awards granted under the 2016 Incentive Plan terminate, expire, are canceled without being exercised, are forfeited or lapse for any reason, the shares of common stock subject to such award will again become available for grants under the 2016 Incentive Plan.
The 2016 Incentive Plan expressly prohibitsre-pricing stock options and appreciation rights. The 2016 Incentive Plan also, subject to certain limited exceptions, expressly requires aone-year vesting period for all stock options and appreciation rights.
No eligible person selected by the board to receive awards (“participant”) will receive stock options, stock appreciation rights, restricted share awards, restricted share units, and other awards under the 2016 Incentive Plan, during any calendar year, for more than 3,000,000 shares of common stock. In addition, no participant may receive performance shares or performance units having an aggregate value on the date of grant in excess of $9,000,000 during any calendar year. Each of the limits described above may be adjusted equitably to accommodate a change in the capital structure of the Company.
2005 Equity and Performance Incentive Plan
The
Company had aCompany's 2005 Incentive Plan, as amended, under which shares of the Company’s common stock were reserved for issuance to eligible employees or
non-employee directors of the Company. The 2005 Incentive Plan provided for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards, and other awards. The maximum number of shares of the Company’s common stock that was issued or transferred in connection with awards granted under the 2005 Incentive Plan was the sum of (i) 23,250,000 shares and (ii) any shares represented by outstanding options that had been granted under designated terminated stock option plans that were subsequently forfeited, expired, or are
canceledcancelled without delivery of the Company’s common stock.
Stock options granted pursuant to the
2016 Incentive Plan areCompany's incentive plans were granted at an exercise price not less than the market value per share of the Company’s common stock on the date of grant.
Under the 2016 Incentive Plan, theThe term of the outstanding options may not exceed ten years nor be less than one year. Vesting of options is determined by the compensation committee of the board and the administrator of the
2016 Incentive Planrespective plan and can vary based upon the individual award agreements. In addition, outstanding options do not have dividend equivalent rights associated with
them under the 2016 Incentive Plan.them.
A summary of stock option activity
under the various stock incentive plans previously described is as follows:
| | | | | | | | | | | | | | | | |
Stock Options | | Number of
Shares | | | Weighted-
Average
Exercise
Price ($) | | | Weighted-
Average
Remaining
Contractual
Term
(Years) | | | Aggregate
Intrinsic
Value of
In-the-Money
Options ($) | |
Outstanding, December 31, 2017 | | | 6,162,717 | | | $ | 16.83 | | | | | | | | | |
Granted | | | 170,455 | | | | 23.36 | | | | | | | | | |
Exercised | | | (1,379,704 | ) | | | 14.26 | | | | | | | | | |
Forfeited | | | (88,632 | ) | | | 18.56 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding, December 31, 2018 | | | 4,864,836 | | | $ | 17.76 | | | | 6.09 | | | $ | 48,214,530 | |
| | | | | | | | | | | | | | | | |
Exercisable, December 31, 2018 | | | 3,416,715 | | | $ | 17.04 | | | | 5.43 | | | $ | 36,309,807 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Weighted Average Exercise Price ($) | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value of In-the-Money Options ($) |
| Outstanding, December 31, 2020 | | 2,186,511 | | | $ | 17.87 | | | | | |
| Exercised | | (546,192) | | | 16.22 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Outstanding, December 31, 2021 | | 1,640,319 | | | $ | 18.42 | | | 3.26 | | $ | 26,697,917 | |
| Exercisable, December 31, 2021 | | 1,640,319 | | | $ | 18.42 | | | 3.26 | | $ | 26,697,917 | |
The
weighted-averageCompany did not grant
date fair value of stock options
granted during the years ended December 31,
2018, 2017,2021, 2020, and
2016, was $7.03, $6.24, and $5.59, respectively.2019. The total intrinsic value of stock options exercised during the years ended December 31,
2018, 2017,2021, 2020, and
2016,2019, was
$15.8$11.4 million,
$13.4$19.5 million, and
$6.8$16.0 million, respectively.
The fair value of options granted in the respective fiscal years are estimated on the date of grant using the Black-Scholes option-pricing model, acceptable under ASC 718, with the following weighted-average assumptions:
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Expected life (years) | | | 5.6 | | | | 5.6 | | | | 5.9 | |
Risk-free interest rate | | | 2.7 | % | | | 1.9 | % | | | 1.2 | % |
Expected volatility | | | 26.4 | % | | | 29.4 | % | | | 29.7 | % |
Expected dividend yield | | | — | | | | — | | | | — | |
Expected volatilities are based on the Company’s historical common stock volatility, derived from historical stock price data for periods commensurate with the options’ expected life. The expected life of options granted represents the period of time options are expected to be outstanding, based primarily on historical employee option exercise behavior. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon bonds issued with a term equal to the expected life at the date of grant of the options. The expected dividend yield is zero, as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future.
Long-term Incentive Program Performance Share Awards
During the year ended December 31,
2016, the Company granted supplemental stock options with three tranches at a grant date fair value of $7.46, $7.06, and $6.50, respectively, per share. These options vest, if at all, based upon (i) tranche one – any time after the third anniversary date if the stock has traded at 133% of the exercise price for at least 20 consecutive trading days, (ii) tranche two – any time after the fourth anniversary date if the stock has traded at 167% of the exercise price for at least 20 consecutive trading days, and (iii) tranche three – any time after the fifth anniversary date if the stock has traded at 200% of the exercise price for at least 20 consecutive trading days. The employees must remain employed with the Company as of the anniversary date for the supplemental stock options to vest. The exercise price of these options is the closing market price on the date the awards were granted. With respect to supplemental stock options granted that vest based on the achievement of certain market conditions, the grant date fair value was estimated using a Monte Carlo simulation model with the following weighted-average assumptions: | | | | |
| | Year Ended
December 31, 2016 | |
Expected life (years)
| | | 7.5 | |
Risk-free interest rate
| | | 1.6 | % |
Expected volatility
| | | 41.6 | % |
Expected dividend yield
| | | — | |
Long-term Incentive Program Performance Share Awards
During the years ended December 31, 2017, and 2016, pursuant to the Company’s 2016 Incentive Plan and 2005 Incentive Plan, the Company granted long-term incentive program performance share awards (“LTIP performance shares”). These LTIP performance shares arewere earned if at all, based upon the achievement, over a specified period that must not be less than one year and is typically a three-year performance period, of performance goals related to (i) the compound annual growth over the performance period in the sales for the Company as determined by the Company, and (ii) the cumulative operating income or EBITDA over the performance period as determined by the Company. Up to 200% of the LTIP performance shares maycould be earned
upon achievement of performance goals equal to or exceeding the maximum target levels for the performance goals over the performance period. On a quarterly basis, management must evaluate the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the consolidated financial statements.
During the fourth quarter of the year ended December 31, 2017, the Company revised the expected attainment rates for the awards granted in fiscal 2015 and 2016 from 100% to 0% and 65%, respectively, due to changes in actual and forecasted sales and operating income. During the fourth quarter of the year ended December 31, 2018, the Company revised the expected attainment rates for the awards granted in fiscal year 2016, excluding the 2016 supplemental awards, from 65% to 0%. The expected attainment rate for the 2017 grants remains at 100%.
A summary of the nonvested LTIP performance shares are as follows:
| | | | | | | | |
Nonvested LTIP Performance Shares | | Number of
Shares at
Expected
Attainment | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested at December 31, 2017 | | | 1,125,035 | | | $ | 18.94 | |
Forfeited | | | (93,147 | ) | | | 19.26 | |
Change in expected attainment for 2016 grants | | | (491,191 | ) | | | 17.91 | |
| | | | | | | | |
Nonvested at December 31, 2018 | | | 540,697 | | | $ | 19.83 | |
| | | | | | | | |
Restricted Share Awards
During the years ended December 31, 2017 and 2016, pursuant to the Company’s 2016 Incentive Plan and 2005 Incentive Plan, the Company granted RSAs. The awards have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. Under each arrangement, shares are issued without direct cost to the employee. RSAs granted to our board vest one year from grant or as of the next annual shareholders meeting, whichever is earlier. The Company estimates the fair value of the RSAs based upon the market price of the Company’s stock at the date of grant. The RSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period, and the participant has voting rights for each share of common stock. The Company recognizes compensation expense for RSAs on a straight-line basis over the requisite service period.
A summary of nonvested RSAs are as follows:
| | | | | | | | |
Nonvested Restricted Share Awards | | Number of
Shares | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested at December 31, 2017 | | | 503,237 | | | $ | 20.63 | |
Vested | | | (231,473 | ) | | | 21.20 | |
Forfeited | | | (58,427 | ) | | | 19.92 | |
| | | | | | | | |
Nonvested at December 31, 2018 | | | 213,337 | | | $ | 20.21 | |
| | | | | | | | |
During the year ended December 31, 2018, a total of 231,473 RSAs vested. The Company withheld 41,973 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
Performance-Based Restricted Share Awards
During the year ended December 31, 2015, pursuant to the Company’s 2005 Incentive Plan, the Company granted performance-based restricted share awards (“PBRSAs”). The PBRSA grants provided for the payment of
dividends on the Company’s common stock, if any, to the participant during the requisite service period, and the participant had voting rights for each share of common stock. These PBRSAs were earned, if at all, based upon the achievement of performance goals over a performance period and completion of the service period. The PBRSAs granted on June 9, 2015, had a graded-vesting period of three years (33% vest each year) and were subject to performance targets based on the Company’s EBITDA. The first 33% of the PBRSAs issued vested subject to meeting the EBITDA target for the year ending December 31, 2015. The remaining 66% of the PBRSAs issued vested 33% at the end of year two and 33% at the end of year three, subject to meeting the EBITDA target for the year ending December 31, 2016. The PBRSAs granted on September 15, 2015, had a vesting period of 1.3 years and were subject to performance targets based on the Company’s EBITDA for the year ending December 31, 2016. In no event did any of the PBRSAs become earned if the Company’s EBITDA was below a predetermined minimum threshold level at the conclusion of the performance period. Assuming achievement of the predetermined EBITDA threshold level, up to 150% of the PBRSAs were earned upon achievement of performance goals equal to or exceeding the maximum target levels for the performance goals over the performance period. On a quarterly basis, management evaluated the probability that the threshold performance goals werewould be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the consolidated financial statements.
During the year ended December 31,
2016,2021, the
first trancheCompany modified the performance target for the remaining outstanding long-term incentive program performance shares in consideration of the
June 9th grant vested at 90.4%.impact of the COVID-19 pandemic, resulting in additional stock-based compensation expense of approximately $0.4 million. During
the first quarter of the year ended December 31,
2017, the Company revised the attainment rate for the second and third tranches of the June 9th grant and the September 15th grant from 100% to 98% due to actual EBITDA achieved. The Company recognized compensation expense for PBRSAs on a straight-line basis over the requisite service periods.A summary of nonvested PBRSAs are as follows:
| | | | | | | | |
Nonvested Performance-Based Restricted Share Awards | | Number of
Shares | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested as of December 31, 2017 | | | 173,636 | | | $ | 24.41 | |
Vested | | | (173,636 | ) | | | 24.41 | |
| | | | | | | | |
Nonvested as of December 31, 2018 | | | — | | | $ | — | |
| | | | | | | | |
During the years ended December 31, 2018,2021, a total of 173,636 PBRSAs10,457 LTIPs vested. The Company withheld 64,6994,527 of those shares to pay the employees’employees' portion of the minimum payroll withholding taxes.
Total Shareholder Return Awards
During the years ended December 31,
20182021, 2020, and
2017,2019, pursuant to the
2020 Plan and 2016 Incentive Plan, the Company granted total shareholder return awards (“TSRs”). TSRs are performance shares that are earned, if at all, based upon the Company’s total shareholder return as compared to a group of peer companies over a three-year performance period. The award payout can range from 0% to 200%. To determine the grant date fair value of the TSRs, a Monte Carlo simulation model is used. The Company recognizes compensation expense for the TSRs over a three-year performance period based on the grant date fair value.
The grant date fair value of the TSRs was estimated using the following weighted-average assumptions:
| | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | |
Expected life (years) | | | 2.9 | | | | 2.9 | |
Interest rate | | | 2.4 | % | | | 1.5 | % |
Volatility | | | 28.0 | % | | | 26.5 | % |
Dividend Yield | | | — | | | | — | |
A summary of nonvested TSRs
areis as follows:
| | | | | | | | |
Nonvested Total Shareholder Return Awards | | Number of
Shares at
Expected
Attainment | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested as of December 31, 2017 | | | 143,649 | | | $ | 24.37 | |
Granted | | | 541,214 | | | | 31.31 | |
Forfeited | | | (42,855 | ) | | | 30.19 | |
Change in attainment | | | 76,923 | | | | 24.37 | |
| | | | | | | | |
Nonvested as of December 31, 2018 | | | 718,931 | | | $ | 29.25 | |
| | | | | | | | |
Restricted Share Units
| | | | | | | | | | | |
| Number of
Shares | | Weighted Average
Grant Date Fair Value |
| Nonvested as of December 31, 2020 | 1,367,728 | | | $ | 34.59 | |
| Granted | 367,317 | | | 50.60 | |
| Vested | (782,588) | | | 31.31 | |
| Forfeited | (189,030) | | | 38.85 | |
| Change in payout rate | 391,294 | | | 31.31 | |
| Nonvested as of December 31, 2021 | 1,154,721 | | | $ | 40.10 | |
During the year ended December 31, 2021, a total of 782,588 TSRs awards granted in fiscal 2018 vested and achieved a payout rate of 200% based on the Company's total shareholder return as compared to a group of peer companies over a three-year performance period. The Company withheld 205,373 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
The fair value of TSRs granted during the years ended December 31, 2021, 2020, and 2019, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, using the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Expected life (years) | 2.8 | | 2.8 | | 2.8 |
| Risk-free interest rate | 0.3 | % | | 0.5 | % | | 2.5 | % |
| Volatility | 41.2 | % | | 31.4 | % | | 29.3 | % |
| Expected dividend yield | — | | | — | | | — | |
Restricted Share Units
During the years ended December 31, 2021, 2020, and 2019, pursuant to
the 2020 Plan and the 2016 Incentive Plan, the Company granted restricted share unit awards (“RSUs”). RSUs generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates.
RSUs granted to the board vest one year from grant or as of the next annual shareholders meeting, whichever is earlier. Under each arrangement, RSUs are issued without direct cost to the employee on the vesting date. The Company estimates the fair value of the RSUs based upon the market price of the Company’s stock
aton the date of grant. The Company recognizes compensation expense for RSUs on a straight-line basis over the requisite service period.
A summary of nonvested RSUs
areis as follows:
| | | | | | | | |
Nonvested Restricted Share Units | | Number of
Shares | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested as of December 31, 2017 | | | — | | | $ | — | |
Granted | | | 714,123 | | | | 23.81 | |
Vested | | | (10,000 | ) | | | 25.72 | |
Forfeited | | | (53,078 | ) | | | 23.36 | |
| | | | | | | | |
Nonvested as of December 31, 2018 | | | 651,045 | | | $ | 23.82 | |
| | | | | | | | |
| | | | | | | | | | | |
| Number of
Shares | | Weighted Average
Grant Date Fair Value |
| Nonvested as of December 31, 2020 | 1,118,182 | | | $ | 27.34 | |
| Granted | 630,717 | | | 38.63 | |
| Vested | (522,618) | | | 27.69 | |
| Forfeited | (280,130) | | | 31.10 | |
| Nonvested as of December 31, 2021 | 946,151 | | | $ | 33.57 | |
During the year ended December 31,
2018,2021, a total of
10,000522,618 RSUs vested.
The Company withheld 155,031 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
As of December 31,
2018,2021, there was unrecognized compensation expense of
$13.2 million related to TSRs, $10.8$20.1 million related to RSUs
$3.8and $17.3 million related to
LTIP performance shares, $1.9 million related to nonvested stock options, and $2.5 million related to nonvested RSAs,TSRs, which the Company expects to recognize over
weighted-average periodsa weighted average period of
2.0 years, 2.1 years, 1.2 years, 0.9 years, and 1.2 years, respectively.1.8 years.
The Company recorded stock-based compensation expense recognized under ASC 718 during the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, of $20.4$27.2 million, $13.7$29.6 million, and $43.6$36.8 million, respectively, with corresponding tax benefits of $3.9 million, $1.7$5.4 million, and $14.3$5.9 million, respectively.
7. Common Stock and Treasury Stock
In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorizes additional funds for the program. In December 2021, the board approved the repurchase of the Company's common stock of up to $250.0 million, in place of the remaining purchase amounts previously authorized.
The Company
recognizes compensation expenserepurchased 3,000,000 shares for
stock option awards that vest with only service conditions on a straight-line basis over the requisite service period. The Company recognizes compensation expense for stock option awards that vest with service and market-based conditions on a straight-line basis over the longer of the requisite service period or the estimated period to meet the defined market-based condition.12. Employee Benefit Plans
ACI 401(k) Plan
The ACI 401(k) Plan is a defined contribution plan covering all domestic employees of the Company. Participants may contribute up to 75% of their annual eligible compensation up to a maximum of
$18,500 (for employees who are$107.4 million under the age of 50 onprogram for the year ended December 31, 2018) or a maximum2021. Under the program to date, the Company has repurchased 49,357,495 shares for approximately $719.7 million. As of $24,500 (for employees aged 50 or older on December 31, 2018). After one year of service,2021, the maximum remaining amount authorized for purchase under the stock repurchase program was $216.3 million.
Subsequent to December 31, 2021, the Company matches 100%has repurchased additional shares under the repurchase program.
In 2006, the Company began to issue shares of treasury stock upon exercise of stock options, payment of earned performance shares (LTIP performance shares and TSRs), vesting of RSUs, and for issuances of common stock pursuant to the first 4%Company’s ESPP. Treasury shares issued by award type are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Stock options | 546,192 | | | 1,756,471 | | | 854,524 | |
| LTIP performance shares | 10,457 | | | 668,240 | | | — | |
| TSRs | 782,588 | | | 199,413 | | | — | |
| RSUs | 522,618 | | | 431,504 | | | 259,634 | |
| ESPP | 120,937 | | | 151,542 | | 126,983 |
| Total treasury shares issued | 1,982,792 | | | 3,207,170 | | | 1,241,141 | |
8. Earnings Per Share
Basic earnings per share is computed in accordance with ASC 260, Earnings per Share, based on weighted average outstanding common shares. Diluted earnings per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of eligible participant contributionsstock options, RSUs, and 50% ofcertain contingently issuable shares for which performance targets have been achieved.
The following table reconciles the next 4% of eligible participant contributions, notweighted average share amounts used to exceed $5,000compute both basic and diluted earnings per employee annually. Company contributions chargedshare (in thousands):
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Weighted average shares outstanding: | | | | | |
| Basic weighted average shares outstanding | 117,407 | | | 116,397 | | | 116,175 | |
| Add: Dilutive effect of stock options, RSUs, and contingently issuable shares | 1,240 | | | 1,682 | | | 2,396 | |
| Diluted weighted average shares outstanding | 118,647 | | | 118,079 | | | 118,571 | |
The diluted earnings per share computation excludes 1.3 million, 1.5 million, and 1.8 million options to expensepurchase shares, RSUs, and contingently issuable shares during the years ended December 31, 2018, 2017,2021, 2020, and 2016, were $6.4 million, $5.32019, respectively, as their effect would be anti-dilutive.
Common stock outstanding as of December 31, 2021 and 2020, was 115,730,046 and 117,112,185, respectively.
9. Other, Net
Other, net is primarily comprised of foreign currency transaction gains and losses. Other, net was $1.3 million and
$5.5$1.1 million
respectively.ACI Worldwide EMEA Group Personal Pension Scheme
The ACI Worldwide EMEA Group Personal Pension Scheme is a defined contribution plan covering substantially all ACI Worldwide (EMEA) Limited(“ACI-EMEA”) employees. For thoseACI-EMEA employees who elect to participate in the plan, the Company contributes a minimum of 8.5% of eligible compensation to the planexpense, for employees employed at December 1, 2000 (up to a maximum of 15.5% for employees aged over 55 years on December 1, 2000) or from 6% to 10% of eligible compensation for employees employed subsequent to December 1, 2000.ACI-EMEA contributions charged to expense were $1.6 million during both the years ended December 31, 20182021 and 2017,2020, respectively, and $1.7$0.5 million duringof income for the year ended December 31, 2016.
13. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into U.S. Law. 2019.
10. Segment Information
In
December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118,Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which allowedJanuary 2021, the Company
made a change in organizational structure to
record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of December 31, 2018, the Company has completedalign with its
accounting for the tax effects related to the enactment of the Tax Act.Deferred Tax Assets and Liabilities
The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. During the year ended December 31, 2017, the Company remeasured certain deferred tax assets and liabilities and recorded a $15.0 million provisional tax charge. During the year ended December 31, 2018, the Company reduced the initial provisional tax charge by recording a $4.9 million benefit related to accelerated tax deductions claimed on the 2017 U.S. Federal Income Tax Return.
One-Time Transition Tax
The Tax Act required U.S. companies to pay aone-time transition tax on certain unremitted foreign earnings. During the year ended December 31, 2017, the Company recorded a $20.9 million provisional tax charge based on post-1986 earnings and profits of foreign subsidiaries that were previously deferred from U.S. income taxes. Upon further analysis, the Company reduced the initial provisional tax charge by recording a $8.1 million benefit during the year ended December 31, 2018.
Foreign Tax Credit Utilization
The Tax Act changed taxation of foreign earnings. Generally, the Company will no longer be subject to U.S. federal income taxes upon the receipt of dividends from foreign subsidiaries, nor will the Company be permitted to utilize foreign tax credits related to such dividends.strategic direction. As a result of this change, the aforementioned,Company reassessed its segment reporting structure due to changes in how the Company's chief operating decision maker ("CODM") assesses the Company's performance and allocates resources. Beginning in the first quarter of 2021, the Company reports financial performance based on its new operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as wella measure of segment profitability.
The Company’s Chief Executive Officer is also CODM. The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from corporate operations. No operating segments have been aggregated to form the reportable segments.
Banks. ACI provides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands.
Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who service them. These customers operate in a variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. The Company's solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop.
Billers. Within the billers segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue.
Revenue is attributed to the reportable segments based upon customer. Expenses are attributed to the reportable segments in one of three methods, (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual projects, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities.
Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’s segments, and therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting. Segment Adjusted EBITDA is defined as the U.S. federal corporateearnings (loss) from operations before interest, income tax rate reduction,expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense).
Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to corporate overhead costs that are not allocated to reportable segments. The overhead costs relate to human resources, finance, legal, accounting, and merger and acquisition activity. These costs along with depreciation and amortization and stock-based compensation are not considered when management evaluates segment performance.
The following is selected financial data for the acceleration of tax deductions,Company’s reportable segments for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenues | | | | | |
| Banks | $ | 625,125 | | | $ | 558,498 | | | $ | 590,961 | |
| Merchants | 152,988 | | | 149,342 | | | 156,452 | |
| Billers | 592,485 | | | 586,482 | | | 510,881 | |
| Total revenue | $ | 1,370,598 | | | $ | 1,294,322 | | | $ | 1,258,294 | |
| Segment Adjusted EBITDA | | | | | |
| Banks | $ | 372,949 | | | $ | 331,445 | | | $ | 343,844 | |
| Merchants | 54,266 | | | 53,383 | | | 60,820 | |
| Billers | 129,048 | | | 135,144 | | | 77,295 | |
| Depreciation and amortization | (133,393) | | | (140,316) | | | (122,569) | |
| Stock-based compensation expense | (27,242) | | | (29,602) | | | (36,763) | |
| Corporate and unallocated expenses | (185,731) | | | (205,310) | | | (198,871) | |
| Interest, net | (33,538) | | | (45,002) | | | (52,066) | |
| Other, net | (1,294) | | | (1,116) | | | 520 | |
| Income before income taxes | $ | 175,065 | | | $ | 98,626 | | | $ | 72,210 | |
Assets are not allocated to segments, and the reduction inCompany’s CODM does not evaluate operating segments using discrete asset information.
The following is revenue by primary solution category for theone-time transition tax, Company’s reportable segments for the Company hasperiods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Banks | | Merchants | | Billers | | Total |
| Primary Solution Categories | | | | | | | |
| Bill Payments | $ | — | | | $ | — | | | $ | 592,485 | | | $ | 592,485 | |
| Digital Business Banking | 60,398 | | | — | | | — | | | 60,398 | |
| Merchant Payments | — | | | 152,988 | | | — | | | 152,988 | |
| Fraud Management | 43,704 | | | — | | | — | | | 43,704 | |
| Real-Time Payments | 77,922 | | | — | | | — | | | 77,922 | |
| Issuing and Acquiring | 443,101 | | | — | | | — | | | 443,101 | |
| Total | $ | 625,125 | | | $ | 152,988 | | | $ | 592,485 | | | $ | 1,370,598 | |
| | | | | | | |
| Year Ended December 31, 2020 |
| Banks | | Merchants | | Billers | | Total |
| Primary Solution Categories | | | | | | | |
| Bill Payments | $ | — | | | $ | — | | | $ | 586,482 | | | $ | 586,482 | |
| Digital Business Banking | 75,475 | | | — | | | — | | | 75,475 | |
| Merchant Payments | — | | | 149,342 | | | — | | | 149,342 | |
| Fraud Management | 32,942 | | | — | | | — | | | 32,942 | |
| Real-Time Payments | 80,654 | | | — | | | — | | | 80,654 | |
| Issuing and Acquiring | 369,427 | | | — | | | — | | | 369,427 | |
| Total | $ | 558,498 | | | $ | 149,342 | | | $ | 586,482 | | | $ | 1,294,322 | |
| | | | | | | |
| Year Ended December 31, 2019 |
| Banks | | Merchants | | Billers | | Total |
| Primary Solution Categories | | | | | | | |
| Bill Payments | $ | — | | | $ | — | | | $ | 510,881 | | | $ | 510,881 | |
| Digital Business Banking | 77,319 | | | — | | | — | | | 77,319 | |
| Merchant Payments | — | | | 156,452 | | | — | | | 156,452 | |
| Fraud Management | 42,010 | | | — | | | — | | | 42,010 | |
| Real-Time Payments | 100,599 | | | — | | | — | | | 100,599 | |
| Issuing and Acquiring | 371,033 | | | — | | | — | | | 371,033 | |
| Total | $ | 590,961 | | | $ | 156,452 | | | $ | 510,881 | | | $ | 1,258,294 | |
The following is revenue by the Company's reportable segments for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Banks | | | | | |
| Software as a service and platform as a service | $ | 57,339 | | | $ | 69,254 | | | $ | 65,703 | |
| License | 310,758 | | | 232,143 | | | 256,097 | |
| Maintenance | 193,332 | | | 194,400 | | | 194,128 | |
| Services | 63,696 | | | 62,701 | | | 75,033 | |
| Total | $ | 625,125 | | | $ | 558,498 | | | $ | 590,961 | |
| Merchants | | | | | |
| Software as a service and platform as a service | $ | 124,933 | | | $ | 113,854 | | | $ | 101,666 | |
| License | 9,015 | | | 14,659 | | | 31,936 | |
| Maintenance | 16,846 | | | 16,981 | | | 18,968 | |
| Services | 2,194 | | | 3,848 | | | 3,882 | |
| Total | $ | 152,988 | | | $ | 149,342 | | | $ | 156,452 | |
| Billers | | | | | |
| Software as a service and platform as a service | $ | 592,070 | | | $ | 586,072 | | | $ | 510,300 | |
| License | 94 | | | 94 | | | 228 | |
| Maintenance | 321 | | | 316 | | | 313 | |
| Services | — | | | — | | | 40 | |
| Total | $ | 592,485 | | | $ | 586,482 | | | $ | 510,881 | |
The following is the Company's revenue by geographic location for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenue | | | | | |
| United States | $ | 869,081 | | | $ | 830,511 | | | $ | 781,820 | |
| Other | 501,517 | | | 463,811 | | | 476,474 | |
| Total | $ | 1,370,598 | | | $ | 1,294,322 | | | $ | 1,258,294 | |
The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Long-lived Assets | | | |
| United States | $ | 1,425,391 | | | $ | 1,423,862 | |
| Other | 745,138 | | | 750,651 | |
| Total | $ | 2,170,529 | | | $ | 2,174,513 | |
No single customer accounted for more U.S. foreign tax credits than it anticipates being able to utilize prior to their expiration. Upon further analysis of certain aspects10% of the Tax Act and refinement of our calculationsCompany’s consolidated revenues during the year ended December 31, 2018, the Company recorded an $15.5 million valuation allowance on this deferred tax asset.
Global IntangibleLow-Taxed Income (GILTI)
The Tax Act subjects a U.S. shareholder to tax on global intangiblelow-taxed income (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No 5,Accounting for Global IntangibleLow-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. For the year ended December 31, 2018, the Company has recorded $2.1 million of tax charge for the current impact of the GILTI provisions.
Indefinite Reinvestment
During the years ended December 31, 20172021, 2020, and 2016,2019. No other country outside the Company considered all earnings in foreign subsidiaries to be indefinitely reinvested, and accordingly, recorded no deferred income taxes related to unremitted earnings. AsUnited States accounted for more than 10% of the Company’s consolidated revenues during the years ended December 31, 2018, the Company considered only the earnings in its Indian subsidiaries to be indefinitely reinvested. The earnings of all other foreign subsidiaries are no longer considered indefinitely reinvested2021, 2020, and the Company recorded a $1.1 million deferred tax charge associated with withholding and state taxes on the future repatriation of those earnings. The Company is also permanently reinvested for outside book/tax basis differences related to foreign subsidiaries.
2019.
11. Income Taxes
For financial reporting purposes, income
(loss) before income taxes includes the following components (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
United States | | $ | 16,312 | | | $ | (42,863 | ) | | $ | 134,740 | |
Foreign | | | 75,487 | | | | 86,435 | | | | 50,841 | |
| | | | | | | | | | | | |
Total | | $ | 91,799 | | | $ | 43,572 | | | $ | 185,581 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| United States | $ | 69,817 | | | $ | 19,405 | | | $ | (16,317) | |
| Foreign | 105,248 | | | 79,221 | | | 88,527 | |
| Total | $ | 175,065 | | | $ | 98,626 | | | $ | 72,210 | |
The expense (benefit) for income taxes consists of the following (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Federal | | | | | | | | | | | | |
Current | | $ | 6,545 | | | $ | 2,586 | | | $ | 14,108 | |
Deferred | | | (6,587 | ) | | | 19,212 | | | | 19,034 | |
| | | | | | | | | | | | |
Total | | | (42 | ) | | | 21,798 | | | | 33,142 | |
State | | | | | | | | | | | | |
Current | | | 4,441 | | | | (1,857 | ) | | | 12,565 | |
Deferred | | | (2,649 | ) | | | (1,324 | ) | | | (2,502 | ) |
| | | | | | | | | | | | |
Total | | | 1,792 | | | | (3,181 | ) | | | 10,063 | |
Foreign | | | | | | | | | | | | |
Current | | | 17,626 | | | | 16,048 | | | | 11,671 | |
Deferred | | | 3,502 | | | | 3,772 | | | | 1,170 | |
| | | | | | | | | | | | |
Total | | | 21,128 | | | | 19,820 | | | | 12,841 | |
| | | | | | | | | | | | |
Total | | $ | 22,878 | | | $ | 38,437 | | | $ | 56,046 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Federal | | | | | |
| Current | $ | 3,994 | | | $ | (2,683) | | | $ | 3,738 | |
| Deferred | 6,067 | | | (3,477) | | | (25,150) | |
| Total | 10,061 | | | (6,160) | | | (21,412) | |
| State | | | | | |
| Current | 7,592 | | | 2,514 | | | 590 | |
| Deferred | (1,498) | | | (1,758) | | | 342 | |
| Total | 6,094 | | | 756 | | | 932 | |
| Foreign | | | | | |
| Current | 31,955 | | | 22,786 | | | 22,960 | |
| Deferred | (836) | | | 8,584 | | | 2,668 | |
| Total | 31,119 | | | 31,370 | | | 25,628 | |
| Total | $ | 47,274 | | | $ | 25,966 | | | $ | 5,148 | |
Differences between the income tax expense computed at the statutory federal income tax rate and per the consolidated statements of operations are summarized as follows (in thousands):
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Tax expense at federal rate of 21% (35%pre-2018) | | $ | 19,278 | | | $ | 15,250 | | | $ | 64,953 | |
State income taxes, net of federal benefit | | | 5,246 | | | | (2,238 | ) | | | 7,060 | |
Change in valuation allowance | | | 12,657 | | | | (1,884 | ) | | | (8,524 | ) |
Foreign tax rate differential | | | (4,796 | ) | | | (15,622 | ) | | | (11,830 | ) |
Unrecognized tax benefit increase | | | 1,262 | | | | 3,007 | | | | 1,045 | |
Tax effect of foreign operations | | | 8,546 | | | | 5,532 | | | | 5,988 | |
Tax benefit of research & development | | | (2,557 | ) | | | (1,904 | ) | | | (1,088 | ) |
Transition tax | | | (8,112 | ) | | | 20,867 | | | | — | |
Revaluation of deferred tax balances | | | (4,937 | ) | | | 14,953 | | | | — | |
Performance-based compensation | | | (4,541 | ) | | | 2,081 | | | | — | |
Domestic production activities | | | — | | | | (3,793 | ) | | | (700 | ) |
Other | | | 832 | | | | 2,188 | | | | (858 | ) |
| | | | | | | | | | | | |
Income tax provision | | $ | 22,878 | | | $ | 38,437 | | | $ | 56,046 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Tax expense at federal rate of 21% | $ | 36,764 | | | $ | 20,711 | | | $ | 15,164 | |
| State income taxes, net of federal benefit | 4,816 | | | 321 | | | 1,227 | |
| Change in valuation allowance | 1,228 | | | 2,459 | | | (12,760) | |
| Foreign tax rate differential | (5,376) | | | (1,809) | | | (2,535) | |
| Unrecognized tax benefit increase (decrease) | 858 | | | (4,405) | | | 898 | |
| Tax effect of foreign operations | 16,151 | | | 11,373 | | | 6,698 | |
| Tax benefit of research & development | (4,123) | | | (2,173) | | | (2,506) | |
| Performance-based compensation | (1,887) | | | (2,624) | | | (560) | |
| | | | | |
| Other | (1,157) | | | 2,113 | | | (478) | |
| Income tax provision | $ | 47,274 | | | $ | 25,966 | | | $ | 5,148 | |
The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential” are Colombia, Ireland, and Singapore for the year ended December 31, 2018, are2021; Ireland, Mexico, Singapore, and Luxembourg. The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential”United Kingdom for the year ended December 31, 2017, are2020; and Ireland, Luxembourg, and the United Kingdom. The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential”Kingdom for the year ended December 31, 2016, are Ireland, South Africa, and2019.
During the United Kingdom.year ended December 31, 2019, following the acquisition of Speedpay, the Company determined it will more likely than not be able to utilize foreign tax credits in future years due to additional income generated by Speedpay; therefore, the Company released the $15.5 million valuation allowance that had been established on this deferred tax asset.
The deferred tax assets and liabilities result from differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes. The sources of these differences at each balance sheet date are as follows (in thousands):
| | | | | | | | |
| | | December 31, | |
| | | 2018 | | | 2017 | |
Deferred income tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 25,745 | | | $ | 38,419 | |
Tax credits | | | 43,838 | | | | 37,305 | |
Compensation | | | 15,934 | | | | 18,124 | |
Deferred revenue | | | 27,587 | | | | 22,248 | |
Research and development expense deferral | | | 12,631 | | | | — | |
Other | | | 5,393 | | | | 9,055 | |
| | | | | | | | |
Gross deferred income tax assets | | | 131,128 | | | | 125,151 | |
Less: valuation allowance | | | (20,415 | ) | | | (7,808 | ) |
| | | | | | | | |
Net deferred income tax assets | | $ | 110,713 | | | $ | 117,343 | |
| | | | | | | | |
Deferred income tax liabilities: | | | | | | | | |
Depreciation and amortization | | $ | (60,872 | ) | | $ | (67,504 | ) |
Deferred revenue | | | (54,508 | ) | | | — | |
| | | | | | | | |
Total deferred income tax liabilities | | | (115,380 | ) | | | (67,504 | ) |
| | | | | | | | |
Net deferred income taxes | | $ | (4,667 | ) | | $ | 49,839 | |
| | | | | | | | |
Deferred income taxes / liabilities included in the balance sheet are: | | | | | | | | |
Deferred income tax asset – noncurrent | | $ | 27,048 | | | $ | 66,749 | |
Deferred income tax liability – noncurrent | | | (31,715 | ) | | | (16,910 | ) |
| | | | | | | | |
Net deferred income taxes | | $ | (4,667 | ) | | $ | 49,839 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Deferred income tax assets: | | | |
| Net operating loss carryforwards | $ | 18,826 | | | $ | 20,347 | |
| Tax credits | 19,316 | | | 40,188 | |
| Compensation | 17,133 | | | 18,731 | |
| Deferred revenue | 16,333 | | | 19,169 | |
| Operating lease | 10,236 | | | 10,162 | |
| Other | 9,988 | | | 9,051 | |
| Gross deferred income tax assets | 91,832 | | | 117,648 | |
| Less: valuation allowance | (11,324) | | | (10,112) | |
| Net deferred income tax assets | $ | 80,508 | | | $ | 107,536 | |
| Deferred income tax liabilities: | | | |
| Depreciation and amortization | $ | (41,465) | | | $ | (48,967) | |
| Operating lease right-of-use asset | (8,791) | | | (7,650) | |
| Deferred revenue | (15,596) | | | (33,947) | |
| Total deferred income tax liabilities | (65,852) | | | (90,564) | |
| Net deferred income taxes | $ | 14,656 | | | $ | 16,972 | |
| Deferred income taxes / liabilities included in the balance sheet are: | | | |
| Deferred income tax asset – noncurrent | $ | 50,778 | | | $ | 57,476 | |
| Deferred income tax liability – noncurrent | (36,122) | | | (40,504) | |
| Net deferred income taxes | $ | 14,656 | | | $ | 16,972 | |
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income, carryback opportunities, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible differences, net of the valuation allowances recorded.
During the year ended December 31, 2018, the Company increased its valuation allowance by $12.7 million which relates to an increase in valuation allowance on U.S. foreign tax credits offset by a reduction in valuation allowance on U.S. state net operating losses.
At December 31, 2018,2021, the Company had domestic federal tax net operating losses (“NOLs”) of $72.4$58.3 million, of which will begin$2.9 million may be utilized over an indefinite life, with the remainder beginning to expire in 2019.2022. The Company had deferred tax assets equal to $1.8$1.1 million related to domestic state tax NOLs which will begin to expire in 2019.2022. The Company does not have any valuation allowance against the federal tax NOLs but has provided a $1.0 million valuation allowance against the deferred tax asset associated with the state NOLs. The Company had foreign tax NOLs of $32.5$19.4 million, of which $30.2$19.1 million may be utilized over an indefinite life, with the remainder expiring over the next 17nine years. The Company has provided a $1.0$0.1 million valuation allowance against the deferred tax asset associated with the foreign NOLs.
The Company had U.S. foreign tax credit carryforwards at December 31, 2018,2021, of $34.6$21.4 million, for which an $15.5a $2.3 million valuation allowance has been provided. The U.S. foreign tax credits will begin to expire in 2022.2027. The Company had foreign tax credit carryforwards in other foreign jurisdictions at December 31, 2018,2021, of $1.5$2.2 million, of which $1.1 million may be utilized over an indefinite life, with the remainder expiring over the next seven years. The Company has provided a $1.1$1.2 million valuation allowance against the tax benefit associated with these foreign credits. The Company also has domestic federal and state general business tax credit carryforwards at December 31, 2018,2021, of $12.5$20.6 million and $0.7$0.8 million, respectively, which will begin to expire in 2022.
Prior to 2018, the Company considered all earnings in foreign subsidiaries to be indefinitely reinvested, and accordingly, recorded no deferred income taxes related to unremitted earnings. As of December 31, 2021, 2020, and 2019,
and 2022, respectively.the Company considered only the earnings in its Indian subsidiaries to be indefinitely reinvested. The earnings of all other foreign subsidiaries are no longer considered indefinitely reinvested. The Company is also permanently reinvested for outside book/tax basis differences related to foreign subsidiaries.
The unrecognized tax benefit at December 31,
20182021 and
2017,2020, was
$28.4$24.5 million and
$27.2$24.3 million, respectively, of which
$22.6$16.9 million and
$21.5$17.7 million, respectively, are included in other noncurrent liabilities in the consolidated balance sheets. Of the total unrecognized tax benefit amounts at December 31,
20182021 and
2017, $27.52020, $23.5 million and
$25.9$23.2 million, respectively, represent the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate in the respective years.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows (in thousands):
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Balance of unrecognized tax benefits at beginning of year | | $ | 27,237 | | | $ | 24,278 | | | $ | 21,079 | |
Increases for tax positions of prior years | | | 315 | | | | 2,478 | | | | 58 | |
Decreases for tax positions of prior years | | | (61 | ) | | | (114 | ) | | | (361 | ) |
Increases for tax positions established for the current period | | | 1,185 | | | | 1,677 | | | | 5,185 | |
Decreases for settlements with taxing authorities | | | — | | | | (154 | ) | | | (167 | ) |
Reductions resulting from lapse of applicable statute of limitation | | | (115 | ) | | | (1,155 | ) | | | (1,310 | ) |
Adjustment resulting from foreign currency translation | | | (155 | ) | | | 227 | | | | (206 | ) |
| | | | | | | | | | | | |
Balance of unrecognized tax benefits at end of year | | $ | 28,406 | | | $ | 27,237 | | | $ | 24,278 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Balance of unrecognized tax benefits at beginning of year | $ | 24,310 | | | $ | 29,000 | | | $ | 28,406 | |
| Increases for tax positions of prior years | 1,533 | | | 4,219 | | | 2,784 | |
| Decreases for tax positions of prior years | (65) | | | — | | | (96) | |
| Increases for tax positions established for the current period | 2,272 | | | 3,912 | | | 2,542 | |
| Decreases for settlements with taxing authorities | (620) | | | (285) | | | (220) | |
| Reductions resulting from lapse of applicable statute of limitation | (2,876) | | | (12,630) | | | (4,462) | |
| Adjustment resulting from foreign currency translation | (44) | | | 94 | | | 46 | |
| Balance of unrecognized tax benefits at end of year | $ | 24,510 | | | $ | 24,310 | | | $ | 29,000 | |
The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. The United States,
Canada, India, Ireland,
Luxembourg, South Africa,Singapore, and
the United Kingdom are the main taxing jurisdictions in which the Company operates. The years open for audit vary depending on the tax jurisdiction. In the United States, the Company’s tax returns for years following
20142017 are open for audit. In the foreign jurisdictions, the tax returns open for audit generally vary by jurisdiction between
20032004 and
2017.2020.
The Company’s Indian income tax returns covering fiscal years
2003, 2005,
2011 through 2014, and
20102016 through
20132020 are under audit by the Indian tax authority. Other foreign subsidiaries could face challenges from various foreign tax authorities. It is not certain that the local authorities will accept the Company’s tax positions. The Company believes its tax positions comply with applicable tax law and intends to vigorously defend its positions. However, differing positions on certain issues could be upheld by tax authorities, which could adversely affect the Company’s financial condition and results of operations.
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $3.9$5.8 million due to the settlement of various audits and the expiration of statutes of limitations. The Company accrues interest related to uncertain tax positions in interest expense or interest income and recognizes penalties related to uncertain tax positions in other income or other expense. As of December 31, 20182021 and 2017,2020, $1.1 million and $1.2 million, respectively, is accrued for the payment of interest and penalties related to income tax liabilities. The aggregate amount of interest and penalties expense (benefit) recorded in the statements of operations for the years ended December 31, 2018, 2017,2021, 2020, and 2016, is $0.02019, was $(0.1) million, $(0.8)less than $0.1 million, and $(0.2)$0.2 million, respectively.
12. Leases
The Company has operating leases primarily for corporate offices and data centers. Excluding office leases, leases with an initial term of 12-months or less that do not include an option to purchase the underlying asset are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term.
The Company’s leases typically include certain renewal options to extend the leases for up to 25 years, some of which include options to terminate the leases within one year. The exercise of lease renewal options is at the Company’s sole discretion. The Company combines lease and non-lease components of its leases and currently has no leases with options to purchase the leased property. Payments of maintenance and property tax costs paid by the Company are accounted for as variable lease cost, which are expensed as incurred.
The components of lease cost are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Operating lease cost | $ | 12,369 | | | $ | 25,148 | | | $ | 18,486 | |
| Variable lease cost | 3,140 | | | 3,588 | | | 3,756 | |
| Sublease income | — | | | (134) | | | (528) | |
| Total lease cost | $ | 15,509 | | | $ | 28,602 | | | $ | 21,714 | |
Supplemental cash flow information related to leases is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 19,623 | | | $ | 18,827 | | | $ | 19,578 | |
| Right-of-use assets obtained in exchange for new lease obligations: | | | | | |
| Operating leases | $ | 20,944 | | | $ | 11,431 | | | $ | 10,478 | |
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Assets: | | | |
| Operating lease right-of-use assets | $ | 47,825 | | | $ | 41,243 | |
| Liabilities: | | | |
Other current liabilities | $ | 11,518 | | | $ | 13,438 | |
| Operating lease liabilities | 43,346 | | | 39,958 | |
| Total operating lease liabilities | $ | 54,864 | | | $ | 53,396 | |
| Weighted average remaining operating lease term (years) | 7.04 | | 6.01 |
| Weighted average operating lease discount rate | 3.22 | % | | 3.67 | % |
The Company uses its incremental borrowing rate as the discount rate. As the Company enters into operating leases in multiple jurisdictions and denominated in currencies other than the U.S. dollar, judgment is used to determine the Company’s incremental borrowing rate including (1) conversion of its subordinated borrowing rate (using published yield curves) to an unsubordinated and collateralized rate, (2) adjusting the rate to align with the term of each lease, and (3) adjusting the rate to incorporate the effects of the currency in which the lease is denominated.
Maturities on lease liabilities as of December 31, 2021, are as follows (in thousands):
| | | | | |
| Fiscal Year Ending December 31, | |
| 2022 | $ | 13,063 | |
| 2023 | 11,599 | |
| 2024 | 7,699 | |
| 2025 | 6,088 | |
| 2026 | 5,113 | |
| Thereafter | 17,563 | |
| Total lease payments | 61,125 | |
| Less: imputed interest | 6,261 | |
| Total lease liability | $ | 54,864 | |
As of December 31, 2021, the Company has additional operating leases for office facilities that have not yet commenced with minimum lease payments of $0.2 million, These operating leases will commence in fiscal year 2022 with lease terms of one year.
13. Commitments and Contingencies
In accordance with ASC 460,Guarantees, the Company recognizes the fair value for guarantee and indemnification arrangements it issues or modifies if these arrangements are within the scope of the interpretation. In addition, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications, as required under the previously existing generally accepted accounting principles, to identify if a loss has occurred. If the Company determines it is probable a loss has occurred, then any estimable loss would be recognized under those guarantees and indemnifications. Under its customer agreements, the Company may agree to indemnify, defend, and hold harmless its customers from and against certain losses, damages, and costs arising from claims alleging that the use of its software infringes the intellectual property of a third-party. Historically, the Company has not been required to pay material amounts in connection with claims asserted under these provisions, and accordingly, the Company has not recorded a liability relating to such provisions.
Under its customer agreements, the Company also may represent and warrant to customers that its software will operate substantially in conformance with its documentation, and that the services the Company performs will be performed in a workmanlike manner by personnel reasonably qualified by experience and expertise to perform their assigned tasks. Historically, only minimal costs have been incurred relating to the satisfaction of warranty claims. In addition, from time to time, the Company may guarantee the performance of a contract on behalf of one or more of its subsidiaries, or a subsidiary may guarantee the performance of a contract on behalf of another subsidiary.
Other guarantees include promises to indemnify, defend, and hold harmless the Company’s executive officers, directors, and certain other key officers. The Company’s certificate of incorporation provides that it will indemnify and advance expenses to its directors and officers to the maximum extent permitted by Delaware law. The indemnification covers any expenses and liabilities reasonably incurred by a person, by reason of the fact that such person is, was, or has agreed to be a director or officer, in connection with the investigation, defense, and settlement of any threatened, pending, or completed action, suit, proceeding, or claim. The Company’s certificate of incorporation authorizes the use of indemnification agreements, and the Company enters into such agreements with its directors and certain officers from time to time. These indemnification agreements typically provide for a broader scope of the Company’s obligation to indemnify the directors and officers than set forth in the certificate of incorporation. The Company’s contractual indemnification obligations under these agreements are in addition to the respective directors’ and officers’ rights under the certificate of incorporation or under Delaware law.
Operating Leases
Legal Proceedings
In April 2021, ACH files associated with one of the Company's mortgage servicing customers were inadvertently transmitted to a processing bank during a test of its ACH file production system. Reversal ACH files were promptly issued, restoring affected accounts. The Company leases office spacehas been contacted by the U.S. Consumer Finance Protection Bureau and equipment under operating leasesvarious state consumer protection and regulatory agencies about this incident and is cooperating in their investigations, which could result in fines or penalties that run through October 2028.could be material and injunctive remedies that could be burdensome and costly to implement.
In addition, the Company has been named as a defendant in 7 class action lawsuits filed in various federal courts purportedly on behalf of consumers whose mortgage accounts were affected. The
leases do not impose restrictions as tocomplaints vary, but generally allege violations of federal and state consumer protection and other laws and claim that the
Company’s abilityCompany is obligated to pay
dividends or borrow funds, or otherwise restrict the Company’s abilitystatutory and other damages. The Company intends to
conduct business. On a limited basis, certain lease arrangements include escalation clauses, which provide for rent adjustments duevigorously defend these cases. Defending such cases could be time-consuming and costly, and failure to
inflation changes with the expense recognized on a straight-line basis over the term of the lease. Lease payments subject to inflation adjustments do not represent a significant portion of the Company’s future minimum lease payments. Several leases provide renewal options, but in all cases, such renewal options are at the election of the Company. Certain lease agreements providesuccessfully defend the Company
with the option to purchase the leased equipment at its fair market value at the conclusionin any or all of
the lease term.these cases could have a material effect.
14. Employee Benefit Plans
The Company offers various defined contribution plans for our U.S. and non-U.S. employees. Total operating leasedefined contribution plan expense forwas $13.0 million, $13.5 million, and $13.7 million during the years ended December 31, 2018, 2017,2021, 2020, and 2016 was $24.62019, respectively.
ACI 401(k) Plan
The ACI 401(k) Plan is a defined contribution plan covering all domestic employees of the Company. Participants may contribute up to 75% of their annual eligible compensation up to a maximum of $19,500 (for employees who are under the age of 50 on December 31, 2021) or a maximum of $26,000 (for employees aged 50 or older on December 31, 2021). After one year of service, the Company matches 100% of the first 4% of eligible participant contributions and 50% of the next 4% of eligible participant contributions, not to exceed $5,000 per employee annually. Company contributions charged to expense were $6.0 million, $24.1$6.3 million, and $25.3$6.4 million respectively.
Aggregate minimum operating lease payments under these agreements in future fiscalduring the years are as follows (in thousands):
| | | | |
Fiscal Year Ending December 31, | | Operating
Leases | |
2019 | | $ | 16,925 | |
2020 | | | 14,212 | |
2021 | | | 10,538 | |
2022 | | | 8,178 | |
2023 | | | 6,529 | |
Thereafter | | | 21,196 | |
| | | | |
Total minimum lease payments | | $ | 77,578 | |
| | | | |
Legal Proceedings
On September 23, 2015, a jury verdict was returned against ended December 31, 2021, 2020, and 2019, respectively.
ACI Worldwide Corp.EMEA Group Personal Pension Scheme
The ACI Worldwide EMEA Group Personal Pension Scheme is a defined contribution plan covering substantially all ACI Worldwide (EMEA) Limited (“
ACI Corp.”ACI-EMEA”)
, a subsidiary of employees. For those ACI-EMEA employees who elect to participate in the plan, the Company
contributes a minimum of 8.5% of eligible compensation to the plan for
$43.8 million in connection with counterclaims brought by Baldwin Hackett & Meeks, Inc. (“BHMI”) in the District Courtemployees employed at December 1, 2000 or from 6% to 10% of
Douglas County, Nebraska. On September 21, 2012, ACI Corp. had sued BHMIeligible compensation for
misappropriation of ACI Corp.’s trade secrets. The jury found that ACI Corp. had not met its burden of proof regarding these claims. On March 6, 2013, BHMI asserted counterclaims allegedemployees employed subsequent to
arise out of ACI Corp.’s filing of its lawsuit. The court entered a judgment against ACI Corp. for $43.8 million for damages and $2.7 million for attorney fees and costs. ACI Corp. disagreed with the verdicts and judgment, and after the trial court denied ACI Corp.’s post-judgment motions ACI Corp. perfected an appeal of the dismissal of its claims against BHMI and the judgment in favor of BHMI. On June 9, 2017, the Nebraska Supreme Court affirmed the District Court judgment. The Company recordedDecember 1, 2000. ACI-EMEA contributions charged to expense
of $48.1were $1.6 million during the year ended December 31,
2017, of which $46.72021, and $1.5 million
is included in general and administrative expense and $1.4 million in interest expense induring both the
accompanying consolidated statement of operations. The Company paid the judgment, including interest, during the year ended December 31, 2017.15. Accumulated Other Comprehensive Loss
Activity within accumulated other comprehensive loss for the three years ended December 31, 2018, 2017,2020 and 2016, which consists of foreign currency translation adjustments, was as follows (in thousands):
| | | | |
| | | Accumulated
Other
Comprehensive
Loss | |
Balance at December 31, 2015 | | $ | (71,576 | ) |
Other comprehensive loss | | | (22,524 | ) |
| | | | |
Balance at December 31, 2016 | | | (94,100 | ) |
Other comprehensive income | | | 16,744 | |
| | | | |
Balance at December 31, 2017 | | | (77,356 | ) |
Other comprehensive loss | | | (15,261 | ) |
| | | | |
Balance at December 31, 2018 | | $ | (92,617 | ) |
| | | | |
16. Quarterly Financial Data (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | | Year Ended | |
| | | March 31, | | | June 30, | | | September 30, | | | December 31, | | | December 31, | |
(in thousands, except per share amounts) | | 2018 | | | 2018 | | | 2018 | | | 2018 | | | 2018 | |
Revenues: | | | | | | | | | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 104,280 | | | $ | 113,600 | | | $ | 104,519 | | | $ | 110,626 | | | $ | 433,025 | |
License | | | 28,046 | | | | 45,555 | | | | 68,964 | | | | 137,991 | | | | 280,556 | |
Maintenance | | | 56,659 | | | | 55,048 | | | | 54,373 | | | | 53,065 | | | | 219,145 | |
Services | | | 20,325 | | | | 20,792 | | | | 17,669 | | | | 18,268 | | | | 77,054 | |
| | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 209,310 | | | | 234,995 | | | | 245,525 | | | | 319,950 | | | | 1,009,780 | |
| | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Cost of revenue (1) | | | 107,336 | | | | 116,261 | | | | 102,473 | | | | 104,281 | | | | 430,351 | |
Research and development | | | 36,791 | | | | 37,862 | | | | 36,008 | | | | 32,969 | | | | 143,630 | |
Selling and marketing | | | 31,893 | | | | 33,160 | | | | 28,252 | | | | 24,576 | | | | 117,881 | |
General and administrative | | | 28,649 | | | | 28,837 | | | | 29,537 | | | | 20,399 | | | | 107,422 | |
Depreciation and amortization | | | 21,345 | | | | 21,033 | | | | 20,896 | | | | 21,311 | | | | 84,585 | |
| | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 226,014 | | | | 237,153 | | | | 217,166 | | | | 203,536 | | | | 883,869 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | (16,704 | ) | | | (2,158 | ) | | | 28,359 | | | | 116,414 | | | | 125,911 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (9,365 | ) | | | (9,717 | ) | | | (12,573 | ) | | | (9,875 | ) | | | (41,530 | ) |
Interest income | | | 2,744 | | | | 2,742 | | | | 2,763 | | | | 2,893 | | | | 11,142 | |
Other, net | | | (55 | ) | | | (1,677 | ) | | | (1,304 | ) | | | (688 | ) | | | (3,724 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total other income (expense) | | | (6,676 | ) | | | (8,652 | ) | | | (11,114 | ) | | | (7,670 | ) | | | (34,112 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (23,380 | ) | | | (10,810 | ) | | | 17,245 | | | | 108,744 | | | | 91,799 | |
Income tax expense (benefit) | | | (3,952 | ) | | | 3,764 | | | | 2,012 | | | | 21,054 | | | | 22,878 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (19,428 | ) | | $ | (14,574 | ) | | $ | 15,233 | | | $ | 87,690 | | | $ | 68,921 | |
| | | | | | | | | | | | | | | | | | | | |
Earnings (loss) per share | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | (0.17 | ) | | $ | (0.13 | ) | | $ | 0.13 | | | $ | 0.76 | | | $ | 0.59 | |
Diluted | | $ | (0.17 | ) | | $ | (0.13 | ) | | $ | 0.13 | | | $ | 0.74 | | | $ | 0.59 | |
(1) | The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | | Year Ended | |
| | | March 31, | | | June 30, | | | September 30, | | | December 31, | | | December 31, | |
(in thousands, except per share amounts) | | 2017 | | | 2017 | | | 2017 | | | 2017 | | | 2017 | |
Revenues: | | | | | | | | | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 99,447 | | | $ | 113,469 | | | $ | 99,761 | | | $ | 112,895 | | | $ | 425,572 | |
License | | | 59,381 | | | | 54,180 | | | | 50,017 | | | | 129,546 | | | | 293,124 | |
Maintenance | | | 54,471 | | | | 56,009 | | | | 56,349 | | | | 55,242 | | | | 222,071 | |
Services | | | 18,163 | | | | 16,941 | | | | 19,608 | | | | 28,712 | | | | 83,424 | |
| | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 231,462 | | | | 240,599 | | | | 225,735 | | | | 326,395 | | | | 1,024,191 | |
| | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Cost of revenue (1) | | | 108,543 | | | | 120,357 | | | | 107,393 | | | | 115,993 | | | | 452,286 | |
Research and development | | | 37,285 | | | | 34,969 | | | | 33,935 | | | | 30,732 | | | | 136,921 | |
Selling and marketing | | | 27,137 | | | | 28,817 | | | | 25,236 | | | | 26,695 | | | | 107,885 | |
General and administrative (2) | | | 32,503 | | | | 72,527 | | | | 25,302 | | | | 22,700 | | | | 153,032 | |
Depreciation and amortization | | | 22,371 | | | | 22,372 | | | | 22,446 | | | | 22,238 | | | | 89,427 | |
| | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 227,839 | | | | 279,042 | | | | 214,312 | | | | 218,358 | | | | 939,551 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 3,623 | | | | (38,443 | ) | | | 11,423 | | | | 108,037 | | | | 84,640 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (10,160 | ) | | | (10,664 | ) | | | (9,374 | ) | | | (8,815 | ) | | | (39,013 | ) |
Interest income | | | 106 | | | | 150 | | | | 165 | | | | 143 | | | | 564 | |
Other, net | | | 649 | | | | (1,766 | ) | | | (1,059 | ) | | | (443 | ) | | | (2,619 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total other income (expense) | | | (9,405 | ) | | | (12,280 | ) | | | (10,268 | ) | | | (9,115 | ) | | | (41,068 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (5,782 | ) | | | (50,723 | ) | | | 1,155 | | | | 98,922 | | | | 43,572 | |
Income tax expense (benefit) | | | (4,174 | ) | | | (20,914 | ) | | | (2,233 | ) | | | 65,758 | | | | 38,437 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (1,608 | ) | | $ | (29,809 | ) | | $ | 3,388 | | | $ | 33,164 | | | $ | 5,135 | |
| | | | | | | | | | | | | | | | | | | | |
Earnings (loss) per share | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | (0.01 | ) | | $ | (0.25 | ) | | $ | 0.03 | | | $ | 0.28 | | | $ | 0.04 | |
Diluted | | $ | (0.01 | ) | | $ | (0.25 | ) | | $ | 0.03 | | | $ | 0.28 | | | $ | 0.04 | |
(1) | The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
|
(2) | General and administrative expenses in the second quarter includes the BHMI judgment.
|
17. Subsequent Event
Speedpay
On February 28, 2019, the Company and The Western Union Company (“Western Union”) announced that they had entered into a definitive agreement for the Company to acquire Western Union’s Speedpay U.S. domestic bill pay business for approximately $750.0 million in cash.
The Company has obtained commitments from Bank of America, N.A. to arrange, and Bank of America to provide, subject to certain conditions, a senior secured first-lien term loan of $500.0 million under a proposed amendment to the Credit Agreement. The Company will use the funds from the new term loan in addition to drawing on the existing available Revolving Credit Facility to fund the acquisition. The transaction is subject to satisfaction of customary closing conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
EXHIBIT INDEX
| | | | |
Exhibit No. | | Description |
| 3.01 | | (1) | | 2013 Amended and Restated Certificate of Incorporation of the Company |
| | |
| 3.02 | | (2) | | Amended and Restated Bylaws of the Company |
| | |
| 4.01 | | (3) | | Form of Common Stock Certificate (P) |
| | |
| 4.02 | | (4) | | Indenture, dated as of August 21, 2018, among ACI Worldwide, Inc., the guarantors listed therein, and Wilmington Trust, National Association, as trustee |
| | |
| 4.03 | | | | Form of 5.750% Senior Notes due 2026 (Included as Exhibit A to Exhibit 4.02) |
| | |
| 10.01 | | (5)* | | ACI Worldwide, Inc. 2017 Employee Stock Purchase Plan |
| | |
| 10.02 | | (6)* | | ACI Worldwide, Inc. 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.03 | | (7)* | | Form of Severance Compensation Agreement(Change-in-Control) between the Company and certain officers, including executive officers |
| | |
| 10.04 | | (8)* | | Form of Indemnification Agreement between the Company and certain officers, including executive officers |
| | |
| 10.05 | | (9)* | | Form of Nonqualified Stock Option Agreement –Non-Employee Director for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.06 | | (10)* | | Form of Nonqualified Stock Option Agreement – Employee for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.07 | | (11)* | | Form of LTIP Performance Shares Agreement for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.08 | | (12)* | | Amended and Restated Employment Agreement by and between the Company and Philip G. Heasley, dated December 4, 2015 (effective as of January 7, 2016) |
| | |
| 10.09 | | (13)* | | ACI Worldwide, Inc. 2013 Executive Management Incentive Compensation Plan |
| | |
| 10.10 | | (14)* | | Form ofChange-in-Control Employment Agreement between the Company and certain officers, including executive officers |
| | |
| 10.11 | | (15)* | | Form of Restricted Share Award Agreement for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.12 | | (16)* | | Amended and Restated Deferred Compensation Plan |
| | |
| 10.13 | | (17) | | Credit Agreement, dated February 24, 2017, by and among ACI Worldwide, Inc., Bank of America, N.A. and the lenders that are party thereto |
| | |
| 10.14 | | (18)* | | Form of 2015 Supplemental Performance Shares Agreement for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.15 | | (19)* | | Form of 2015 SupplementalNon-Qualified Stock Option Agreement for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.16 | | (20)* | | Form of 2015 Performance Shares Agreement for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.17 | | (21)* | | Form of 2015Non-Qualified Stock Option Agreement – Employee for the Company’s 2005 Equity and Performance Incentive Plan, as amended |
| | |
| 10.18 | | (22)* | | ACI Worldwide, Inc. 2016 Equity and Performance Incentive Plan |
| | |
| 10.19 | | (23)* | | Form of 2016 Supplemental Performance Share Award Agreement for the Company’s 2016 Equity and Performance Incentive Plan |
| | | | | | | | | | | |
| Exhibit No. | | | Description |
| 3.01 | (1) | | |
| 3.02 | (2) | | |
| 4.01 | (3) | | Form of Common Stock Certificate (P) |
| 4.02 | (4) | | |
| 4.03 | | | |
| 4.04 | | | |
| 10.01 | (5)* | | |
| 10.02 | (6)* | | |
| 10.03 | (7)* | | |
| 10.04 | (8)* | | |
| 10.05 | (9)* | | |
| 10.06 | (10) | | |
| 10.07 | (11)* | | |
| 10.08 | (12)* | | |
| 10.09 | (13)* | | |
| 10.10 | (14)* | | |
| 10.11 | (15) | | |
| 10.12 | (16)* | | |
| 10.13 | (17)* | | |
| 10.14 | (18)* | | |
| 10.15 | (19)* | | |
| 10.16 | (20)* | | |
| 10.17 | (21)* | | |
| 10.18 | (22)* | | |
| 10.19 | (23)* | | |
| 21.01 | | | |
| 23.01 | | | |
| 31.01 | | | |
| 31.02 | | | |
| 32.01 | ** | | |
| 32.02 | ** | | |
| 101.INS | | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | | | XBRL Taxonomy Extension Schema |
| 101.CAL | | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.LAB | | | XBRL Taxonomy Extension Label Linkbase |
(1)104 | Incorporated herein by reference to
| | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 3.1 to the registrant’s current report on Form8-K filed August 17, 2017. |
(2) | Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form8-K filed February 27, 2017.
|
(3) | Incorporated herein by reference to Exhibit 4.01 to the registrant’s Registration StatementNo. 33-88292 on FormS-1.
|
(4) | Incorporated herein by reference to Exhibit 4.1 to the registrant’s current report on Form8-K filed August 21, 2018.
|
(5) | Incorporated herein by reference to Annex A to the registrant’s Proxy Statement filed on April 27, 2017.
|
(6) | Incorporated herein by reference to Exhibit 10.7 to the registrant’s quarterly report on Form10-Q for the period ended June 30, 2014.
101) |
(7) | Incorporated herein by reference to Exhibit 10.9 to the registrant’s annual report on Form10-K for the year ended December 31, 2009.
|
(8) | Incorporated herein by reference to Exhibit 10.10 to the registrant’s annual report on Form10-K for the year ended December 31, 2009.
|
(9) | Incorporated herein by reference to Exhibit 10.17 to the registrant’s annual report on Form10-K for the year ended December 31, 2009.
|
(10) | Incorporated herein by reference to Exhibit 10.18 to the registrant’s annual report on Form10-K for the year ended December 31, 2009.
|
(11) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form8-K filed December 16, 2009.
|
(12) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form8-K filed on December 9, 2015.
|
(13) | Incorporated herein by reference to Annex A to the registrant’s Proxy Statement for its 2013 Annual Meeting (FileNo. 000-25346) filed on April 29, 2013.
|
(14) | Incorporated herein by reference to Exhibit 10.3 the registrant’s current report on Form8-K filed June 20, 2016.
|
(15) | Incorporated herein by reference to Exhibit 10.29 to the registrant’s annual report on Form10-K for the year ended December 31, 2009.
|
(16) | Incorporated herein by reference to Exhibit 4.3 to the registrant’s Registration StatementNo. 333-169293 on FormS-8 filed September 9, 2010
|
(17) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form8-K filed February 27, 2017.
|
(18) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form8-K filed January 30, 2015.
|
(19) | Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form8-K filed January 30, 2015.
|
(20) | Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form8-K filed January 30, 2015.
|
(21) | Incorporated herein by reference to Exhibit 10.4 to the registrant’s current report on Form8-K filed January 30, 2015.
|
(22) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form8-K filed June 20, 2016.
|
(23) | Incorporated herein by reference to Exhibit 10.02 to the registrant’s quarterly report on Form10-Q for the period ended June 30, 2016.
|
(24) | Incorporated herein by reference to Exhibit 10.03 to the registrant’s quarterly report on Form10-Q for the period ended June 30, 2016.
|
(25) | Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form8-K filed February 27, 2017.
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(26) | Incorporated herein by reference to Exhibit 10.05 to the registrant’s quarterly report on Form10-Q for the period ended June 30, 2016.
|
(27) | Incorporated herein by reference to Exhibit 10.06 to the registrant’s quarterly report on Form10-Q for the period ended June 30, 2016.
|
(28) | Incorporated herein by reference to Exhibit 10.07 to the registrant’s quarterly report on Form10-Q for the period ended June 30, 2016.
|
(29) | Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form8-K filed June 20, 2016.
|
* | Denotes exhibit that constitutes a management contract, or compensatory plan or arrangement.
|
** | This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.
|
(1)Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed August 17, 2017.
(2)Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed February 27, 2017.
(3)Incorporated herein by reference to Exhibit 4.01 to the registrant’s Registration Statement No. 33-88292 on Form S-1.
(4)Incorporated herein by reference to Exhibit 4.1 to the registrant’s current report on Form 8-K filed August 21, 2018.
(5)Incorporated herein by reference to Annex A to the registrant’s Proxy Statement filed on April 27, 2017.
(6)Incorporated herein by reference to Exhibit 10.07 to the registrant’s quarterly report on Form 10-Q for the period ended June 30, 2014.
(7)Incorporated herein by reference to Exhibit 10.10 to the registrant’s annual report on Form 10-K for the year ended December 31, 2009.
(8)Incorporated herein by reference to Annex A to the registrant’s Proxy Statement for its 2013 Annual Meeting (File No. 000-25346) filed on April 29, 2013.
(9)Incorporated herein by reference to Exhibit 4.3 to the registrant’s Registration Statement No. 333-169293 on Form S-8 filed September 9, 2010
(10)Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed February 27, 2017.
(11)Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed June 20, 2016.
(12)Incorporated herein by reference to Exhibit 10.26 to the registrant’s annual report on Form 10-K for the year ended December 31, 2017.
(13)Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed March 8, 2019.
(14)Incorporated herein by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed March 8, 2019.
(15)Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed April 11, 2019.
(16)Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed February 20, 2020.
(17)Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed February 20, 2020.
(18)Incorporated herein by reference to Exhibit 10.03 to the registrant's quarterly report on Form 10-Q for the period ended March 31, 2020.
(19)Incorporated herein by reference to Exhibit 10.04 to the registrant's quarterly report on Form 10-Q for the period ended March 31, 2020.
(20)Incorporated herein by reference to Appendix A to the registrant's definitive proxy statement on Schedule 14A (Commission File No. 000-25346) filed April 24, 2020.
(21)Incorporated herein by reference to Exhibit 10.06 to the registrant's quarterly report on Form 10-Q for the period ended June 30, 2020.
(22)Incorporated herein by reference to Exhibit 10.07 to the registrant's quarterly report on Form 10-Q for the period ended June 30, 2020.
(23)Incorporated herein by reference to Exhibit 10.01 to the registrant’s current report on Form 8-K filed June 8, 2021.
__________________
* Denotes exhibit that constitutes a management contract, or compensatory plan or arrangement.
** This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | (Registrant)
|
| | |
Date: February 28, 2019 24, 2022 | By: | By: | | /s/ PHILIP G. HEASLEY ODILON ALMEIDA |
| | | | Philip G. HeasleyOdilon Almeida |
| | | | President, and Chief Executive Officer, and Director (Principal Executive Officer) |
| | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Name | | Title | | Date |
| | | | |
Name
| | Title
| | Date
|
/S/ ODILON ALMEIDA | | |
/S/ PHILIP G. HEASLEY
Philip G. Heasley
| | President, Chief Executive Officer, and Director
(Principal Executive Officer) | | February 28, 201924, 2022 |
| Odilon Almeida | | |
| | | | |
/S/ SCOTT W. BEHRENSScott W. Behrens
| | Senior Executive Vice President, Chief Financial Officer, and Chief Accounting Officer(Principal Financial Officer)
| | February 28, 201924, 2022 |
| Scott W. Behrens | | |
| | | | |
/S/ DAVID A. POEDavid A. Poe
CHARLES K. BOBRINSKOY
| | Chairman of the Board and Director | | February 28, 201924, 2022 |
| Charles K. Bobrinskoy | | |
/S/ PAM PATSLEY
| | Director
| | February 28, 2019 |
Pam Patsley | | | | |
| | |
/S/ JAMES C. HALE
| | Director
| | February 28, 2019 |
James C. Hale | /S/ JANET O. ESTEP | | Director | | February 24, 2022 |
| Janet O. Estep | | |
| | |
/S/ CHARLES E. PETERS, JR
| | Director
| | February 28, 2019 |
Charles E. Peters, JR | /S/ JAMES C. HALE | | Director | | February 24, 2022 |
| James C. Hale | | |
| | |
/S/ ADALIO T. SANCHEZ
| | Director
| | February 28, 2019 |
Adalio T. Sanchez | /S/ MARY HARMAN | | Director | | February 24, 2022 |
| Mary Harman | | |
| | |
/S/ THOMAS W. WARSOP, III
| | Director
| | February 28, 2019 |
Thomas W. Warsop, III | /S/ DIDIER R. LAMOUCHE | | Director | | February 24, 2022 |
| Didier R. Lamouche | | | |
| | |
/S/ JANET ESTEP
| | Director
| | February 28, 2019 |
Janet Estep | /S/ CHARLES E. PETERS, JR | | Director | | February 24, 2022 |
| Charles E. Peters, JR | | |
| | | | |
/S/ ADALIO T. SANCHEZ | | Director | | February 24, 2022 |
| Adalio T. Sanchez | | |
| | | | |
/S/ THOMAS W. WARSOP, III | | Director | | February 24, 2022 |
| Thomas W. Warsop, III | | |
| | | | |
/S/ SAMIR ZABANEH | | Director | | February 24, 2022 |
| Samir Zabaneh | | |
| | | | |
111