SECURITIES AND EXCHANGE COMMISSION
___________________________
___________________________
(Mark One)
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| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018or
2019 Or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number0-25346 ___________________________
(Exact name of registrant as specified in its charter)
___________________________
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| | | | | |
Delaware | | 47-0772104 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
3520 Kraft Rd, | Suite 300 | Naples, FL 34105 | Florida | | (239)403-460034105 |
(Address of principal executive offices, including zip code) offices) | | (Registrant’s telephone number, including areaZip code)
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(239) 403-4660
(Registrant’s telephone number, including area code)
___________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of the Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. (Check one):
| | |
| | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of
July 30, 2018,August 5, 2019, there were
115,760,027116,714,472 shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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| | | | |
Title of each class | | Trading Symbol(s) | | PageName of each exchange on which registered |
Common Stock, $0.005 par value | | ACIW | | Nasdaq Global Select Market |
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PART I – FINANCIAL INFORMATION |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share amounts)
| | | | | | | | |
| | June 30, 2018 | | | December 31, 2017 | |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 59,033 | | | $ | 69,710 | |
Receivables, net of allowances of $3,459 and $4,799, respectively | | | 273,192 | | | | 262,845 | |
Recoverable income taxes | | | 7,903 | | | | 7,921 | |
Prepaid expenses | | | 28,370 | | | | 23,219 | |
Other current assets | | | 21,488 | | | | 58,126 | |
| | | | | | | | |
Total current assets | | | 389,986 | | | | 421,821 | |
| | | | | | | | |
Noncurrent assets | | | | | | | | |
Accrued receivables, net | | | 180,197 | | | | — | |
Property and equipment, net | | | 78,813 | | | | 80,228 | |
Software, net | | | 144,665 | | | | 155,386 | |
Goodwill | | | 909,691 | | | | 909,691 | |
Intangible assets, net | | | 179,572 | | | | 191,281 | |
Deferred income taxes, net | | | 25,181 | | | | 66,749 | |
Other noncurrent assets | | | 57,631 | | | | 36,483 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 1,965,736 | | | $ | 1,861,639 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 30,830 | | | $ | 34,718 | |
Employee compensation | | | 42,514 | | | | 48,933 | |
Current portion of long-term debt | | | 22,988 | | | | 17,786 | |
Deferred revenue | | | 102,333 | | | | 107,543 | |
Income taxes payable | | | 3,137 | | | | 9,898 | |
Other current liabilities | | | 58,615 | | | | 102,904 | |
| | | | | | | | |
Total current liabilities | | | 260,417 | | | | 321,782 | |
| | | | | | | | |
Noncurrent liabilities | | | | | | | | |
Deferred revenue | | | 50,904 | | | | 51,967 | |
Long-term debt | | | 654,811 | | | | 667,943 | |
Deferred income taxes, net | | | 25,171 | | | | 16,910 | |
Other noncurrent liabilities | | | 33,718 | | | | 38,440 | |
| | | | | | | | |
Total liabilities | | | 1,025,021 | | | | 1,097,042 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity | | | | | | | | |
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at June 30, 2018 and December 31, 2017 | | | — | | | | — | |
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at June 30, 2018 and December 31, 2017 | | | 702 | | | | 702 | |
Additionalpaid-in capital | | | 624,851 | | | | 610,345 | |
Retained earnings | | | 760,845 | | | | 550,866 | |
Treasury stock, at cost, 24,759,800 and 23,428,324 shares at June 30, 2018 and December 31, 2017, respectively | | | (361,079 | ) | | | (319,960 | ) |
Accumulated other comprehensive loss | | | (84,604 | ) | | | (77,356 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 940,715 | | | | 764,597 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,965,736 | | | $ | 1,861,639 | |
| | | | | | | | |
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 139,396 |
| | $ | 148,502 |
|
Receivables, net of allowances of $3,781 and $3,912, respectively | 286,393 |
| | 348,182 |
|
Settlement assets | 613,290 |
| | 32,256 |
|
Prepaid expenses | 30,645 |
| | 23,277 |
|
Other current assets | 52,259 |
| | 14,260 |
|
Total current assets | 1,121,983 |
| | 566,477 |
|
Noncurrent assets | | | |
Accrued receivables, net | 177,513 |
| | 189,010 |
|
Property and equipment, net | 70,805 |
| | 72,729 |
|
Operating lease right-of-use assets | 62,316 |
| | — |
|
Software, net | 246,314 |
| | 137,228 |
|
Goodwill | 1,279,472 |
| | 909,691 |
|
Intangible assets, net | 374,908 |
| | 168,127 |
|
Deferred income taxes, net | 63,569 |
| | 27,048 |
|
Other noncurrent assets | 53,440 |
| | 52,145 |
|
TOTAL ASSETS | $ | 3,450,320 |
| | $ | 2,122,455 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities | | | |
Accounts payable | $ | 46,975 |
| | $ | 39,602 |
|
Settlement liabilities | 589,742 |
| | 31,605 |
|
Employee compensation | 38,976 |
| | 38,115 |
|
Current portion of long-term debt | 34,089 |
| | 20,767 |
|
Deferred revenue | 79,311 |
| | 104,843 |
|
Other current liabilities | 81,156 |
| | 61,688 |
|
Total current liabilities | 870,249 |
| | 296,620 |
|
Noncurrent liabilities | | | |
Deferred revenue | 59,122 |
| | 51,292 |
|
Long-term debt | 1,352,096 |
| | 650,989 |
|
Deferred income taxes, net | 23,243 |
| | 31,715 |
|
Operating lease liabilities | 50,550 |
| | — |
|
Other noncurrent liabilities | 42,483 |
| | 43,608 |
|
Total liabilities | 2,397,743 |
| | 1,074,224 |
|
Commitments and contingencies |
| |
|
Stockholders’ equity | | | |
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at June 30, 2019, and December 31, 2018 | — |
| | — |
|
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at June 30, 2019, and December 31, 2018 | 702 |
| | 702 |
|
Additional paid-in capital | 650,797 |
| | 632,235 |
|
Retained earnings | 843,530 |
| | 863,768 |
|
Treasury stock, at cost, 23,840,186 and 24,401,694 shares at June 30, 2019, and December 31, 2018, respectively | (349,426 | ) | | (355,857 | ) |
Accumulated other comprehensive loss | (93,026 | ) | | (92,617 | ) |
Total stockholders’ equity | 1,052,577 |
| | 1,048,231 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,450,320 |
| | $ | 2,122,455 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
ACI WORLDWIDE, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Revenues | | | | | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 113,600 | | | $ | 113,469 | | | $ | 217,880 | | | $ | 212,916 | |
License | | | 45,555 | | | | 54,180 | | | | 73,601 | | | | 113,561 | |
Maintenance | | | 55,048 | | | | 56,009 | | | | 111,707 | | | | 110,480 | |
Services | | | 20,792 | | | | 16,941 | | | | 41,117 | | | | 35,104 | |
| | | | | | | | | | | | | | | | |
Total revenues | | | 234,995 | | | | 240,599 | | | | 444,305 | | | | 472,061 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Cost of revenue (1) | | | 116,261 | | | | 120,357 | | | | 223,597 | | | | 228,900 | |
Research and development | | | 37,862 | | | | 34,969 | | | | 74,653 | | | | 72,254 | |
Selling and marketing | | | 33,160 | | | | 28,817 | | | | 65,053 | | | | 55,954 | |
General and administrative | | | 28,837 | | | | 72,527 | | | | 57,486 | | | | 105,030 | |
Depreciation and amortization | | | 21,033 | | | | 22,372 | | | | 42,378 | | | | 44,743 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 237,153 | | | | 279,042 | | | | 463,167 | | | | 506,881 | |
| | | | | | | | | | | | | | | | |
Operating loss | | | (2,158 | ) | | | (38,443 | ) | | | (18,862 | ) | | | (34,820 | ) |
| | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | |
Interest expense | | | (9,717 | ) | | | (10,664 | ) | | | (19,082 | ) | | | (20,824 | ) |
Interest income | | | 2,742 | | | | 150 | | | | 5,486 | | | | 256 | |
Other, net | | | (1,677 | ) | | | (1,766 | ) | | | (1,732 | ) | | | (1,117 | ) |
| | | | | | | | | | | | | | | | |
Total other income (expense) | | | (8,652 | ) | | | (12,280 | ) | | | (15,328 | ) | | | (21,685 | ) |
| | | | | | | | | | | | | | | | |
Loss before income taxes | | | (10,810 | ) | | | (50,723 | ) | | | (34,190 | ) | | | (56,505 | ) |
Income tax expense (benefit) | | | 3,764 | | | | (20,914 | ) | | | (188 | ) | | | (25,088 | ) |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (14,574 | ) | | $ | (29,809 | ) | | $ | (34,002 | ) | | $ | (31,417 | ) |
| | | | | | | | | | | | | | | | |
Loss per common share | | | | | | | | | | | | | | | | |
Basic | | $ | (0.13 | ) | | $ | (0.25 | ) | | $ | (0.29 | ) | | $ | (0.27 | ) |
Diluted | | $ | (0.13 | ) | | $ | (0.25 | ) | | $ | (0.29 | ) | | $ | (0.27 | ) |
Weighted average common shares outstanding | | | | | | | | | | | | | | | | |
Basic | | | 115,548 | | | | 117,149 | | | | 115,595 | | | | 116,881 | |
Diluted | | | 115,548 | | | | 117,149 | | | | 115,595 | | | | 116,881 | |
(1) | The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues | | | | | | | |
Software as a service and platform as a service | $ | 172,499 |
| | $ | 113,600 |
| | $ | 281,056 |
| | $ | 217,880 |
|
License | 52,541 |
| | 45,555 |
| | 73,619 |
| | 73,601 |
|
Maintenance | 51,922 |
| | 55,048 |
| | 107,033 |
| | 111,707 |
|
Services | 20,656 |
| | 20,792 |
| | 41,765 |
| | 41,117 |
|
Total revenues | 297,618 |
| | 234,995 |
| | 503,473 |
| | 444,305 |
|
Operating expenses | | | | | | | |
Cost of revenue (1) | 155,240 |
| | 116,261 |
| | 270,181 |
| | 223,597 |
|
Research and development | 39,235 |
| | 37,862 |
| | 75,429 |
| | 74,653 |
|
Selling and marketing | 32,962 |
| | 33,160 |
| | 62,392 |
| | 65,053 |
|
General and administrative | 49,319 |
| | 28,837 |
| | 80,836 |
| | 57,486 |
|
Depreciation and amortization | 26,744 |
| | 21,033 |
| | 48,610 |
| | 42,378 |
|
Total operating expenses | 303,500 |
| | 237,153 |
| | 537,448 |
| | 463,167 |
|
Operating loss | (5,882 | ) | | (2,158 | ) | | (33,975 | ) | | (18,862 | ) |
Other income (expense) | | | | | | | |
Interest expense | (15,323 | ) | | (9,717 | ) | | (26,937 | ) | | (19,082 | ) |
Interest income | 2,997 |
| | 2,742 |
| | 6,030 |
| | 5,486 |
|
Other, net | 1,402 |
| | (1,677 | ) | | (510 | ) | | (1,732 | ) |
Total other income (expense) | (10,924 | ) | | (8,652 | ) | | (21,417 | ) | | (15,328 | ) |
Loss before income taxes | (16,806 | ) | | (10,810 | ) | | (55,392 | ) | | (34,190 | ) |
Income tax expense (benefit) | (22,531 | ) | | 3,764 |
| | (35,154 | ) | | (188 | ) |
Net income (loss) | $ | 5,725 |
| | $ | (14,574 | ) | | $ | (20,238 | ) | | $ | (34,002 | ) |
Income (loss) per common share | | | | | | | |
Basic | $ | 0.05 |
| | $ | (0.13 | ) | | $ | (0.17 | ) | | $ | (0.29 | ) |
Diluted | $ | 0.05 |
| | $ | (0.13 | ) | | $ | (0.17 | ) | | $ | (0.29 | ) |
Weighted average common shares outstanding | | | | | | | |
Basic | 116,586 |
| | 115,548 |
| | 116,287 |
| | 115,595 |
|
Diluted | 118,786 |
| | 115,548 |
| | 116,287 |
| | 115,595 |
|
(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 condensed consolidated financial statements.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSSINCOME (LOSS)
(unaudited and in thousands) | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Net loss | | $ | (14,574 | ) | | $ | (29,809 | ) | | $ | (34,002 | ) | | $ | (31,417 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | (12,907 | ) | | | 9,069 | | | | (7,248 | ) | | | 15,120 | |
| | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | | | (12,907 | ) | | | 9,069 | | | | (7,248 | ) | | | 15,120 | |
| | | | | | | | | | | | | | | | |
Comprehensive loss | | $ | (27,481 | ) | | $ | (20,740 | ) | | $ | (41,250 | ) | | $ | (16,297 | ) |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income (loss) | $ | 5,725 |
| | $ | (14,574 | ) | | $ | (20,238 | ) | | $ | (34,002 | ) |
Other comprehensive loss: | | | | | | | |
Foreign currency translation adjustments | (1,730 | ) | | (12,907 | ) | | (409 | ) | | (7,248 | ) |
Total other comprehensive loss | (1,730 | ) | | (12,907 | ) | | (409 | ) | | (7,248 | ) |
Comprehensive income (loss) | $ | 3,995 |
| | $ | (27,481 | ) | | $ | (20,647 | ) | | $ | (41,250 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ACI WORLDWIDE, INC.ANDSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWSSTOCKHOLDERS’ EQUITY
(unaudited and in
thousands) | | | | | | | | |
| | For the Six Months Ended June 30, | |
| | 2018 | | | 2017 | |
Cash flows from operating activities: | | | | | | | | |
Net loss | | $ | (34,002 | ) | | $ | (31,417 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | |
Depreciation | | | 11,875 | | | | 12,573 | |
Amortization | | | 37,469 | | | | 38,646 | |
Amortization of deferred debt issuance costs | | | 1,445 | | | | 2,760 | |
Deferred income taxes | | | (3,044 | ) | | | (30,121 | ) |
Stock-based compensation expense | | | 14,067 | | | | 14,640 | |
Other | | | (248 | ) | | | 443 | |
Changes in operating assets and liabilities | | | | | | | | |
Receivables | | | 67,689 | | | | 70,564 | |
Accounts payable | | | (3,658 | ) | | | (3,929 | ) |
Accrued employee compensation | | | (5,805 | ) | | | (4,260 | ) |
Current income taxes | | | (7,243 | ) | | | (9,592 | ) |
Deferred revenue | | | 10,142 | | | | 841 | |
Other current and noncurrent assets and liabilities | | | (17,576 | ) | | | 37,949 | |
| | | | | | | | |
Net cash flows from operating activities | | | 71,111 | | | | 99,097 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchases of property and equipment | | | (11,108 | ) | | | (11,809 | ) |
Purchases of software and distribution rights | | | (16,776 | ) | | | (14,426 | ) |
Other | | | (1,467 | ) | | | — | |
| | | | | | | | |
Net cash flows from investing activities | | | (29,351 | ) | | | (26,235 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of common stock | | | 1,564 | | | | 1,441 | |
Proceeds from exercises of stock options | | | 14,906 | | | | 7,949 | |
Repurchase of restricted stock for tax withholdings | | | (2,588 | ) | | | (4,770 | ) |
Repurchases of common stock | | | (54,527 | ) | | | — | |
Proceeds from revolving credit facility | | | 85,000 | | | | 12,000 | |
Repayment of revolving credit facility | | | (84,000 | ) | | | (100,000 | ) |
Proceeds from term portion of credit agreement | | | — | | | | 415,000 | |
Repayment of term portion of credit agreement | | | (10,375 | ) | | | (375,665 | ) |
Payment of debt issuance costs | | | — | | | | (5,340 | ) |
Payments on other debt and capital leases | | | (1,550 | ) | | | (6,021 | ) |
| | | | | | | | |
Net cash flows from financing activities | | | (51,570 | ) | | | (55,406 | ) |
| | | | | | | | |
Effect of exchange rate fluctuations on cash | | | (867 | ) | | | 2,148 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (10,677 | ) | | | 19,604 | |
Cash and cash equivalents, beginning of period | | | 69,710 | | | | 75,753 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 59,033 | | | $ | 95,357 | |
| | | | | | | | |
Supplemental cash flow information | | | | | | | | |
Income taxes paid | | $ | 20,613 | | | $ | 19,605 | |
Interest paid | | $ | 17,297 | | | $ | 16,937 | |
thousands, except share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance as of March 31, 2019 | $ | 702 |
| | $ | 636,960 |
| | $ | 837,805 |
| | $ | (351,587 | ) | | $ | (91,296 | ) | | $ | 1,032,584 |
|
Net income | — |
| | — |
| | 5,725 |
| | — |
| | — |
| | 5,725 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1,730 | ) | | (1,730 | ) |
Stock-based compensation | — |
| | 14,372 |
| | — |
| | — |
| | — |
| | 14,372 |
|
Shares issued and forfeited, net, under stock plans including income tax benefits | — |
| | (535 | ) | | — |
| | 2,346 |
| | — |
| | 1,811 |
|
Repurchase of restricted share awards and restricted share units for tax withholdings | — |
| | — |
| | — |
| | (185 | ) | | — |
| | (185 | ) |
Balance as of June 30, 2019 | $ | 702 |
| | $ | 650,797 |
| | $ | 843,530 |
| | $ | (349,426 | ) | | $ | (93,026 | ) | | $ | 1,052,577 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance as of March 31, 2018 | $ | 702 |
| | $ | 616,913 |
| | $ | 775,419 |
| | $ | (342,316 | ) | | $ | (71,697 | ) | | $ | 979,021 |
|
Net loss | — |
| | — |
| | (14,574 | ) | | — |
| | — |
| | (14,574 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (12,907 | ) | | (12,907 | ) |
Stock-based compensation | — |
| | 7,705 |
| | — |
| | — |
| | — |
| | 7,705 |
|
Shares issued and forfeited, net, under stock plans including income tax benefits | — |
| | 233 |
| | — |
| | 6,325 |
| | — |
| | 6,558 |
|
Repurchase of 1,000,000 shares of common stock | — |
| | — |
| | — |
| | (23,414 | ) | | — |
| | (23,414 | ) |
Repurchase of restricted share awards for tax withholdings | — |
| | — |
| | — |
| | (1,674 | ) | | — |
| | (1,674 | ) |
Balance as of June 30, 2018 | $ | 702 |
| | $ | 624,851 |
| | $ | 760,845 |
| | $ | (361,079 | ) | | $ | (84,604 | ) | | $ | 940,715 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
ACI WORLDWIDE, INC.ANDSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited and in thousands, except share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| 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 loss | — |
| | — |
| | (20,238 | ) | | — |
| | — |
| | (20,238 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (409 | ) | | (409 | ) |
Stock-based compensation | — |
| | 20,957 |
| | — |
| | — |
| | — |
| | 20,957 |
|
Shares issued and forfeited, net, under stock plans including income tax benefits | — |
| | (2,395 | ) | | — |
| | 9,871 |
| | — |
| | 7,476 |
|
Repurchase of 23,802 shares of common stock | — |
| | — |
| | — |
| | (631 | ) | | — |
| | (631 | ) |
Repurchase of restricted share awards and restricted share units for tax withholdings | — |
| | — |
| | — |
| | (2,809 | ) | | — |
| | (2,809 | ) |
Balance as of June 30, 2019 | $ | 702 |
| | $ | 650,797 |
| | $ | 843,530 |
| | $ | (349,426 | ) | | $ | (93,026 | ) | | $ | 1,052,577 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance as of December 31, 2017 | $ | 702 |
| | $ | 610,345 |
| | $ | 550,866 |
| | $ | (319,960 | ) | | $ | (77,356 | ) | | $ | 764,597 |
|
Net loss | — |
| | — |
| | (34,002 | ) | | — |
| | — |
| | (34,002 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (7,248 | ) | | (7,248 | ) |
Stock-based compensation | — |
| | 14,067 |
| | — |
| | — |
| | — |
| | 14,067 |
|
Shares issued and forfeited, net, under stock plans including income tax benefits | — |
| | 439 |
| | — |
| | 15,996 |
| | — |
| | 16,435 |
|
Repurchase of 2,346,427 shares of common stock | — |
| | — |
| | — |
| | (54,527 | ) | | — |
| | (54,527 | ) |
Repurchase of restricted share awards for tax withholdings | — |
| | — |
| | — |
| | (2,588 | ) | | — |
| | (2,588 | ) |
Cumulative effect of accounting change, ASC 606 | — |
| | — |
| | 243,981 |
| | — |
| | — |
| | 243,981 |
|
Balance as of June 30, 2018 | $ | 702 |
| | $ | 624,851 |
| | $ | 760,845 |
| | $ | (361,079 | ) | | $ | (84,604 | ) | | $ | 940,715 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands) |
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
Cash flows from operating activities: | | | |
Net loss | $ | (20,238 | ) | | $ | (34,002 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | |
Depreciation | 11,831 |
| | 11,875 |
|
Amortization | 42,799 |
| | 37,469 |
|
Amortization of operating lease right-of-use assets | 7,029 |
| | — |
|
Amortization of deferred debt issuance costs | 1,683 |
| | 1,445 |
|
Deferred income taxes | (41,331 | ) | | (3,044 | ) |
Stock-based compensation expense | 20,957 |
| | 14,067 |
|
Other | 1,533 |
| | (248 | ) |
Changes in operating assets and liabilities, net of impact of acquisitions: | | | |
Receivables | 88,596 |
| | 67,689 |
|
Accounts payable | 1,294 |
| | (3,658 | ) |
Accrued employee compensation | (1,163 | ) | | (5,805 | ) |
Current income taxes | (5,634 | ) | | (7,243 | ) |
Deferred revenue | (17,981 | ) | | 10,142 |
|
Other current and noncurrent assets and liabilities | (32,510 | ) | | (17,576 | ) |
Net cash flows from operating activities | 56,865 |
| | 71,111 |
|
Cash flows from investing activities: | | | |
Purchases of property and equipment | (9,915 | ) | | (11,108 | ) |
Purchases of software and distribution rights | (11,300 | ) | | (16,776 | ) |
Acquisition of businesses, net of cash acquired | (758,546 | ) | | — |
|
Other | — |
| | (1,467 | ) |
Net cash flows from investing activities | (779,761 | ) | | (29,351 | ) |
Cash flows from financing activities: | | | |
Proceeds from issuance of common stock | 1,753 |
| | 1,564 |
|
Proceeds from exercises of stock options | 5,816 |
| | 14,906 |
|
Repurchase of restricted share awards and restricted share units for tax withholdings | (2,809 | ) | | (2,588 | ) |
Repurchases of common stock | (631 | ) | | (54,527 | ) |
Proceeds from revolving credit facility | 250,000 |
| | 85,000 |
|
Repayment of revolving credit facility | (15,000 | ) | | (84,000 | ) |
Proceeds from term portion of credit agreement | 500,000 |
| | — |
|
Repayment of term portion of credit agreement | (9,424 | ) | | (10,375 | ) |
Payments for debt issuance costs | (12,830 | ) | | — |
|
Payments on other debt | (2,220 | ) | | (1,550 | ) |
Net cash flows from financing activities | 714,655 |
| | (51,570 | ) |
Effect of exchange rate fluctuations on cash | (865 | ) | | (867 | ) |
Net decrease in cash and cash equivalents | (9,106 | ) | | (10,677 | ) |
Cash and cash equivalents, beginning of period | 148,502 |
| | 69,710 |
|
Cash and cash equivalents, end of period | $ | 139,396 |
| | $ | 59,033 |
|
Supplemental cash flow information | | | |
Income taxes paid | $ | 15,476 |
| | $ | 20,613 |
|
Interest paid | $ | 23,937 |
| | $ | 17,297 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
ACI WORLDWIDE, INC.ANDSUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements include the accounts of ACI Worldwide, Inc. and its
wholly-owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements as of June 30,
2018,2019, and for the three and six months ended June 30,
20182019 and
2017,2018, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31,
20172018, is derived from the audited financial statements.
Certain prior period amounts have been reclassified to conform to current year presentation. The Company reclassified $32.3 million from other current assets to settlement assets and $31.6 million from other current liabilities to settlement liabilities in the condensed consolidated balance sheet as of December 31, 2018.
The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form
10-K for the fiscal year ended December 31,
2017,2018, filed on
February 27, 2018.March 1, 2019. Results for the three and six months ended June 30,
20182019, are not necessarily indicative of results that may be attained in the future.
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other Current Liabilities
The components of other current liabilities are included in the following table (in thousands):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Operating lease liabilities | $ | 15,193 |
| | $ | — |
|
Vendor financed licenses | 13,574 |
| | 3,551 |
|
Accrued interest | 9,660 |
| | 8,407 |
|
Royalties payable | 5,693 |
| | 11,318 |
|
Other | 37,036 |
| | 38,412 |
|
Total other current liabilities | $ | 81,156 |
| | $ | 61,688 |
|
Settlement Assets and
Other Current Liabilities
| | | | | | | | |
(in thousands) | | June 30, 2018 | | | December 31, 2017 | |
Settlement deposits | | $ | 5,685 | | | $ | 22,282 | |
Settlement receivables | | | 9,106 | | | | 30,063 | |
Other | | | 6,697 | | | | 5,781 | |
| | | | | | | | |
Total other current assets | | $ | 21,488 | | | $ | 58,126 | |
| | | | | | | | |
| | | | | | | | |
(in thousands) | | June 30, 2018 | | | December 31, 2017 | |
Settlement payables | | $ | 14,365 | | | $ | 48,953 | |
Accrued interest | | | 7,284 | | | | 7,291 | |
Vendor financed licenses | | | 2,089 | | | | 1,862 | |
Royalties payable | | | 7,385 | | | | 9,264 | |
Other | | | 27,492 | | | | 35,534 | |
| | | | | | | | |
Total other current liabilities | | $ | 58,615 | | | $ | 102,904 | |
| | | | | | | | |
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
ACHautomated 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. Upon confirmation that the funds have been received, the Company settles the obligation to the client. Due to timing, in some instances, the Company may 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.
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 June 30,
20182019, and December 31,
2017 were $209.42018, was $203.2 million and
$238.9$256.5 million, respectively.
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
was $300.9 million and $305.7 million atdue 2026 (“2026 Notes”) as of June 30,
20182019, and December 31,
2017,2018, was $418.0 million and $395.0 million, 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).
In accordance with ASCthe Accounting Standards Codification (“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 and has identified its operating segments, ACI On Demand and ACI On Premise, as its reporting units. The Company allocated
Changes in the carrying amount of goodwill
attributable to
each reporting unit during the
reporting units using a relative fair value approach with total goodwill of $909.7 million of which we allocated $725.9 million and $183.8 million to ACI On Premise and ACI On Demand, respectively.six months ended June 30, 2019, were as follows (in thousands):
|
| | | | | | | | | | | | |
| | ACI On Demand | | ACI On Premise | | Total |
Gross Balance, prior to December 31, 2018 | | $ | 183,783 |
| | $ | 773,340 |
| | $ | 957,123 |
|
Total impairment prior to December 31, 2018 | | — |
| | (47,432 | ) | | (47,432 | ) |
Balance, December 31, 2018 | | 183,783 |
| | 725,908 |
| | 909,691 |
|
Goodwill from acquisitions (1) | | 369,781 |
| | — |
| | 369,781 |
|
Balance, June 30, 2019 | | $ | 553,564 |
| | $ | 725,908 |
| | $ | 1,279,472 |
|
| |
(1) | Goodwill from acquisitions relates to the goodwill recorded for the acquisition of E Commerce Group Products, Inc. ("ECG"), along with ECG's subsidiary, Speedpay, Inc. (collectively referred to as "Speedpay") and Walletron, Inc. ("Walletron"), as discussed in Note 3, Acquisitions. The purchase price allocations for Speedpay and Walletron are preliminary as of June 30, 2019, and are subject to future changes during the maximum one-year measurement period. |
Recoverability of goodwill is measured using a discounted cash flow model incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in impairment testing in the absence of available transactional market evidence to determine the fair value. The calculated fair value was substantially in excess of the current carrying value for all reporting units based upon
ourthe October 1,
20172018, annual impairment test and there have been no indications of impairment in the subsequent periods.
New Accounting Standards Recently Adopted
In May 2014,February 2016, 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, including ASC340-40,Other Assets and Deferred Costs – Contracts with Customers (“ASC340-40”). ASC 606 superseded the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance. The Company adopted ASC 606 and ASC340-40 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, the FASB issued ASU2016-15,Statement 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 classified 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. 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 adopted ASU2016-15 as of January 1, 2018. The adoption of ASU2016-15 was not material to the condensed consolidated statement of cash flows.
In October 2016, the FASB issued ASU2016-16,Intra-Entity Transfers of Assets Other than Inventory, to 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 of ASU2016-16, 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 adopted ASU2016-16 as of January 1, 2018. The adoption of ASU2016-16 had no impact on the condensed 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, 2016-2,
Leases (codified as “ASC 842”). ASC 842 requires a lesseelessees to recordrecognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet the assets and liabilities for the rights and obligations created byall leases with lease terms of more than 12 months.unless, as a policy election, a lessee elects not to apply ASC 842 to short-term leases. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; early adoption is permitted and modified retrospective application is currently required with optional practical expedients. The Company will adoptadopted ASC 842 as of theon January 1, 2019 (the effective date and is evaluating the use ofdate), using the optional transition method to not apply the new lease standard in the comparative periods presented and elected 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.Theexpedients for the Company’s ongoing accounting including the combination of lease and non-lease components into a single lease component which the Company has established a cross-functional project teamelected to assess implementing changesapply to its systems, processes, and controls, in conjunction with a comprehensive reviewfacilities leases. As of existing lease agreements. TheJanuary 1, 2019, the Company expects the adoption of ASC 842 will have a material impact on its condensed consolidated balance sheet as its rights and obligations from its existing operating leases will be recognized on the balance sheet asROU assets and liabilities. Asoperating lease liabilities of June 30, 2018, the Company’s undiscounted minimum commitments under noncancelable operating leases was approximately $78 million. The Company does not expect the adoption$63.3 million and $68.6 million, respectively. Refer to Note 13,
Leases, for further details.
In February 2018, the FASB issued ASU2018-02, 2018-2, 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 accumulated 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 description of the accounting policy for releasing income tax effects from AOCI; whether election is made 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. The Company adopted ASU 2018-2 as of January 1, 2019. The adoption of ASU 2018-2 did not have an impact on the condensed consolidated balance sheet, results of operations, and statement of cash flows.
Recently Issued Accounting Standards Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance, ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, and ASU 2019-05 in May 2019.This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2018.2019. The Company is currently assessing the impact the adoptionof ASU 2018-022016-13 will have on its condensed consolidated balance sheet, results of operations, and statement of cash flows. 2. RevenueRevenue 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 expects to receive 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. 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. 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.
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 standard90-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 payable under these arrangements is either fixed fee or on atime-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 standalone selling price (“SSP”) for maintenance and professional services based on observable standalone sales. The Company applies the residual approach to estimate the SSP for software licenses.
Refer to Note 10,11,
Segment Information, for further details, including disaggregation of revenue based on primary solution category and geographic location.Significant Judgments
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 estimating 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 receive 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 standalone 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.
Contract Balances
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, software as a service ("SaaS"), and SaaS and PaaSplatform as a service ("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 insubsequent to invoicing.
Total receivables, net is comprised of the
future. | | | | | | | | |
(in thousands) | | June 30, 2018 | | | December 31, 2017 | |
Billed Receivables | | $ | 168,921 | | | $ | 240,137 | |
Allowance for doubtful accounts | | | (3,459 | ) | | | (4,799 | ) |
| | | | | | | | |
Billed Receivables, net | | $ | 165,462 | | | $ | 235,338 | |
| | | | | | | | |
Accrued receivables | | | 319,476 | | | | 27,507 | |
Significant financing component | | | (31,549 | ) | | | — | |
| | | | | | | | |
Total accrued receivables, net | | | 287,927 | | | | 27,507 | |
Less current accrued receivables | | | 117,323 | | | | 27,507 | |
Less current significant financing component | | | (9,593 | ) | | | — | |
| | | | | | | | |
Total long-term accrued receivables, net | | $ | 180,197 | | | $ | — | |
| | | | | | | | |
Total receivables, net | | $ | 453,389 | | | $ | 262,845 | |
| | | | | | | | |
following (in thousands):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Billed receivables | $ | 158,052 |
| | $ | 239,275 |
|
Allowance for doubtful accounts | (3,781 | ) | | (3,912 | ) |
Billed receivables, net | 154,271 |
| | 235,363 |
|
Accrued receivables | 341,417 |
| | 336,858 |
|
Significant financing component | (31,782 | ) | | (35,029 | ) |
Total accrued receivables, net | 309,635 |
| | 301,829 |
|
Less: current accrued receivables | 142,248 |
| | 123,053 |
|
Less: current significant financing component | (10,126 | ) | | (10,234 | ) |
Total long-term accrued receivables, net | 177,513 |
| | 189,010 |
|
Total receivables, net | $ | 463,906 |
| | $ | 537,192 |
|
No customer accounted for more than 10% of the Company’s consolidated receivables balance as of June 30,
20182019, or December 31,
2017.2018.
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 | | | 102,160 | |
Recognition of deferred revenue | | | (91,390 | ) |
Foreign currency translation | | | (2,877 | ) |
| | | | |
Balance, June 30, 2018 | | $ | 153,237 | |
| | | | |
follows (in thousands):
|
| | | |
Balance, December 31, 2018 | $ | 156,135 |
|
Deferral of revenue | 79,147 |
|
Recognition of deferred revenue | (97,104 | ) |
Foreign currency translation | 255 |
|
Balance, June 30, 2019 | $ | 138,433 |
|
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:
| (1) | Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty.
|
| (2) | SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient.
|
| (3) | SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the direct allocation method.
|
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 with the direct allocation method.
Revenue allocated to remaining performance obligations was
$586.1$647.8 million as of June 30,
2018,2019, of which the Company expects to recognize approximately
47%45% over the next 12 months and the remainder thereafter.
During the three and six
month periodsmonths ended June 30,
2019 and 2018,
the revenue recognized by the Company from performance obligations satisfied in previous periods was not
material.Costssignificant.
3. Acquisition
Speedpay
On May 9, 2019, the Company acquired Speedpay, a subsidiary of The Western Union Company (“Western Union”), for $755.3 million in cash, including working capital adjustments, pursuant to
Obtaina Stock Purchase Agreement, among the Company, Western Union, and
FulfillACI Worldwide Corp., a
Contractwholly owned subsidiary of the Company. The Company accounts for costs to obtain and fulfill its contractshas included the financial results of Speedpay in accordance with ASC 340,Other Assets and Deferred Costs.
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 is capitalized during the period in which the Company becomes obligated to pay the commissions and is amortized over the period in which the related products or services are transferred to the customer. As of June 30, 2018, $0.3 million and $17.5 million of these costs are included in other current and othernon-current assets, respectively, on the condensed consolidated balance sheets. Duringfinancial statements from the date of acquisition. The combination of the Company and Speedpay bill pay solutions serves more than 4,000 customers across the U.S., 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 increases the scale of the Company’s On Demand platform business and allows the acceleration of platform innovation through increased research and development and investment in ACI On Demand's platform infrastructure.
To fund the acquisition, the Company amended its existing Credit Agreement, dated February 24, 2017, for an additional $500.0 million senior secured term loan (“Delayed Draw Term Loan”), in addition to drawing $250.0 million on the available Revolving Credit Facility. See Note 4, Debt, for terms of the Credit Agreement. The remaining acquisition consideration was funded with cash on hand.
The Company expensed approximately $16.6 million and $21.3 million of costs related to the acquisition of Speedpay for the three and six months ended June 30,
2018, the Company recognized $2.0 million and $4.3 million, respectively, of sales commission expense related to the amortization of these2019, respectively. These costs, which
is included in sellingconsist primarily of investment bank, consulting, and
marketing expense.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 June 30, 2018, $0.1 million and $12.0 million of these costslegal fees, are included in other currentgeneral and othernon-current assets, respectively, onadministrative expenses in the accompanying condensed consolidated balance sheets. The amounts capitalized primarily relate to direct costs that enhance resources under the Company’s SaaSstatements of operations.
Speedpay contributed approximately $49.3 million in revenue and
PaaS arrangements. During$7.6 million in operating income for the three and six months ended June 30,
2018, the Company recognized $1.2 million and $2.4 million, respectively, of expense related to the amortization of these costs, which is included in cost of revenue.Financial Statement Effect of Applying ASC 606
As the modified retrospective transition method does not result in recast of the prior year financial statements, ASC 606 requires2019.
The consideration paid by the Company to
provide additional disclosures forcomplete the
amount by which each financial statement line item is affected by adoption ofacquisition has been allocated preliminarily to the
standardassets acquired and
explanation of the reasons for significant changes.The financial statement line items affected by adoption of ASC 606 are as follows:
| | | | | | | | | | | | |
| | June 30, 2018 | |
(in thousands) | | As Reported | | | Without application of ASC 606 | | | Effect of Change Higher / (Lower) | |
Assets | | | | | | | | | | | | |
Receivables, net of allowances | | $ | 273,192 | | | $ | 199,145 | | | $ | 74,047 | |
Recoverable income taxes | | | 7,903 | | | | 6,375 | | | | 1,528 | |
Prepaid expenses | | | 28,370 | | | | 29,111 | | | | (741 | ) |
Other current assets | | | 21,488 | | | | 21,303 | | | | 185 | |
Accrued receivables, net | | | 180,197 | | | | — | | | | 180,197 | |
Deferred income taxes, net | | | 25,181 | | | | 66,926 | | | | (41,745 | ) |
Other noncurrent assets | | | 57,631 | | | | 41,324 | | | | 16,307 | |
Liabilities | | | | | | | | | | | | |
Deferred revenue | | | 102,333 | | | | 120,253 | | | | (17,920 | ) |
Income taxes payable | | | 3,137 | | | | 2,081 | | | | 1,056 | |
Other current liabilities | | | 58,615 | | | | 58,850 | | | | (235 | ) |
Deferred income taxes, net | | | 25,171 | | | | 6,448 | | | | 18,723 | |
Stockholders’ equity | | | | | | | | | | | | |
Total stockholders’ equity | | | 940,715 | | | | 712,576 | | | | 228,139 | |
| | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2018 | |
(in thousands) | | As Reported | | | Without application of ASC 606 | | | Effect of Change Higher / (Lower) | |
Revenues | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 113,600 | | | $ | 112,959 | | | $ | 641 | |
License | | | 45,555 | | | | 50,815 | | | | (5,260 | ) |
Maintenance | | | 55,048 | | | | 56,243 | | | | (1,195 | ) |
Services | | | 20,792 | | | | 20,725 | | | | 67 | |
Operating expenses | | | | | | | | | | | | |
Selling and marketing | | | 33,160 | | | | 31,923 | | | | 1,237 | |
Other income (expense) | | | | | | | | | | | | |
Interest income | | | 2,742 | | | | 192 | | | | 2,550 | |
Other, net | | | (1,677 | ) | | | (557 | ) | | | (1,120 | ) |
Income tax provision | | | | | | | | | | | | |
Income tax expense (benefit) | | | 3,764 | | | | 4,609 | | | | (845 | ) |
| | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2018 | |
(in thousands) | | As Reported | | | Without application of ASC 606 | | | Effect of Change Higher / (Lower) | |
Revenues | | | | | | | | | | | | |
Software as a service and platform as a service | | $ | 217,880 | | | $ | 218,133 | | | $ | (253 | ) |
License | | | 73,601 | | | | 94,736 | | | | (21,135 | ) |
Maintenance | | | 111,707 | | | | 112,014 | | | | (307 | ) |
Services | | | 41,117 | | | | 40,754 | | | | 363 | |
Operating expenses | | | | | | | | | | | | |
Selling and marketing | | | 65,053 | | | | 62,269 | | | | 2,784 | |
Other income (expense) | | | | | | | | | | | | |
Interest income | | | 5,486 | | | | 371 | | | | 5,115 | |
Other, net | | | (1,732 | ) | | | (1,341 | ) | | | (391 | ) |
Income tax provision | | | | | | | | | | | | |
Income tax expense (benefit) | | | (188 | ) | | | 2,566 | | | | (2,754 | ) |
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 Revenue, and Interest Income
The change in receivables, deferred revenue, license 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 revenueliabilities assumed based 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 due more than 12 months after delivery or when payment terms are significantly beyond the Company’s standard business practice, 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 activeestimated fair values as of the date the Company adopted ASC 606, the license fees are included in the Company’s cumulative adjustment to retained earnings. 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,acquisition. The allocation of purchase price is based upon external valuation and Selling and Marketing
Under ASC 606, certain of the Company’s sales commissions meet the definition of incremental costs of obtaining a contract. Accordingly, these costs are capitalized and the expense is recognized as the related goods or services are transferred to the customer. Prior to the adoption of ASC 606, the Company recognized sales commission expenses as they were incurred.
Deferred Income Taxes, Net
The change in deferred income taxes is primarily due to the deferred tax effects resulting from the adjustment to retained earnings for the cumulative effect of applying ASC 606 to active contractsother analyses that have not been completed as of the adoption date.
date of this filing, including, but not limited to, certain tax matters, software, intangible assets, and accrued liabilities. Accordingly, the purchase price allocations are preliminary and are subject to future adjustments during the maximum one-year allocation period.
In connection with the acquisition, the Company recorded the following amounts based upon its preliminary purchase price allocation as of June 30, 2019, which are subject to completion of the valuation and other analyses (in thousands, except weighted average useful lives):
|
| | | | | | |
| | Amount | | Weighted Average Useful Lives |
Current assets: | | | | |
Cash and cash equivalents | | $ | 135 |
| | |
Receivables, net of allowances | | 18,422 |
| | |
Settlement assets | | 239,604 |
| | |
Prepaid expenses | | 317 |
| | |
Other current assets | | 19,585 |
| | |
Total current assets acquired | | 278,063 |
| | |
Noncurrent assets: | | | | |
Goodwill | | 367,142 |
| | |
Software | | 113,600 |
| | 7 years |
Customer relationships | | 208,500 |
| | 15 years |
Trademarks | | 10,900 |
| | 5 years |
Other noncurrent assets | | 3,745 |
| | |
Total assets acquired | | 981,950 |
| | |
Current liabilities: | | | | |
Accounts payable | | 6,743 |
| | |
Settlement liabilities | | 212,892 |
| | |
Employee compensation | | 1,959 |
| | |
Other current liabilities | | 3,802 |
| | |
Total current liabilities acquired | | 225,396 |
| | |
Noncurrent liabilities: | | | | |
Other noncurrent liabilities | | 1,219 |
| | |
Total liabilities acquired | | 226,615 |
| | |
Net assets acquired | | $ | 755,335 |
| | |
Factors contributing to the purchase price that resulted in the goodwill (which is tax deductible) include the acquisition of management, sales, and technology personnel with the skills to market new and existing products of the Company, enhanced product capabilities, complementary products and customers.
Unaudited Pro Forma Financial Information
The adoptionpro forma financial information in the table below presents the combined results of ASC 606operations for ACI and Speedpay as if the acquisition had no impactoccurred January 1, 2018. The pro forma information is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transaction been in totaleffect 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 (loss) for the three and six months ended June 30, 2019 and 2018, to give effect to estimated adjustments that remove the amortization expense on 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
cash flowsadditional Delayed Draw Term Loan and Revolving Credit Facility borrowings. Additionally, certain transaction expenses that are a direct result of the acquisition have been excluded from
operations.3. the three and six months ended June 30, 2019 and 2018.
The following is the unaudited summarized pro forma financial information for the periods presented (in thousands, except per share data):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Pro forma revenue | $ | 334,077 |
| | $ | 322,407 |
| | $ | 628,136 |
| | $ | 626,691 |
|
Pro forma net income (loss) | 15,249 |
| | (7,382 | ) | | (5,996 | ) | | (13,595 | ) |
Pro forma income (loss) per share: | | | | | | | |
Basic | $ | 0.13 |
| | $ | (0.06 | ) | | $ | (0.05 | ) | | $ | (0.12 | ) |
Diluted | 0.13 |
| | (0.06 | ) | | (0.05 | ) | | (0.12 | ) |
Walletron
On May 9, 2019, the Company also completed the acquisition of Walletron, which delivers patented mobile wallet technology. The Company has included the financial results of Walletron in the condensed consolidated financial statements from the date of acquisition, which were not material.
As of June 30,
2018,2019, the Company had
$3.0$235.0 million,
$383.9$775.5 million, and
$300.0$400.0 million outstanding under its Revolving Credit Facility, Term
Credit Facility,Loan, and Senior Notes, respectively, with up to
$497.0$265.0 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended.
On February 24, 2017,April 5, 2019, the Company entered into an amendedthe Second Amended and restated credit agreementRestated Credit Agreement (the “Credit Agreement”) with ACI Worldwide Corp., replacingOfficial Payments Corporation ("OPAY"), the existing agreement, with a syndicate of financial institutions, as lenders, and Bank of America, N.A. (“BofA”), 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 as of June 30, 2019.
The Credit Agreement consists of
(a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), which includes
a sublimitsublimits for
(1) the issuance of standby letters of credit and
a sublimit for(2) swingline loans,
and $415.0(b) a five-year $279.0 million
under the five-year 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
At the
Credit Facility may be made to, and the letters of credit under the Revolving Credit Facility may be issued on behalf of the Company.BorrowingsCompany’s option, borrowings under the Credit Facility bear interest at aan annual rate per annum equal to, at the Company’s option, either (a) a base rate determined by reference to the highest of (1) the rate ofannual interest per annumrate publicly announced by the Administrative Agentadministrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, andor (3) a LIBORLondon Interbank Offered Rate (“LIBOR”) rate determined by reference to the costs of funds for U.S. dollar deposits for aone-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 borrowingborrowings, adjusted for certain additional costs, in each case plus an applicable margin. The applicable margin for borrowings under the Credit Facility is, basedBased 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 atas of June 30, 2018,2019, for the Credit Facility was 3.84%4.65%.
In addition to paying interest on the outstanding principal under the Credit Facility, the
The Company is
also required to pay
(a) a commitment fee
in respect ofrelated to the unutilized commitments under the Revolving Credit Facility, payable quarterly in
arrears. The Company is also required to payarrears, (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
a per annuman annual basis, payable quarterly in arrears,
as well asand (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.
The collateral agreement of the Credit Agreement, as amended, released the lien on certain assets of OPAY, our electronic bill presentment and payment affiliate, to allow OPAY 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.
The Credit Agreement also contains certain customary affirmative covenants and events of default. If an event of default, as specified in the Credit Agreement, shall occur and be continuing, the Company may be required to repay all amounts outstanding under the Credit Facility.
On August
20, 2013,21, 2018, the Company completed a
$300.0$400.0 million offering of
Seniorthe 2026 Notes at an issue price of 100% of the principal amount, in a private placement for resale to qualified institutional buyers. The
Senior2026 Notes bear
interest at an
interestannual rate of
6.375% per annum,5.750% , payable semi-annually in arrears on
AugustFebruary 15 and
FebruaryAugust 15 of each year, commencing on February 15,
2014.2019. Interest
began accruingaccrued from August 21, 2018. The 2026 Notes will mature on August
20, 2013.15, 2026.
Maturities on
long-term debt outstanding
atas of June 30,
20182019, are as
follows: | | | | |
Fiscal year ending December 31, | | | |
(in thousands) | | | |
2018 | | $ | 10,375 | |
2019 | | | 31,125 | |
2020 | | | 331,125 | |
2021 | | | 41,500 | |
2022 | | | 272,750 | |
| | | | |
Total | | $ | 686,875 | |
| | | | |
The Credit Agreement and Senior Notes also contain certain customary mandatory prepayment provisions. If certain events, as specified in the Credit Agreement or Senior Notes agreement, shall occur, the Company may be required to repay all or a portion of the amounts outstanding under the Credit Facility or Senior Notes.
follows (in thousands):
|
| | | |
Fiscal Year Ending December 31, | |
Remainder of 2019 | $ | 19,475 |
|
2020 | 38,950 |
|
2021 | 38,950 |
|
2022 | 50,431 |
|
2023 | 69,906 |
|
Thereafter | 1,192,823 |
|
Total | $ | 1,410,535 |
|
The Credit Facility will mature on
February 24, 2022April 5, 2024, and the
Senior2026 Notes will mature on August 15,
2020.2026. The Revolving Credit Facility and
Senior2026 Notes do not
amortize and theamortize. The Term
Credit Facility doesLoans do amortize, with principal payable in consecutive quarterly installments.
The Credit Agreement and
Senior2026 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.
If an event of default, asAs specified in the Credit Agreement and
Senior2026 Notes agreement,
shallif certain events occur and
be continuing,continue, the Company may be required to repay all amounts outstanding under the Credit Facility and
Senior2026 Notes. As of June 30,
2018,2019, and at all times during the period, the Company was in compliance with its financial debt covenants.
| | | | | | | | |
(in thousands) | | As of June 30, 2018 | | | As of December 31, 2017 | |
Term credit facility | | $ | 383,875 | | | $ | 394,250 | |
Revolving credit facility | | | 3,000 | | | | 2,000 | |
6.375% Senior Notes, due August 2020 | | | 300,000 | | | | 300,000 | |
Debt issuance costs | | | (9,076 | ) | | | (10,521 | ) |
| | | | | | | | |
Total debt | | | 677,799 | | | | 685,729 | |
Less current portion of term credit facility | | | 25,938 | | | | 20,750 | |
Less current portion of debt issuance costs | | | (2,950 | ) | | | (2,964 | ) |
| | | | | | | | |
Total long-term debt | | $ | 654,811 | | | $ | 667,943 | |
| | | | | | | | |
4.
Total debt is comprised of the following (in thousands):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Term loans | $ | 775,535 |
| | $ | 284,959 |
|
Revolving credit facility | 235,000 |
| | — |
|
5.750% Senior notes, due August 2026 | 400,000 |
| | 400,000 |
|
Debt issuance costs | (24,350 | ) | | (13,203 | ) |
Total debt | 1,386,185 |
| | 671,756 |
|
Less: current portion of term loans | 38,950 |
| | 23,747 |
|
Less: current portion of debt issuance costs | (4,861 | ) | | (2,980 | ) |
Total long-term debt | $ | 1,352,096 |
| | $ | 650,989 |
|
Overdraft Facility
In 2019, the Company and OPAY entered in to a $140.0 million uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at LIBOR plus 0.875% 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 condensed consolidated balance sheet. As of June 30, 2019, there was no amount outstanding on the overdraft facility.
Other
During the six months ended June 30, 2019, the Company financed certain multi-year license agreements for internal-use software for $10.4 million, with annual payments through April 2022. As of June 30, 2019, $19.8 million is outstanding under these and other license agreements previously entered into, of which $11.6 million and $8.2 million is included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet. Upon execution, these arrangements have been treated as a non-cash investment and financing activity for purposes of the condensed consolidated statements of cash flows.
5. Stock-Based Compensation Plans
Employee Stock Purchase Plan
On April 6, 2017, the Board of Directors approved
Shares issued under 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 common stock in the Company. 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 six months ended June 30,
2019 and 2018,
totaled 60,362 and
2017, totaled 77,118,
and 84,294, respectively.
Stock-Based Payments
Stock Options
A summary of stock
options issued pursuant to the Company’s stock incentive plansoption activity is as follows:
| | | | | | | | | | | | | | | | |
| | Number of Shares | | | Weighted- Average Exercise Price | | | Weighted- Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value of In-the-Money Options | |
Outstanding as of December 31, 2017 | | | 6,162,717 | | | $ | 16.83 | | | | | | | | | |
Granted | | | 170,455 | | | | 23.36 | | | | | | | | | |
Exercised | | | (1,050,518 | ) | | | 14.19 | | | | | | | | | |
Forfeited | | | (52,827 | ) | | | 19.02 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding as of June 30, 2018 | | | 5,229,827 | | | $ | 17.55 | | | | 6.40 | | | $ | 37,215,726 | |
| | | | | | | | | | | | | | | | |
Exercisable as of June 30, 2018 | | | 3,688,160 | | | $ | 16.78 | | | | 5.69 | | | $ | 29,089,836 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price ($) | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value of In-the-Money Options ($) |
Outstanding as of December 31, 2018 | 4,864,836 |
| | $ | 17.76 |
| | | | |
Exercised | (365,808 | ) | | 15.90 |
| | | | |
Forfeited | (3,496 | ) | | 17.89 |
| | | | |
Outstanding as of June 30, 2019 | 4,495,532 |
| | $ | 17.91 |
| | 5.77 | | $ | 73,859,896 |
|
Exercisable as of June 30, 2019 | 3,951,380 |
| | $ | 17.59 |
| | 5.54 | | $ | 66,188,229 |
|
The
weighted-averageweighted average grant date fair value of stock options granted during the six months ended June 30, 2018,
and 2017 was
$7.03 and $6.24, respectively. The Company issued treasury shares for the exercise of stock options during the six months ended June 30, 2018 and 2017.$7.03. The total intrinsic value of stock options exercised during the six months ended June 30,
2019 and 2018,
was $6.0 million and
2017 was $11.3 million,
and $5.5 million, respectively.
There were no stock options granted during the six months ended June 30, 2019.
The fair value of options that do not vest based on the achievement of certain market conditions granted during the six months ended June 30, 2018, and 2017 were estimated on the date of grant using theBlack-Scholesoption-pricing model, a pricing Black-Scholes option-pricing model, acceptable under U.S. GAAPASC 718, Compensation – Stock Compensation (“ASC 718”), with the following weighted-averageweighted average assumptions: | | | | | | | | |
| | Six Months Ended June 30, 2018 | | | Six Months Ended June 30, 2017 | |
Expected life (years) | | | 5.6 | | | | 5.6 | |
Interest rate | | | 2.7 | % | | | 1.9 | % |
Volatility | | | 26.4 | % | | | 29.4 | % |
Dividend yield | | | — | | | | — | |
|
| | |
| Six Months Ended June 30, 2018 |
Expected life (years) | 5.6 |
|
Risk-free interest rate | 2.7 | % |
Expected volatility | 26.4 | % |
Expected dividend yield | — |
|
Expected volatilities are based on the Company’s historical common stock volatility, derived from historical stock price data for
historical periods commensurate with the options’ expected life. The expected life
is the average number of
years that the Company estimated that the options
willgranted 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
United StatesU.S. Treasury zero coupon
issuesbonds issued with a term equal to the expected
termlife at the date of grant of the options. The expected dividend yield is zero, as the Company has historically
not paid
no dividends and does not anticipate dividends to be paid in the future.
Long-term Incentive Program Performance Share Awards
A summary of nonvested long-term incentive program performance share awards (“LTIP performance shares”) outstandingis as offollows:
|
| | | | | | |
| Number of Shares at Expected Attainment | | Weighted Average Grant Date Fair Value |
Nonvested as of December 31, 2018 | 540,697 |
| | $ | 19.83 |
|
Forfeited | (16,319 | ) | | 20.12 |
|
Change in attainment | 377,557 |
| | 20.22 |
|
Nonvested as of June 30, 2019 | 901,935 |
| | $ | 19.99 |
|
During the six months ended June 30,
2018,2019, the Company revised the expected attainment rates for all outstanding LTIP performance shares due to changes in forecasted sales and
changes duringoperating income, resulting in additional stock-based compensation expense of approximately $6.0 million for the
period are as follows: | | | | | | | | |
Nonvested LTIP Performance Shares | | Number of Shares at Expected Attainment | | | Weighted- Average Grant Date Fair Value | |
Nonvested as of December 31, 2017 | | | 1,125,035 | | | $ | 18.94 | |
Forfeited | | | (44,120 | ) | | | 19.11 | |
| | | | | | | | |
Nonvested as of June 30, 2018 | | | 1,080,915 | | | $ | 18.94 | |
| | | | | | | | |
three and six months ended June 30, 2019.
A summary of nonvested restricted share awards (“RSAs”)
as of June 30, 2018, and changes during the period areis as follows:
| | | | | | | | |
Nonvested Restricted Share Awards | | Number of Restricted Share Awards | | | Weighted-Average Grant Date Fair Value | |
Nonvested as of December 31, 2017 | | | 503,237 | | | $ | 20.63 | |
Vested | | | (229,625 | ) | | | 21.22 | |
Forfeited | | | (15,945 | ) | | | 20.12 | |
| | | | | | | | |
Nonvested as of June 30, 2018 | | | 257,667 | | | $ | 20.11 | |
| | | | | | | | |
|
| | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Nonvested as of December 31, 2018 | 213,337 |
| | $ | 20.21 |
|
Vested | (104,763 | ) | | 20.21 |
|
Forfeited | (9,068 | ) | | 20.12 |
|
Nonvested as of June 30, 2019 | 99,506 |
| | $ | 20.21 |
|
During the six months ended June 30,
2018,2019, a total of
229,625 RSA shares104,763 RSAs vested. The Company withheld
41,97332,371 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
Performance-Based Restricted Share
Total Shareholder Return Awards
A summary of nonvested Performance-Based total shareholder return awards (“TSRs”) is as follows:
|
| | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Nonvested as of December 31, 2018 | 718,931 |
| | $ | 29.25 |
|
Granted | 436,674 |
| | 47.90 |
|
Forfeited | (18,050 | ) | | 36.06 |
|
Nonvested as of June 30, 2019 | 1,137,555 |
| | $ | 36.30 |
|
The fair value of TSRs granted during the six months ended June 30, 2019 and 2018, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, using the following weighted average assumptions:
|
| | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
Expected life (years) | 2.8 |
| | 2.9 |
|
Risk-free interest rate | 2.5 | % | | 2.4 | % |
Expected volatility | 29.3 | % | | 28.0 | % |
Expected dividend yield | — |
| | — |
|
Restricted Share AwardsUnits
A summary of nonvested restricted share unit awards (“
PBRSAs”RSUs”)
as of June 30, 2018, and changes during the period areis as follows:
| | | | | | | | |
Nonvested Performance-Based Restricted Share Awards | | Number of Performance-Based Restricted Share Awards | | | Weighted-Average Grant Date Fair Value | |
Nonvested as of December 31, 2017 | | | 173,636 | | | $ | 24.41 | |
Vested | | | (173,636 | ) | | | 24.41 | |
| | | | | | | | |
Nonvested as of June 30, 2018 | | | — | | | $ | — | |
| | | | | | | | |
|
| | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Nonvested as of December 31, 2018 | 651,045 |
| | $ | 23.82 |
|
Granted | 679,480 |
| | 33.06 |
|
Vested | (257,982 | ) | | 24.13 |
|
Forfeited | (22,465 | ) | | 26.60 |
|
Nonvested as of June 30, 2019 | 1,050,078 |
| | $ | 29.66 |
|
During the six months ended June 30,
2018,2019, a total of
173,636 PBRSA shares257,982 RSUs vested. The Company withheld
64,69957,403 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
Total Shareholder Return Awards
During the six months ended June 30, 2018 and 2017, the Company granted total shareholder return (“TSR”) awards, pursuant to the 2016 Equity and Performance Incentive Plan. 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%. In order to determine the grant date fair value of the TSRs, a Monte Carlo simulation model is used. The Company recognizes compensation expense for 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:
| | | | | | | | |
| | Six Months Ended June 30, 2018 | | | Six Months Ended June 30, 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 outstanding as of June 30, 2018, and changes during the period are 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 | | | (11,372 | ) | | | 27.10 | |
| | | | | | | | |
Nonvested as of June 30, 2018 | | | 673,491 | | | $ | 29.90 | |
| | | | | | | | |
Restricted Share Units
During the six months ended June 30, 2018, the Company granted restricted share units (“RSUs”) awards, pursuant to the 2016 Equity and Performance Incentive Plan. The awards generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. Under each arrangement, stock is 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 at 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 as of June 30, 2018, and changes during the period are as follows:
| | | | | | | | |
Nonvested Restricted Share Units | | Number of Restricted Share Units | | | Weighted- Average Grant Date Fair Value | |
Nonvested as of December 31, 2017 | | | — | | | $ | — | |
Granted | | | 709,168 | | | | 23.78 | |
Vested | | | (10,000 | ) | | | 25.72 | |
Forfeited | | | (5,992 | ) | | | 23.36 | |
| | | | | | | | |
Nonvested as of June 30, 2018 | | | 693,176 | | | $ | 23.76 | |
| | | | | | | | |
During the six months ended June 30, 2018, a total of 10,000 RSU shares vested.
As of June 30,
2018,2019, there were unrecognized compensation costs of
$16.6$27.4 million related to
thenonvested TSRs,
$14.8$27.4 million related to
nonvested RSUs,
$7.8$3.8 million related to
thenonvested LTIP performance shares,
$5.6$1.3 million related to nonvested RSAs, and $0.8 million related to nonvested stock options,
and $4.3 million related to the nonvested RSAs, which the Company expects to recognize over
weighted-averageweighted average periods of
2.5 years, 2.1 years,
1.51.8 years,
1.00.7 years, 0.7 years, and
1.60.7 years, respectively.
The Company recorded stock-based compensation
expensesexpense recognized under ASC 718
Compensation – Stock Compensation, for the three months ended June 30,
2019 and 2018,
and 2017, related to stock options, LTIP performance shares, RSAs, PBRSAs, TSR shares, RSUs, and the ESPP of
$7.7$14.4 million and
$8.3$7.7 million, respectively, with corresponding tax benefits of
$1.2$2.8 million and
$2.8$1.2 million, respectively. The Company recorded stock-based compensation
expense recognized under ASC 718 for the six months ended June 30,
2019 and 2018,
of $21.0 million and
2017, of $14.1 million,
and $14.6 million, respectively, with
the corresponding tax benefits of
$4.0 million and $2.2 million,
and $5.0 million, respectively.
5.
6. Software and Other Intangible AssetsAt
As of June 30,
2018, software net book value totaling $144.7 million, net of $239.5 million of accumulated amortization, includes the net book value of software marketed for external sale of $33.8 million. The remaining software net book value of $110.9 million is comprised of various software that has been acquired or developed for internal use.At December 31, 2017,2019, software net book value totaled $155.4$246.3 million, net of $230.7$275.6 million of accumulated amortization. Included in this net book value amount is software marketed for external saleresale of $40.9 million. The remaining$21.5 million and software net book value of $114.5 million is comprised of various software that has been acquired or developed for internal use.
Quarterly amortizationuse of $224.8 million.
As of 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.
Amortization of software
marketed for
external saleresale is computed using the greater of
(a) the ratio of current revenues to total
estimatedcurrent 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 recorded
induring the three months ended June 30,
2019 and 2018,
and 2017, totaled
$3.4$3.0 million and
$3.2$3.4 million, respectively. Software for resale amortization expense recorded in the six months ended June 30,
2019 and 2018,
and 2017, totaled
$7.0$6.0 million and
$6.5$7.0 million, respectively. These software amortization expense amounts are reflected in cost of revenue in the condensed consolidated statements of operations.
Quarterly amortization
Amortization of software for internal use is computed using the straight-line method over an estimated useful life of
generally three to ten years. Software for internal use
includes software acquired through acquisitions that is used to provide certain of our SaaS and PaaS offerings. Amortization of software for internal use inamortization expense recorded during the three months ended June 30,
2019 and 2018,
totaled $13.3 million and
2017, totaled $10.3 million,
and $11.3 million, respectively.
Amortization of softwareSoftware for internal use
inamortization expense recorded during the six months ended June 30,
2019 and 2018,
and 2017, totaled
$20.8$23.7 million and
$22.6$20.8 million, respectively. These software amortization expense amounts are
includedreflected in depreciation and amortization in the condensed consolidated statements of operations.
The carrying amount and accumulated amortization of the Company’s other intangible assets
that were subject to amortization at each balance sheet date are as
follows: | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | | December 31, 2017 | |
(in thousands) | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Balance | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Balance | |
Customer relationships | | $ | 302,080 | | | $ | (124,465 | ) | | $ | 177,615 | | | $ | 305,218 | | | $ | (116,677 | ) | | $ | 188,541 | |
Trademarks and tradenames | | | 16,507 | | | | (14,550 | ) | | | 1,957 | | | | 16,646 | | | | (13,906 | ) | | | 2,740 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $318,587 | | | $(139,015) | | | $179,572 | | | $321,864 | | | $(130,583) | | | $191,281 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
Customer relationships | $ | 506,831 |
| | $ | (143,307 | ) | | $ | 363,524 |
| | $ | 297,991 |
| | $ | (131,187 | ) | | $ | 166,804 |
|
Trademarks and tradenames | 27,253 |
| | (15,869 | ) | | 11,384 |
| | 16,348 |
| | (15,025 | ) | | 1,323 |
|
Total other intangible assets | $ | 534,084 |
| | $ | (159,176 | ) | | $ | 374,908 |
| | $ | 314,339 |
| | $ | (146,212 | ) | | $ | 168,127 |
|
Other intangible assets amortization expense
forduring the three months ended June 30,
2019 and 2018,
totaled $7.6 million and
2017, totaled $4.8
million.million, respectively. Other intangible assets amortization expense for the six months ended June 30,
2019 and 2018,
totaled $13.1 million and
2017, totaled $9.7 million,
and $9.6 million, respectively.
Based on capitalized
software and other intangible assets
atas of June 30,
2018,2019, estimated amortization expense
foramounts in future fiscal years
isare as
follows: | | | | | | | | |
Fiscal Year Ending December 31, | | Software Amortization | | | Other Intangible Assets Amortization | |
(in thousands) | | | | | | |
Remainder of 2018 | | $ | 25,561 | | | $ | 9,401 | |
2019 | | | 44,993 | | | | 18,400 | |
2020 | | | 35,162 | | | | 17,509 | |
2021 | | | 22,213 | | | | 17,007 | |
2022 | | | 9,157 | | | | 16,853 | |
2023 | | | 4,778 | | | | 16,535 | |
Thereafter | | | 2,801 | | | | 83,867 | |
| | | | | | | | |
Total | | $ | 144,665 | | | $ | 179,572 | |
| | | | | | | | |
6. follows (in thousands):
|
| | | | | | | | |
Fiscal Year Ending December 31, | | Software | | Other Intangible Assets |
Remainder of 2019 | | $ | 35,197 |
| | $ | 18,830 |
|
2020 | | 62,338 |
| | 37,046 |
|
2021 | | 49,336 |
| | 36,555 |
|
2022 | | 31,603 |
| | 36,409 |
|
2023 | | 23,123 |
| | 36,107 |
|
Thereafter | | 44,717 |
| | 209,961 |
|
Total | | $ | 246,314 |
| | $ | 374,908 |
|
7. Corporate Restructuring and Other Organizational ChangesThe components
A summary of
corporate restructuring and other reorganization activities are included in the
following table: | | | | |
(in thousands) | | Facility Closures | |
Balance, December 31, 2017 | | $ | 5,945 | |
Amounts paid during the period | | | (910 | ) |
Foreign currency translation | | | (22 | ) |
| | | | |
Balance, June 30, 2018 | | $ | 5,013 | |
| | | | |
facility closures liability is as follows (in thousands):
|
| | | |
Balance, December 31, 2018 | $ | 4,127 |
|
Amounts paid during the period | (777 | ) |
Foreign currency translation adjustments | 2 |
|
Balance, June 30, 2019 | $ | 3,352 |
|
Of the
$5.0$3.4 million
facility closurerestructuring liability,
$1.7$1.6 million and
$3.3$1.8 million
isare recorded in other current
liabilities and
noncurrentoperating lease liabilities, respectively, in the
accompanying condensed consolidated balance sheet
atas of June 30,
2018.7. 2019.
8. Common Stock and Treasury Stock In 2005, the
Company’s Board of Directors (“the Board”)board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically
authorizesauthorize additional funds for the program. In February 2018, the
Boardboard approved
the repurchase of the Company's common stock for up to $200.0 million,
forin place of the
stock repurchase program.remaining purchase amounts previously authorized.
The Company repurchased
2,346,42723,802 shares for
$54.5$0.6 million under the program during the six months ended June 30,
2018.2019. Under the program to date, the Company has repurchased
44,129,39344,153,195 shares for approximately
$547.8$548.5 million.
TheAs of June 30, 2019, the maximum remaining
amount authorized for purchase under the stock repurchase program was
$176.6 million as of June 30, 2018.8. Loss$176.0 million.
9. Earnings (Loss) Per Share Basic lossearnings (loss) per share is computed in accordance with ASC 260, Earnings per Share, based on the basis of weighted average outstanding common shares. Diluted lossearnings (loss) per share is computed based on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options and other outstanding dilutive securities.RSUs.
The following table reconciles the
weighted average share amounts used to compute both basic and diluted
lossearnings (loss) per share (in thousands):
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 115,548 | | | | 117,149 | | | | 115,595 | | | | 116,881 | |
Add: Dilutive effect of stock options | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Diluted weighted average shares outstanding | | | 115,548 | | | | 117,149 | | | | 115,595 | | | | 116,881 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Weighted average shares outstanding: | | | | | | | |
Basic weighted average shares outstanding | 116,586 |
| | 115,548 |
| | 116,287 |
| | 115,595 |
|
Add: Dilutive effect of stock options and RSUs | 2,200 |
| | — |
| | — |
| | — |
|
Diluted weighted average shares outstanding | 118,786 |
| | 115,548 |
| | 116,287 |
| | 115,595 |
|
The diluted
lossearnings (loss) per share computation excludes
7.92.1 million and
10.17.9 million options to purchase shares,
RSAs, RSUs, and contingently issuable shares
and restricted share awards during the three months ended June 30,
20182019 and
2017,2018, respectively, as their effect would be anti-dilutive. The diluted loss per share computation excludes
8.37.5 million and
10.38.3 million options to purchase shares,
RSAs, RSUs, and contingently issuable shares
and restricted share awards during the six months ended June 30,
20182019 and
2017,2018, respectively, as their effect would be anti-dilutive.
Common stock outstanding as of June 30,
20182019, and December 31,
2017,2018, was
115,765,255116,684,869 and
117,096,731,116,123,361, respectively.
9.
10. Other, Net
Other, net
is comprised of foreign currency transaction gains of $1.4 million and losses of $1.7 million for the three months ended June 30, 2019 and 2018, respectively. Other, net is comprised of foreign currency transaction losses of $1.7$0.5 million and $1.8 million for the three months ended June 30, 2018 and 2017, respectively. Other is comprised of foreign currency transaction losses of $1.7 million and $1.1 million for the six months ended June 30, 2019 and 2018, and 2017, respectively.
10.
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 (“CODM”), which is also our Chief Executive Officer,. The CODM, together with other senior management personnel, focus their review ofon consolidated financial information and the allocation of resources based upon theon operating results, including revenues and Segment Adjusted EBITDA, for the segments each segment, separate from Corporate operations.
ACI On Premise
and ACI On Demand, separate from the Corporate operations.ACI On Premise serves customers who manage their software on site. These on premiseon-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. 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 Demandserves the needs of
retailbanks, merchants and
financial institutionscorporates who use payments to facilitate their core business.
The Company sees an increasing demandThese on-demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-tenant environment for SaaS
andofferings, or in a multi-tenant environment for PaaS
offerings, which offer reduced complexity and cost as well as the ability to rapidly implement and scale.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,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).During the first quarter of 2018, the Company changed the presentation of its segment measure of profit and loss. As a result the 2017 segment disclosure has been recast to conform with the 2018 presentation..
Corporate and
other 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.
The following is selected financial data for the Company’s reportable segments (in thousands):
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2018 | | | June 30, 2017 | | | June 30, 2018 | | | June 30, 2017 | |
Revenue | | | | | | | | | | | | | | | | |
ACI On Premise | | $ | 121,395 | | | $ | 127,194 | | | $ | 226,425 | | | $ | 259,102 | |
ACI On Demand | | | 113,600 | | | | 113,405 | | | | 217,880 | | | | 212,959 | |
| | | | | | | | | | | | | | | | |
Total revenue | | $ | 234,995 | | | $ | 240,599 | | | $ | 444,305 | | | $ | 472,061 | |
| | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA | | | | | | | | | | | | | | | | |
ACI On Premise | | $ | 54,760 | | | $ | 62,527 | | | $ | 93,658 | | | $ | 130,922 | |
ACI On Demand | | | (3,364 | ) | | | (546 | ) | | | (7,597 | ) | | | (7,553 | ) |
Depreciation and amortization | | | (24,351 | ) | | | (25,581 | ) | | | (49,344 | ) | | | (51,219 | ) |
Stock-based compensation | | | (7,705 | ) | | | (8,343 | ) | | | (14,067 | ) | | | (14,640 | ) |
Corporate and unallocated expenses | | | (21,498 | ) | | | (66,500 | ) | | | (41,512 | ) | | | (92,330 | ) |
Interest, net | | | (6,975 | ) | | | (10,514 | ) | | | (13,596 | ) | | | (20,568 | ) |
Other, net | | | (1,677 | ) | | | (1,766 | ) | | | (1,732 | ) | | | (1,117 | ) |
| | | | | | | | | | | | | | | | |
Loss before income taxes | | $ | (10,810 | ) | | $ | (50,723 | ) | | $ | (34,190 | ) | | $ | (56,505 | ) |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
ACI On Premise | | $ | 2,849 | | | $ | 3,333 | | | $ | 5,824 | | | $ | 6,594 | |
ACI On Demand | | | 7,826 | | | | 9,009 | | | | 15,562 | | | | 17,397 | |
Corporate | | | 13,676 | | | | 13,239 | | | | 27,958 | | | | 27,228 | |
| | | | | | | | | | | | | | | | |
Total depreciation and amortization | | $ | 24,351 | | | $ | 25,581 | | | $ | 49,344 | | | $ | 51,219 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | | | | | | |
ACI On Premise | $ | 125,119 |
| | $ | 121,395 |
| | $ | 221,126 |
| | $ | 226,425 |
|
ACI On Demand | 172,499 |
| | 113,600 |
| | 282,347 |
| | 217,880 |
|
Total revenue | $ | 297,618 |
| | $ | 234,995 |
| | $ | 503,473 |
| | $ | 444,305 |
|
Segment Adjusted EBITDA | | | | | | | |
ACI On Premise | $ | 57,069 |
| | $ | 54,760 |
| | $ | 85,337 |
| | $ | 93,658 |
|
ACI On Demand | 17,340 |
| | (3,364 | ) | | 17,078 |
| | (7,597 | ) |
Depreciation and amortization | (29,778 | ) | | (24,351 | ) | | (54,630 | ) | | (49,344 | ) |
Stock-based compensation expense | (14,372 | ) | | (7,705 | ) | | (20,957 | ) | | (14,067 | ) |
Corporate and unallocated expenses | (36,141 | ) | | (21,498 | ) | | (60,803 | ) | | (41,512 | ) |
Interest, net | (12,326 | ) | | (6,975 | ) | | (20,907 | ) | | (13,596 | ) |
Other, net | 1,402 |
| | (1,677 | ) | | (510 | ) | | (1,732 | ) |
Loss before income taxes | $ | (16,806 | ) | | $ | (10,810 | ) | | $ | (55,392 | ) | | $ | (34,190 | ) |
Depreciation and amortization | | | | | | | |
ACI On Premise | $ | 3,019 |
| | $ | 2,849 |
| | $ | 6,049 |
| | $ | 5,824 |
|
ACI On Demand | 8,489 |
| | 7,826 |
| | 16,051 |
| | 15,562 |
|
Corporate | 18,270 |
| | 13,676 |
| | 32,530 |
| | 27,958 |
|
Total depreciation and amortization | $ | 29,778 |
| | $ | 24,351 |
| | $ | 54,630 |
| | $ | 49,344 |
|
Stock-based compensation expense | | | | | | | |
ACI On Premise | $ | 2,051 |
| | $ | 1,838 |
| | $ | 4,007 |
| | $ | 3,305 |
|
ACI On Demand | 2,214 |
| | 1,834 |
| | 4,165 |
| | 3,297 |
|
Corporate | 10,107 |
| | 4,033 |
| | 12,785 |
| | 7,465 |
|
Total stock-based compensation expense | $ | 14,372 |
| | $ | 7,705 |
| | $ | 20,957 |
| | $ | 14,067 |
|
Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information.
The following is
selected financial data for the Company’s geographical areas and revenuesrevenue by
primary geographic
locationmarket and primary solution category for the
periods indicatedCompany’s reportable segments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | | Three Months Ended June 30, 2017 | |
(in thousands) | | ACI On Premise | | | ACI On Demand | | | Total | | | ACI On Premise | | | ACI On Demand | | | Total | |
Primary Geographic Markets | | | | | | | | | | | | | | | | | | | | | | | | |
Americas - United States | | $ | 25,394 | | | $ | 97,825 | | | $ | 123,219 | | | $ | 32,928 | | | $ | 97,648 | | | $ | 130,576 | |
Americas - Other | | | 11,776 | | | | 2,348 | | | | 14,124 | | | | 12,844 | | | | 2,601 | | | | 15,445 | |
EMEA | | | 62,489 | | | | 12,425 | | | | 74,914 | | | | 66,556 | | | | 12,371 | | | | 78,927 | |
Asia Pacific | | | 21,736 | | | | 1,002 | | | | 22,738 | | | | 14,866 | | | | 785 | | | | 15,651 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 121,395 | | | $ | 113,600 | | | $ | 234,995 | | | $ | 127,194 | | | $ | 113,405 | | | $ | 240,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Primary Solution Categories | | | | | | | | | | | | | | | | | | | | | | | | |
Bill Payments | | $ | — | | | $ | 74,371 | | | $ | 74,371 | | | $ | — | | | $ | 73,685 | | | $ | 73,685 | |
Digital Channels/Online | | | 8,917 | | | | 10,310 | | | | 19,227 | | | | 10,227 | | | | 11,725 | | | | 21,952 | |
Merchant Payments | | | 5,250 | | | | 14,000 | | | | 19,250 | | | | 7,440 | | | | 11,999 | | | | 19,439 | |
Payments Risk Management | | | 8,032 | | | | 11,658 | | | | 19,690 | | | | 6,808 | | | | 12,104 | | | | 18,912 | |
Real Time Payments | | | 15,741 | | | | 484 | | | | 16,225 | | | | 9,902 | | | | 1,703 | | | | 11,605 | |
Retail Payments | | | 83,455 | | | | 2,777 | | | | 86,232 | | | | 92,817 | | | | 2,189 | | | | 95,006 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 121,395 | | | $ | 113,600 | | | $ | 234,995 | | | $ | 127,194 | | | $ | 113,405 | | | $ | 240,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2018 | | | Six Months Ended June 30, 2017 | |
(in thousands) | | ACI On Premise | | | ACI On Demand | | | Total | | | ACI On Premise | | | ACI On Demand | | | Total | |
Primary Geographic Markets | | | | | | | | | | | | | | | | | | | | | | | | |
Americas - United States | | $ | 56,258 | | | $ | 186,770 | | | $ | 243,028 | | | $ | 82,122 | | | $ | 183,456 | | | $ | 265,578 | |
Americas - Other | | | 28,560 | | | | 4,668 | | | | 33,228 | | | | 27,717 | | | | 4,854 | | | | 32,571 | |
EMEA | | | 101,175 | | | | 24,434 | | | | 125,609 | | | | 118,460 | | | | 23,450 | | | | 141,910 | |
Asia Pacific | | | 40,432 | | | | 2,008 | | | | 42,440 | | | | 30,803 | | | | 1,199 | | | | 32,002 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 226,425 | | | $ | 217,880 | | | $ | 444,305 | | | $ | 259,102 | | | $ | 212,959 | | | $ | 472,061 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Primary Solution Categories | | | | | | | | | | | | | | | | | | | | | | | | |
Bill Payments | | $ | — | | | $ | 140,539 | | | $ | 140,539 | | | $ | — | | | $ | 138,931 | | | $ | 138,931 | |
Digital Channels/Online | | | 20,280 | | | | 20,954 | | | | 41,234 | | | | 22,715 | | | | 22,216 | | | | 44,931 | |
Merchant Payments | | | 10,260 | | | | 26,371 | | | | 36,631 | | | | 13,752 | | | | 23,358 | | | | 37,110 | |
Payments Risk Management | | | 18,452 | | | | 23,456 | | | | 41,908 | | | | 11,968 | | | | 22,412 | | | | 34,380 | |
Real Time Payments | | | 29,382 | | | | 934 | | | | 30,316 | | | | 23,450 | | | | 1,898 | | | | 25,348 | |
Retail Payments | | | 148,051 | | | | 5,626 | | | | 153,677 | | | | 187,217 | | | | 4,144 | | | | 191,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 226,425 | | | $ | 217,880 | | | $ | 444,305 | | | $ | 259,102 | | | $ | 212,959 | | | $ | 472,061 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
| ACI On Premise | | ACI On Demand | | Total | | ACI On Premise | | ACI On Demand | | Total |
Primary Geographic Markets | | | | | | | | | | | |
Americas - United States | $ | 35,696 |
| | $ | 155,825 |
| | $ | 191,521 |
| | $ | 25,394 |
| | $ | 97,825 |
| | $ | 123,219 |
|
Americas - Other | 12,413 |
| | 2,107 |
| | 14,520 |
| | 11,776 |
| | 2,348 |
| | 14,124 |
|
EMEA | 52,155 |
| | 12,492 |
| | 64,647 |
| | 62,489 |
| | 12,425 |
| | 74,914 |
|
Asia Pacific | 24,855 |
| | 2,075 |
| | 26,930 |
| | 21,736 |
| | 1,002 |
| | 22,738 |
|
Total | $ | 125,119 |
| | $ | 172,499 |
| | $ | 297,618 |
| | $ | 121,395 |
| | $ | 113,600 |
| | $ | 234,995 |
|
Primary Solution Categories | | | | | | | | | | | |
Bill Payments | $ | — |
| | $ | 125,339 |
| | $ | 125,339 |
| | $ | — |
| | $ | 74,371 |
| | $ | 74,371 |
|
Digital Channels | 9,444 |
| | 18,011 |
| | 27,455 |
| | 8,917 |
| | 10,310 |
| | 19,227 |
|
Merchant Payments | 7,637 |
| | 17,942 |
| | 25,579 |
| | 5,308 |
| | 15,411 |
| | 20,719 |
|
Payments Intelligence | 6,504 |
| | 8,874 |
| | 15,378 |
| | 7,974 |
| | 10,247 |
| | 18,221 |
|
Real-Time Payments | 21,809 |
| | 907 |
| | 22,716 |
| | 15,741 |
| | 484 |
| | 16,225 |
|
Retail Payments | 79,725 |
| | 1,426 |
| | 81,151 |
| | 83,455 |
| | 2,777 |
| | 86,232 |
|
Total | $ | 125,119 |
| | $ | 172,499 |
| | $ | 297,618 |
| | $ | 121,395 |
| | $ | 113,600 |
| | $ | 234,995 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
| ACI On Premise | | ACI On Demand | | Total | | ACI On Premise | | ACI On Demand | | Total |
Primary Geographic Markets | | | | | | | | | | | |
Americas - United States | $ | 62,118 |
| | $ | 248,861 |
| | $ | 310,979 |
| | $ | 56,258 |
| | $ | 186,770 |
| | $ | 243,028 |
|
Americas - Other | 23,358 |
| | 4,850 |
| | 28,208 |
| | 28,560 |
| | 4,668 |
| | 33,228 |
|
EMEA | 94,606 |
| | 24,560 |
| | 119,166 |
| | 101,175 |
| | 24,434 |
| | 125,609 |
|
Asia Pacific | 41,044 |
| | 4,076 |
| | 45,120 |
| | 40,432 |
| | 2,008 |
| | 42,440 |
|
Total | $ | 221,126 |
| | $ | 282,347 |
| | $ | 503,473 |
| | $ | 226,425 |
| | $ | 217,880 |
| | $ | 444,305 |
|
Primary Solution Categories | | | | | | | | | | | |
Bill Payments | $ | — |
| | $ | 194,306 |
| | $ | 194,306 |
| | $ | — |
| | $ | 140,539 |
| | $ | 140,539 |
|
Digital Channels | 18,169 |
| | 27,799 |
| | 45,968 |
| | 20,280 |
| | 20,954 |
| | 41,234 |
|
Merchant Payments | 12,659 |
| | 37,281 |
| | 49,940 |
| | 10,383 |
| | 28,957 |
| | 39,340 |
|
Payments Intelligence | 13,541 |
| | 17,855 |
| | 31,396 |
| | 18,329 |
| | 20,870 |
| | 39,199 |
|
Real-Time Payments | 36,524 |
| | 1,525 |
| | 38,049 |
| | 29,382 |
| | 934 |
| | 30,316 |
|
Retail Payments | 140,233 |
| | 3,581 |
| | 143,814 |
| | 148,051 |
| | 5,626 |
| | 153,677 |
|
Total | $ | 221,126 |
| | $ | 282,347 |
| | $ | 503,473 |
| | $ | 226,425 |
| | $ | 217,880 |
| | $ | 444,305 |
|
The following is
selected financial data for the Company’s long-lived assets by geographic location
for the periods indicated (in thousands):
| | | | | | | | |
(in thousands) | | June 30, 2018 | | | December 31, 2017 | |
Long lived assets | | | | | | | | |
United States | | $ | 840,614 | | | $ | 759,513 | |
Other | | | 709,955 | | | | 613,556 | |
| | | | | | | | |
| | $1,550,569 | | | $1,373,069 | |
| | | | | | | | |
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Long-lived Assets | | | |
United States | $ | 1,538,730 |
| | $ | 811,435 |
|
Other | 726,038 |
| | 717,495 |
|
Total | $ | 2,264,768 |
| | $ | 1,528,930 |
|
No single customer accounted for more than 10% of the Company’s consolidated revenues during the three and six months ended June 30,
20182019 and
2017. Aggregate revenues attributable to our customers in the United Kingdom accounted for 11.4% of the Company’s consolidated revenues during the three and six months ended June 30, 2017. No other country outside the United States and the United Kingdom accounted for more than 10% of the Company’s consolidated revenues during the three and six months ended June 30, 2017.2018. No other country outside the United States accounted for more than 10% of the Company’s consolidated revenues during the three and six months ended June 30,
2019 and 2018.
11.
12. Income TaxesOn December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into U.S. Law. 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 (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of June 30, 2018, the Company has not completed its accounting
The effective tax rate for the
tax effects of the enactment of the Tax Act; however, in certain cases, specifically as follows, the Company made a reasonable estimate of (i) the effects on its existing deferred tax balancesthree and
(ii) the effects of theone-time mandatory repatriation tax. The Company recognized a provisional tax expense of $35.9 million in the year ended December 31, 2017 associated with the items it could reasonably estimate. For the six months ended June 30,
2018, the Company made an adjustment to its estimate related to executive compensation which resulted in $1.7 million of tax benefit. Due the timing of the release of the Tax Act, the complexity of the Tax Act2019, was 134% and
regulatory guidance that has recently been released and additional guidance expected to be released, the Company is still analyzing the Tax Act and refining its calculations, which could potentially impact the measurement of its income tax balances.63%, respectively. The Company
expects to complete its analysis withinreported an overall tax benefit on a pretax loss for the
measurement period in accordance with SAB 118.At June 30, 2018, the Company has not yet determined its policy election with respect to whether to record deferred taxes for basis differences expected to reverse as a result of the Global IntangibleLow-Taxed Income (“GILTI”) provisions in future periods or use the period cost method. The Company has recorded $3.8 million of tax expense in thethree and six months ended June 30, 20182019. The earnings of the Company’s foreign entities for the current impactthree and six months ended June 30, 2019, were $11.0 million and $4.8 million, respectively. The effective tax rate for the three and six months ended June 30, 2019, was positively impacted by state income tax benefits on a domestic loss. In addition, the Company released a majority of its valuation allowance established against its U.S. foreign tax credit deferred tax asset, resulting in a non-cash benefit to income tax expense of approximately $18.5 million. The Company released the GILTI provisions.
valuation allowance following the acquisition of Speedpay and has determined that it is more likely than not that it will be able to utilize the foreign tax credits in future years due to additional income provided by Speedpay.
The effective tax rate for the three and six months ended June 30, 2018, was
35%(35)% and 1%
., respectively. The earnings of the Company’s foreign entities for the three and six months ended June 30, 2018, were $7.2 million and $5.4 million, respectively. The effective tax rate for the three and six months ended June 30, 2018, was negatively impacted by losses in certain foreign jurisdictions taxed at lower rates and domestic taxes resulting from the current GILTI tax, partially offset by equity compensation tax benefits.
The effective tax rate for the three and six months ended June 30, 2017 was 41% and 44%. The earnings of the Company’s foreign entities for the three and six months ended June 30, 2017 were $16.7 million and $25.4 million, respectively. The effective tax rates for the three and six months ended June 30, 2017 were negatively impacted by losses in certain foreign jurisdictions taxed at lower rates and domestic losses taxed at higher rates.
The Company’s effective tax rate could fluctuate
significantly on a quarterly basis
and could be negatively affecteddue to the
extent earnings are lower in the countries in which it operates that have a lower statutory rateoccurrence of significant and unusual or
higher in the countries in which it operates that have a higher statutory rateinfrequent items, such as vesting of stock-based compensation or
to the extent it has losses sustained in countries where the future utilization of losses are uncertain.foreign currency gains and losses. The Company’s effective tax rate could also fluctuate due to changes in the valuation of its deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, the Company is occasionally subject to examination of its income tax returns by tax authorities in the jurisdictions it operates. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.
The
As of June 30, 2019, and December 31, 2018, the amount of unrecognized tax benefits for uncertain tax positions was
$27.6$28.3 million
as of June 30, 2018 and
$27.2$28.4 million,
as of December 31, 2017,respectively, excluding related liabilities for interest and penalties of $1.2 million as of June 30,
20182019 and December 31,
2017.2018.
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately
$0.1$3.9 million, due to the settlement of various audits and the expiration of statutes of limitation.
13. Leases
The Company continueshas operating leases 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 evaluatepurchase the potential foreignunderlying asset are not recorded on the condensed 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): |
| | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Operating lease cost | $ | 4,287 |
| | $ | 8,323 |
|
Variable lease cost | 760 |
| | 1,746 |
|
Sublease income | (141 | ) | | (280 | ) |
Total lease cost | $ | 4,906 |
| | $ | 9,789 |
|
Supplemental cash flow information related to leases is as follows (in thousands):
|
| | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 4,849 |
| | $ | 10,260 |
|
Right-of-use assets obtained in exchange for new lease obligations: | | | |
Operating leases | $ | 4,984 |
| | $ | 6,202 |
|
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):
|
| | | |
| June 30, 2019 |
Assets: | |
Operating lease right-of-use assets | $ | 62,316 |
|
Liabilities: | |
Other current liabilities | $ | 15,193 |
|
Operating lease liabilities | 50,550 |
|
Total operating lease liabilities | $ | 65,743 |
|
Weighted average remaining operating lease term (years) | 6.78 |
|
Weighted average operating lease discount rate | 4.07 | % |
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. state taxdollar, 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 that would result from future repatriations fromnon-U.S. subsidiaries, if any, and how the Tax Act will affect our existing accounting position with regard to the indefinite reinvestmentas of undistributed foreign earnings.12. Accumulated Other Comprehensive Loss
Activity within accumulated other comprehensive loss for the six months ended June 30, 2018 and 2017, which consists2019, are as follows (in thousands):
|
| | | |
Fiscal Year Ending December 31, | |
Remainder of 2019 | $ | 8,605 |
|
2020 | 16,547 |
|
2021 | 11,956 |
|
2022 | 9,130 |
|
2023 | 7,474 |
|
Thereafter | 21,554 |
|
Total lease payments | 75,266 |
|
Less: imputed interest | 9,523 |
|
Total lease liability | $ | 65,743 |
|
Future payments under operating lease agreements accounted for under ASC 840, Leases, as of December 31, 2018, were as follows: | | | | |
(in thousands) | | Accumulated other comprehensive loss | |
Balance at December 31, 2017 | | $ | (77,356 | ) |
Other comprehensive loss | | | (7,248 | ) |
| | | | |
Balance at June 30, 2018 | | $ | (84,604 | ) |
| | | | |
| |
| | Accumulated other comprehensive loss | |
Balance at December 31, 2016 | | $ | (94,100 | ) |
Other comprehensive income | | | 15,120 | |
| | | | |
Balance at June 30, 2017 | | $ | (78,980 | ) |
| | | | |
follows (in thousands): |
| | | |
Fiscal Year Ending December 31, | |
2019 | $ | 16,925 |
|
2020 | 14,212 |
|
2021 | 10,538 |
|
2022 | 8,178 |
|
2023 | 6,529 |
|
Thereafter | 21,196 |
|
Total minimum lease payments | $ | 77,578 |
|
As of June 30, 2019, the Company has additional operating leases for office facilities that have not yet commenced with minimum lease payments of $4.0 million. These operating leases will commence between fiscal year 2019 and 2020 with lease terms of three to seven years.
14. Subsequent Event
On July 23, 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 will account for this investment using the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures.
ItemITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and may include words or phrases such as “believes,” “will,” “expects,” “anticipates,” “intends,” and words and phrases of similar impact. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.
Forward-looking statements in this report include, but are not limited to, statements regarding future operations, business strategy, business environment, key trends, and, in each case, statements related to expected financial and other benefits. Many of these factors will be important in determining our actual future results. Any or all of the forward-looking statements in this report may turn out to be incorrect. They may be based on inaccurate assumptions or may not account for known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those expressed or implied in any forward-looking statements, and our business, financial condition and results of operations could be materially and adversely affected. In addition, we disclaim any obligation to update any forward-looking statements after the date of this report, except as required by law.
All of the forward-looking statements in this report are expressly qualified by the risk factors discussed in our filings with the Securities and Exchange Commission (“SEC”). Such factors include, but are not limited to, risks related to: the performance of our strategic products, Universal Payments solutions;
consolidations and failures in the financial services industry;
customer reluctance to switch to a new vendor;
the migration or failure to migrate customers to software as a service (“SaaS”) and platform as a service (“PaaS”) solutions;
failure to obtain renewals of customer contracts or to obtain such renewals on favorable terms;
delay or cancellation of customer projects or inaccurate project completion estimates;
the complexity of our products and services and the risk that they may contain hidden defects;
compliance of our products with applicable legislation, governmental regulations, and industry standards;
failing to comply with money transmitter rules and regulations;
our compliance with privacy regulations;
being subject to security breaches or viruses;
our ability to adequately protect our intellectual property;
increasing intellectual property rights litigation;
certain payment funding methods expose us to the credit and/or operating risk of our clients;
business interruptions or failure of our information technology and communication systems;
our offshore software development activities;
operating internationally;
global economic conditions impact on demand for our products and services;
volatility and disruption of the capital and credit markets and adverse changes in the global economy;
attracting and retaining employees;
potential future litigation;
our sale of Community Financial Services (“CFS”) assets and liabilities to Fiserv, Inc. (“Fiserv”), including potential claims arising under the transaction agreement, the transition services agreement or with respect to retained liabilities;
future acquisitions, strategic partnerships, and investments;
risk of difficulties integrating E Commerce Group Products, Inc. and its subsidiary, Speedpay, Inc. (collectively referred to as "Speedpay"), which may cause us to fail to realize anticipated benefits of the acquisition;
impairment of our goodwill or intangible assets;
restrictions and other financial covenants in our credit facility;
debt;difficulty meeting our debt service requirements;
the accuracy of our backlog estimates;
exposure to unknown tax liabilities;
the cyclical nature of our revenue and earnings and the accuracy of forecasts due to the concentration of revenue generating activity during the final weeks of each quarter; and
volatility in our stock price.
The cautionary statements in this report expressly qualify all of our forward-looking statements.
The following discussion should be read together with our financial statements and related notes contained in this report and with the financial statements and related notes and Management’s Discussion & Analysis in our Annual Report on Form
10-K for the fiscal year ended December 31,
2017,2018, filed
February 27, 2018.March 1, 2019. Results for the
three and six months ended June 30,
2018,2019, are not necessarily indicative of results that may be attained in the future.
ACI Worldwide,
Inc., the Universal Payments (“UP”) company, powers electronic payments for more than 5,100 organizations around the world. More than 1,000 of the largest
banksfinancial institutions and
financial intermediaries, as well as thousands of
leading global merchants, rely on ACI to execute
approximately $14 trillion each day in payments and securities. In addition, thousands of organizations utilize our
EBPPelectronic bill payment and presentment (“EBPP”) services. Through our comprehensive suite of
SaaS and PaaS solutions, we deliver real-time, immediate payments capabilities and enable a complete omni-channel payments experience.
Our products are sold and supported through distribution networks covering three geographic regions – the Americas, EMEA,Americas; Europe, Middle East, and Africa (“EMEA”); and Asia/Pacific. Each distribution network has its own globally coordinated sales force and supplements its sales force with independent reseller and/or distributor networks. Our products and solutions are used globally by banks, financial intermediaries, merchants and corporates, 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”) terminals, bank branches, mobile phones, tablets, corporations, and Internet commerce sites. Accordingly, our business and operating results are influenced by trends such as information technology spending levels, the growth rate of electronic payments,
mandated regulatory changes, and changes in the number and type of customers in the financial services industry. Our products are marketed under the ACI Worldwide, ACI Universal Payment, and ACI UP brands.
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
SaaSsoftware as a service ("SaaS") and
PaaSplatform as a service ("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 grow centers of expertise in Timisoara, Romania and Pune and Bangalore in India, as well as key operational centers such as Cape Town, South Africa and in multiple locations in the United States.
Key trends that currently impact our strategies and operations include:
Increasing electronic payment transaction volumes. Electronic payment volumes continue to increase around the world, taking market share from traditional cash and check transactions. The Boston Consulting GroupIn their World Payments Report, Capgemini predicts that electronic payment transactionsnon-cash transaction volumes will grow in volume at an annual rate of 6.7%12.7%, or from 481482.5 billion in 2016 to 624.6876.4 billion in 2020,2021, with varying growth rates based on the type of payment and part of the world. 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.
Adoption of real-time payments. Customer expectations, from both consumers and corporate, are driving the payments world to more real-time delivery. In the U.K., payments sent through 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 including Australia and the United States. In the U.S. market, National Automated Clearinghouse Association (“NACHA”) implemented phase 2 of Same Day ACH in September 2017. Corporate customers expect real-time information on 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.
Adoption of cloud technology. In an effort to To leverage lower-cost computing technologies, some banks, financial intermediaries, merchants and corporates are seeking to transition their systems to make use of cloud technology. Our investments provide us the grounding to deliver cloud capabilities in the future. Market sizing data from Ovum indicates that spend on SaaS and PaaS payment systems is growing faster than spend on installed applications.
Electronic payments fraud and compliance. As electronic payment transaction volumes increase, organized criminal organizations continue to find ways to commit a growing volume of fraudulent transactions using a wide range of techniques. Banks, financial intermediaries, and merchants and corporates continue to seek ways to leverage new technologies to identify 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 and regulatory pressures. We continue to see opportunity to offer our fraud detection solutions to help customers manage the growing levels of electronic payments fraud and compliance activity.
Adoption of smartcard technology. In many markets, card issuers are being required to issue new cards with embedded chip technology, with the liability shift having gone into effect in 2015 in the United States. Chip-based cards are more secure, harder to copy, and offer 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 community and the U.K., 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, will forcerequired member states to implement new payments regulation byregulations 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 banks and financial institutionsintermediaries 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 banks and financial institutionsintermediaries may result in a smaller number of existing and potential customers for our products and services. 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 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 banks and financial institutionsintermediaries as customers, often resulting in our solutions being the solutions that survive in the consolidated entity.
Global vendor sourcing. Global and regional banks, financial intermediaries, and 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. Our 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 service-oriented architectures 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 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. According to Aite Group, the percentageNearly three out of four (73%) online payments are made on billerat the billers’ sites, grew from 62% in 2010 to 73% in 2016.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
financially accretive to our financial performance.
Acquisition
Speedpay
On May 9, 2019, we acquired E Commerce Group Products, Inc. ("ECG"), a subsidiary of The Western Union Company (“Western Union”), along with ECG's subsidiary, Speedpay, Inc. (collectively referred to as "Speedpay") for $755.3 million in cash, including working capital adjustments, pursuant to a Stock Purchase Agreement, among the Company, Western Union, and ACI Worldwide Corp., our wholly owned subsidiary. The combination of the Company and Speedpay bill pay solutions serves more than 4,000 customers across the U.S., 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 increases the scale of our On Demand platform business and allows the acceleration of platform innovation.
To fund the acquisition, we amended our existing Credit Agreement, dated February 24, 2017, for an additional $500.0 million senior secured term loan, in addition to drawing $250.0 million on the available Revolving Credit Facility. See Note 4, Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for terms of the Credit Agreement. The remaining acquisition consideration was funded with cash on hand.
Committed Backlog, which includes (1) contracted revenue that will be recognized in future periods (contracted but not recognized) from software license fees, maintenance fees, services 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 that 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 in customer systems.
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 mergerconsolidation 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 the
60-month and12-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 June 30,
20182019, March 31, 2019, and December 31,
20172018 (in millions).
The June 30, 2019, 60-month backlog estimate includes approximately $1.5 billion as a result of the acquisition of Speedpay. 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 anon-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 | | | | |
| | June 30, 2018 | | | March 31, 2018 | | | December 31, 2017 | |
ACI On Premise | | $ | 1,830 | | | $ | 1,681 | | | $ | 1,874 | | | $ | 1,709 | | | $ | 1,700 | |
ACI On Demand | | | 2,472 | | | | 2,472 | | | | 2,513 | | | | 2,512 | | | | 2,404 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,302 | | | $ | 4,153 | | | $ | 4,387 | | | $ | 4,221 | | | $ | 4,104 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | As Reported | | | Without application of ASC 606 | | | As Reported | | | Without application of ASC 606 | | | | |
| | June 30, 2018 | | | March 31, 2018 | | | December 31, 2017 | |
Committed | | $ | 1,769 | | | $ | 2,022 | | | $ | 1,879 | | | $ | 2,138 | | | $ | 2,062 | |
Renewal | | | 2,533 | | | | 2,131 | | | | 2,508 | | | | 2,083 | | | | 2,042 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,302 | | | $ | 4,153 | | | $ | 4,387 | | | $ | 4,221 | | | $ | 4,104 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| June 30, 2019 | | March 31, 2019 | | December 31, 2018 |
ACI On Premise | $ | 1,880 |
| | $ | 1,861 |
| | $ | 1,875 |
|
ACI On Demand | 3,813 |
| | 2,290 |
| | 2,299 |
|
Total | $ | 5,693 |
| | $ | 4,151 |
| | $ | 4,174 |
|
| | | | | |
| June 30, 2019 | | March 31, 2019 | | December 31, 2018 |
Committed | $ | 2,105 |
| | $ | 1,734 |
| | $ | 1,832 |
|
Renewal | 3,588 |
| | 2,417 |
| | 2,342 |
|
Total | $ | 5,693 |
| | $ | 4,151 |
| | $ | 4,174 |
|
Estimates of future financial results require substantial judgment and are based on
a number ofseveral assumptions, as described above. These assumptions may turn out to be inaccurate or wrong
including for reasons outside of management’s control. For example, our customers may attempt to renegotiate or terminate their contracts for
a number ofmany reasons, including mergers, changes in their financial condition, or general changes in economic conditions in the customer’s industry or geographic
location, or welocation. 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
actually recognized in future periods. Accordingly, there can be no assurance that amounts included in backlog estimates will
actually generate the specified revenues or that the actual revenues will be generated within the corresponding
60-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 table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues
offor items included in our condensed consolidated statements of operations
(amounts in(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | |
| | 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 | | $ | 113,600 | | | | 48 | % | | $ | 131 | | | | 0 | % | | $ | 113,469 | | | | 47 | % |
License | | | 45,555 | | | | 19 | % | | | (8,625 | ) | | | -16 | % | | | 54,180 | | | | 23 | % |
Maintenance | | | 55,048 | | | | 23 | % | | | (961 | ) | | | -2 | % | | | 56,009 | | | | 23 | % |
Services | | | 20,792 | | | | 9 | % | | | 3,851 | | | | 23 | % | | | 16,941 | | | | 7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 234,995 | | | | 100 | % | | | (5,604 | ) | | | -2 | % | | | 240,599 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | 116,261 | | | | 49 | % | | | (4,096 | ) | | | -3 | % | | | 120,357 | | | | 50 | % |
Research and development | | | 37,862 | | | | 16 | % | | | 2,893 | | | | 8 | % | | | 34,969 | | | | 15 | % |
Selling and marketing | | | 33,160 | | | | 14 | % | | | 4,343 | | | | 15 | % | | | 28,817 | | | | 12 | % |
General and administrative | | | 28,837 | | | | 12 | % | | | (43,690 | ) | | | -60 | % | | | 72,527 | | | | 30 | % |
Depreciation and amortization | | | 21,033 | | | | 9 | % | | | (1,339 | ) | | | -6 | % | | | 22,372 | | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 237,153 | | | | 101 | % | | | (41,889 | ) | | | -15 | % | | | 279,042 | | | | 116 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | | (2,158 | ) | | | -1 | % | | | 36,285 | | | | -94 | % | | | (38,443 | ) | | | -16 | % |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (9,717 | ) | | | -4 | % | | | 947 | | | | -9 | % | | | (10,664 | ) | | | -4 | % |
Interest income | | | 2,742 | | | | 1 | % | | | 2,592 | | | | 1728 | % | | | 150 | | | | 0 | % |
Other, net | | | (1,677 | ) | | | -1 | % | | | 89 | | | | -5 | % | | | (1,766 | ) | | | -1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income (expense) | | | (8,652 | ) | | | -4 | % | | | 3,628 | | | | -30 | % | | | (12,280 | ) | | | -5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (10,810 | ) | | | -5 | % | | | 39,913 | | | | -79 | % | | | (50,723 | ) | | | -21 | % |
Income tax expense (benefit) | | | 3,764 | | | | 2 | % | | | 24,678 | | | | -118 | % | | | (20,914 | ) | | | -9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (14,574 | ) | | | -6 | % | | $ | 15,235 | | | | -51 | % | | $ | (29,809 | ) | | | -12 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three-Month
Three Month Period Ended June 30, 20182019, Compared to the Three-MonthThree Month Period Ended June 30, 20172018
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
| Amount | | % of Total Revenue | | $ Change vs 2018 | | % Change vs 2018 | | Amount | | % of Total Revenue |
Revenues: | | | | | | | | | | | |
Software as a service and platform as a service | $ | 172,499 |
| | 58 | % | | $ | 58,899 |
| | 52 | % | | $ | 113,600 |
| | 48 | % |
License | 52,541 |
| | 18 | % | | 6,986 |
| | 15 | % | | 45,555 |
| | 19 | % |
Maintenance | 51,922 |
| | 17 | % | | (3,126 | ) | | (6 | )% | | 55,048 |
| | 23 | % |
Services | 20,656 |
| | 7 | % | | (136 | ) | | (1 | )% | | 20,792 |
| | 9 | % |
Total revenues | 297,618 |
| | 100 | % | | 62,623 |
| | 27 | % | | 234,995 |
| | 100 | % |
Operating expenses: | | | | | | | | | | | |
Cost of revenue | 155,240 |
| | 52 | % | | 38,979 |
| | 34 | % | | 116,261 |
| | 49 | % |
Research and development | 39,235 |
| | 13 | % | | 1,373 |
| | 4 | % | | 37,862 |
| | 16 | % |
Selling and marketing | 32,962 |
| | 11 | % | | (198 | ) | | (1 | )% | | 33,160 |
| | 14 | % |
General and administrative | 49,319 |
| | 17 | % | | 20,482 |
| | 71 | % | | 28,837 |
| | 12 | % |
Depreciation and amortization | 26,744 |
| | 9 | % | | 5,711 |
| | 27 | % | | 21,033 |
| | 9 | % |
Total operating expenses | 303,500 |
| | 102 | % | | 66,347 |
| | 28 | % | | 237,153 |
| | 101 | % |
Operating loss | (5,882 | ) | | (2 | )% | | (3,724 | ) | | 173 | % | | (2,158 | ) | | (1 | )% |
Other income (expense): | | | | | | | | | | | |
Interest expense | (15,323 | ) | | (5 | )% | | (5,606 | ) | | 58 | % | | (9,717 | ) | | (4 | )% |
Interest income | 2,997 |
| | 1 | % | | 255 |
| | 9 | % | | 2,742 |
| | 1 | % |
Other, net | 1,402 |
| | — | % | | 3,079 |
| | (184 | )% | | (1,677 | ) | | (1 | )% |
Total other income (expense) | (10,924 | ) | | (4 | )% | | (2,272 | ) | | 26 | % | | (8,652 | ) | | (4 | )% |
Loss before income taxes | (16,806 | ) | | (6 | )% | | (5,996 | ) | | 55 | % | | (10,810 | ) | | (5 | )% |
Income tax expense (benefit) | (22,531 | ) | | (8 | )% | | (26,295 | ) | | (699 | )% | | 3,764 |
| | 2 | % |
Net income (loss) | $ | 5,725 |
| | 2 | % | | $ | 20,299 |
| | (139 | )% | | $ | (14,574 | ) | | (6 | )% |
Total revenue for the three months ended June 30,
2018, decreased $5.62019, increased $62.6 million, or
2%27%, as compared to the same period in
2017.The application2018, of ASC 606 resulted in a $5.7which $49.3 million, decrease in totalor 21%, was due to the acquisition of Speedpay.
Total revenue
was $4.5 million lower for the three months ended June 30,
2018, which is primarily due to the differences in the timing and amount of revenue recognition for software license fees. Total revenue was $3.1 million higher for the three months ended June 30, 2018,2019, compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
applying ASC 606the acquisition of Speedpay and foreign currency, total revenue for the three months ended June 30,
2018, decreased $3.02019, increased $17.8 million, or
1%8%, compared to the same period in
2017 primarily as the result of a decrease in SaaS and PaaS, license, and maintenance revenue partially offset by an increase in services revenue.2018.
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;fees, the amounts payable to banks and payment card processing fees, which are included in cost of revenue in the accompanying condensed consolidated statements of operations. All revenuefees from SaaS and PaaS arrangements that doesdo not qualify for treatment as a distinct performance
obligation, which includes
set-up fees, implementation or customization services, and product support services, are included in SaaS and PaaS revenue.
SaaS and PaaS revenue
was flatincreased $58.9 million, or 52%, during the three months ended June 30,
2018,2019, as compared to the same period in
2017. Total2018, of which $49.3 million, or 43%, was due to the acquisition of Speedpay. SaaS and PaaS revenue was
$0.9$0.8 million
higherlower for the three months ended June 30,
2018,2019, compared to the same period in
20172018 due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
applying ASC 606the acquisition of Speedpay and foreign currency,
total SaaS and PaaS revenue for the three months ended June 30,
2018, decreased $1.42019, increased $10.4 million, or
1%9%, compared to the same period in
2017.2018, of which $8.6 million and $1.8 million is attributable to acceleration of recurring revenue associated with customer-related consolidation activity and new customers adopting our SaaS and PaaS offerings and existing customers adding new functionality or increasing transaction volumes, respectively.
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. Under ASC 605terms and adjusts for the Company recognizedeffects of the financing component, if significant.
License revenue
for those same software license arrangements as the fees become due and payable.Total license revenue decreased $8.6increased $7.0 million, or 16%15%, during the three months ended June 30, 2018,2019, as compared to the same period in 2017. The application2018. License revenue was $2.1 million lower for the three months ended June 30, 2019, compared to the same period in 2018 due to the impact of ASC 606 resulted in a $5.3 million decrease in totalforeign currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, license revenue for the three months ended June 30, 2018. Total license revenue was $1.2 million higher for the three months ended June 30, 2018, 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 three months ended June 30, 2018, decreased $4.52019, increased $9.0 million, or 8%20%, compared to the same period in 2017.
2018.
The
decreaseincrease in total license revenue was primarily driven by the timing and relative size of license and capacity events during the three months ended June 30,
2018,2019, as compared to the same period in
2017.2018.
Maintenance revenue includes standard and premium maintenance and any post contract support fees received from customers for the provision of product support services.
Maintenance revenue decreased
$1.0$3.1 million, or
2%6%, during the three months ended June 30,
2018,2019, as compared to the same period in
2017. Total maintenance2018. Maintenance revenue was
$0.8$1.2 million
higherlower for the three months ended June 30,
2018,2019, as compared to the same period in
20172018 due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
applying ASC 606 and foreign currency,
total maintenance revenue for the three months ended June 30,
2018,2019, decreased
$0.6$1.9 million, or
1%3%, compared to the same period in
2017.2018.
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
increased $3.9decreased $0.1 million, or
23%1%, during the three months ended June 30,
2018,2019, as compared to the same period in
2017. Total services2018. Services revenue was
$0.2$0.5 million
higherlower for the three months ended June 30,
2018,2019, as compared to the same period in
20172018 due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
applying ASC 606 and foreign currency,
total services revenue for the three months ended June 30,
2018,2019, increased
$3.6$0.4 million, or
21%2%, compared to the same period in
2017.2018.
Total operating expenses for the three months ended June 30, 2019, increased $66.3 million, or 28%, as compared to the same period in 2018, of which $41.8 million, or 18%, and $16.6 million, or 7%, was due to the acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively.
Total operating expenses for the three months ended June 30, 2018,
decreased $41.9 million, or 15%, as compared to the same period in 2017.For the three months ended June 30, 2017, there was $46.7included $0.6 million of expense recorded in relation to the Baldwin Hackett & Meeks Inc. (“BHMI”) judgment. The application of ASC 606 resulted in a $1.2significant integration and divestiture-related expenses. Total operating expenses were $3.5 million increase in total operating expenseslower for the three months ended June 30, 2018, which is primarily due to differences in the timing of expense recognition for sales commissions. Total operating expenses were $2.1 million higher for the three months ended June 30, 2018,2019, compared to the same period in 20172018, due to the impact of foreign currencies strengtheningweakening against the U.S. dollar. Excluding the impact of the BHMI judgment, the impactacquisition of applying ASC 606,Speedpay, significant acquisition and integration-related expenses, and foreign currency, total operating expenses for the three months ended June 30, 2018,2019, increased $1.4$12.2 million, or 1%5%, compared to the same period in 20172018, primarily becausedue to higher cost of higherrevenue, general and administrative, research and development, selling and marketing,depreciation and general and administrativeamortization expenses, partially offset by lower cost of revenueselling and depreciation and amortization expenses.
marketing.
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,
assessmentsamounts payable to banks, and payment card processing fees. Maintenance costs include the efforts associated with providing the customer with upgrades,
24-hour help desk, post
go-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 pre
go-live and post
go-live support. Such efforts include project management, delivery, product customization and implementation, installation support, consulting, configuration, and
on-site support.
Cost of revenue
decreased $4.1increased $39.0 million, or
3%34%, during the three months ended June 30,
2018,2019, compared to the same period in
2017.2018, of which $33.9 million, or 29%, was due to the acquisition of Speedpay. Cost of revenue was
$0.8$1.3 million
higherlower for the three months ended June 30,
2018,2019, as compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
the acquisition of Speedpay and foreign currency, cost of revenue
decreased $4.9increased $6.4 million, or
4%6%, for the three months ended June 30,
2018,2019, as compared to the same period in
20172018, primarily due to
lower personnel and related costs of $5.5 million, partially offset by a
$0.6$4.8 million increase in
payment card interchange
and processing fees.
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
$2.9$1.4 million, or
8%4%, during the three months ended June 30,
2018,2019, as compared to the same period in
2017.2018, of which $1.8 million, or 5%, was due to the acquisition Speedpay. R&D expense was
$0.4$1.0 million
higherlower for the three months ended June 30,
2018,2019, as compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
the acquisition of Speedpay and foreign currency, R&D expense increased
$2.5$0.6 million, or
7%1%, for the three months ended June 30,
2018,2019, as compared to the same period in
2017 primarily2018, due to an increase in personnel and related expenses.
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 $4.3decreased $0.2 million, or 15%1%, during the three months ended June 30, 2018,2019, as compared to the same period in 2017.2018. The applicationacquisition of ASC 606 resulted in aSpeedpay contributed $1.2 million increase into selling and marketing expense during the three months ended June 30, 2019. Selling and marketing expense was $0.7 million lower for the three months ended June 30, 2018,2019, as compared to the same period in 2017. Selling and marketing was $0.4 million higher for the three months ended June 30, 2018, as compared to the same period in 2017 due to the impact of foreign currencies strengtheningweakening against the U.S. dollar. Excluding the impact of applying ASC 606the acquisition of Speedpay and foreign currency, selling and marketing expense increased $2.7decreased $0.7 million, or 9%2%, for the
three months ended June 30,
2018,2019, as compared to the same period in
20172018, due to
an increasea decrease in
personneladvertising and
related expenses.promotions expense.
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 $43.7increased $20.5 million, or
60%71%, during the three months ended June 30,
2018,2019, as compared to the same period in
2017. For the three months ended June 30, 2017, there2018, of which $0.6 million, or 2%, and $16.4 million, or 57%, was
$46.7 million of expense recorded in relationdue to the
BHMI judgment.acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively. General and administrative
was $0.3 million higherexpense for the three months ended June 30, 2018,
included $0.4 million of significant integration and divestiture-related expenses. General and administrative expense was $0.2 million lower for the three months ended June 30, 2019, as compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of the
BHMI judgmentacquisition of Speedpay, significant acquisition and
the impact ofintegration-related expenses, and foreign currency, general and administrative
expense increased
$2.7$4.0 million, or
4%14%, for the three months ended June 30,
2018,2019, as compared to the same period in
2017,2018, primarily due to an increase in personnel and related expenses.
Depreciation and Amortization
Depreciation and amortization
decreased $1.3increased $5.7 million, or
6%27%, during the three months ended June 30,
2018,2019, as compared to the same period in
2017.2018, of which $4.3 million, or 20%, was due to the acquisition of Speedpay. Depreciation and amortization was $0.3 million
higherlower for the three months ended June 30,
2018,2019, as compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
the acquisition of Speedpay and foreign currency, depreciation and amortization
decreased $1.6increased $1.8 million, or
7%9%, for the three months ended June 30,
2018,2019, as compared to the same period in
2017.2018.
Interest expense for the three months ended June 30,
2018 decreased $0.92019, increased $5.6 million, or
9%58%, as compared to the same period in
20172018, primarily due to
lowerhigher comparative debt balances
during the three months ended June 30, 2018.and interest rates.
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
three-monthsthree months ended June 30,
2018,2019, increased
$2.6$0.3 million,
or 9%, as compared to the same period in
2017, which is primarily due to the impact of applying ASC 606. Excluding the impact of applying ASC 606, interest income was flat.2018.
Other, net consists of foreign currency
gain or loss and other
non-operating items. Foreign currency
lossesgain for the three months ended June 30, 2019 was $1.4 million and foreign currency loss for the three months ended June 30, 2018
and 2017, werewas $1.7
million and $1.8 million, respectively.million.
Refer to Note 11,12, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form10-Q for additional information.Six-Month
Six Month Period Ended June 30, 20182019, Compared to theSix-Month Six Month Period Ended June 30, 2017 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | |
| | 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 | | $ | 217,880 | | | | 49 | % | | $ | 4,964 | | | | 2 | % | | $ | 212,916 | | | | 45 | % |
License | | | 73,601 | | | | 17 | % | | | (39,960 | ) | | | -35 | % | | | 113,561 | | | | 24 | % |
Maintenance | | | 111,707 | | | | 25 | % | | | 1,227 | | | | 1 | % | | | 110,480 | | | | 23 | % |
Services | | | 41,117 | | | | 9 | % | | | 6,013 | | | | 17 | % | | | 35,104 | | | | 7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 444,305 | | | | 100 | % | | | (27,756 | ) | | | -6 | % | | | 472,061 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | 223,597 | | | | 50 | % | | | (5,303 | ) | | | -2 | % | | | 228,900 | | | | 48 | % |
Research and development | | | 74,653 | | | | 17 | % | | | 2,399 | | | | 3 | % | | | 72,254 | | | | 15 | % |
Selling and marketing | | | 65,053 | | | | 15 | % | | | 9,099 | | | | 16 | % | | | 55,954 | | | | 12 | % |
General and administrative | | | 57,486 | | | | 13 | % | | | (47,544 | ) | | | -45 | % | | | 105,030 | | | | 22 | % |
Depreciation and amortization | | | 42,378 | | | | 10 | % | | | (2,365 | ) | | | -5 | % | | | 44,743 | | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 463,167 | | | | 104 | % | | | (43,714 | ) | | | -9 | % | | | 506,881 | | | | 107 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | | (18,862 | ) | | | -4 | % | | | 15,958 | | | | -46 | % | | | (34,820 | ) | | | -7 | % |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (19,082 | ) | | | -4 | % | | | 1,742 | | | | -8 | % | | | (20,824 | ) | | | -4 | % |
Interest income | | | 5,486 | | | | 1 | % | | | 5,230 | | | | 2043 | % | | | 256 | | | | 0 | % |
Other, net | | | (1,732 | ) | | | 0 | % | | | (615 | ) | | | 55 | % | | | (1,117 | ) | | | 0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income (expense) | | | (15,328 | ) | | | -3 | % | | | 6,357 | | | | -29 | % | | | (21,685 | ) | | | -5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (34,190 | ) | | | -8 | % | | | 22,315 | | | | -39 | % | | | (56,505 | ) | | | -12 | % |
Income tax benefit | | | (188 | ) | | | 0 | % | | | 24,900 | | | | -99 | % | | | (25,088 | ) | | | -5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (34,002 | ) | | | -8 | % | | $ | (2,585 | ) | | | 8 | % | | $ | (31,417 | ) | | | -7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
2018
|
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| Amount | | % of Total Revenue | | $ Change vs 2018 | | % Change vs 2018 | | Amount | | % of Total Revenue |
Revenues: | | | | | | | | | | | |
Software as a service and platform as a service | $ | 281,056 |
| | 56 | % | | $ | 63,176 |
| | 29 | % | | $ | 217,880 |
| | 49 | % |
License | 73,619 |
| | 15 | % | | 18 |
| | — | % | | 73,601 |
| | 17 | % |
Maintenance | 107,033 |
| | 21 | % | | (4,674 | ) | | (4 | )% | | 111,707 |
| | 25 | % |
Services | 41,765 |
| | 8 | % | | 648 |
| | 2 | % | | 41,117 |
| | 9 | % |
Total revenues | 503,473 |
| | 100 | % | | 59,168 |
| | 13 | % | | 444,305 |
| | 100 | % |
Operating expenses: | | | | | | | | | | | |
Cost of revenue | 270,181 |
| | 54 | % | | 46,584 |
| | 21 | % | | 223,597 |
| | 50 | % |
Research and development | 75,429 |
| | 15 | % | | 776 |
| | 1 | % | | 74,653 |
| | 17 | % |
Selling and marketing | 62,392 |
| | 12 | % | | (2,661 | ) | | (4 | )% | | 65,053 |
| | 15 | % |
General and administrative | 80,836 |
| | 16 | % | | 23,350 |
| | 41 | % | | 57,486 |
| | 13 | % |
Depreciation and amortization | 48,610 |
| | 10 | % | | 6,232 |
| | 15 | % | | 42,378 |
| | 10 | % |
Total operating expenses | 537,448 |
| | 107 | % | | 74,281 |
| | 16 | % | | 463,167 |
| | 104 | % |
Operating loss | (33,975 | ) | | (7 | )% | | (15,113 | ) | | 80 | % | | (18,862 | ) | | (4 | )% |
Other income (expense): | | | | | | | | | | | |
Interest expense | (26,937 | ) | | (5 | )% | | (7,855 | ) | | 41 | % | | (19,082 | ) | | (4 | )% |
Interest income | 6,030 |
| | 1 | % | | 544 |
| | 10 | % | | 5,486 |
| | 1 | % |
Other, net | (510 | ) | | — | % | | 1,222 |
| | (71 | )% | | (1,732 | ) | | — | % |
Total other income (expense) | (21,417 | ) | | (4 | )% | | (6,089 | ) | | 40 | % | | (15,328 | ) | | (3 | )% |
Loss before income taxes | (55,392 | ) | | (11 | )% | | (21,202 | ) | | 62 | % | | (34,190 | ) | | (8 | )% |
Income tax benefit | (35,154 | ) | | (7 | )% | | (34,966 | ) | | 18,599 | % | | (188 | ) | | — | % |
Net loss | $ | (20,238 | ) | | (4 | )% | | $ | 13,764 |
| | (40 | )% | | $ | (34,002 | ) | | (8 | )% |
Total revenue for the six months ended June 30,
2018, decreased $27.82019, increased $59.2 million, or
6%13%, as compared to the same period in
2017.The application2018, of ASC 606 resulted in a $21.3which $49.3 million, decrease in totalor 11%, was due to the acquisition of Speedpay.
Total revenue
was $8.2 million lower for the six months ended June 30,
2018, which is primarily due to the differences in the timing and amount of revenue recognition for software license fees. Total revenue was $9.1 million higher for the six months ended June 30, 2018,2019, compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
applying ASC 606the acquisition of Speedpay and foreign currency, total revenue for the six months ended June 30,
2018, decreased $15.62019, increased $18.1 million, or
3%4%, compared to the same period in
2017 primarily as the result of a decrease in license and maintenance revenue partially offset by increases in SaaS and PaaS and services revenue.2018.
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue
SaaS and PaaS revenue increased
$5.0$63.2 million, or
2%29%, during the six months ended June 30,
2018,2019, as compared to the same period in
2017. Total2018, of which $49.3 million, or 23%, was due to the acquisition of Speedpay. SaaS and PaaS revenue was
$2.5$1.7 million
higherlower for the six months ended June 30,
2018,2019, compared to the same period in
20172018 due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
applying ASC 606the acquisition of Speedpay and foreign currency,
total SaaS and PaaS revenue for the six months ended June 30,
2018,2019, increased
$2.8$15.6 million, or
1%7%, compared to the same period in
2017,2018, of which
$8.6 million and $7.0 million is
primarily attributedattributable to
acceleration of recurring revenue associated with customer-related consolidation activity and new customers adopting our SaaS and
PaaS-basedPaaS offerings and existing customers adding new functionality or increasing
processing.transaction volumes, respectively.
License Revenue
Total license
License revenue decreased $40.0 million, or 35%,remained flat during the six months ended June 30, 2018,2019, as compared to the same period in 2017. The application2018. License revenue was $2.7 million lower for the six months ended June 30, 2019, compared to the same period in 2018 due to the impact of ASC 606 resulted in a $21.1 million decrease in totalforeign
currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, license revenue for the six months ended June 30,
2018, as compared to the same period in 2017. Total license revenue was $3.0 million higher for the six months ended June 30, 2018, 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 six months ended June 30, 2018, decreased $21.92019, increased $2.7 million, or
19%4%, compared to the same period in
2017. 2018.
The
decreaseincrease in
total license revenue was primarily driven by the timing and relative size of license and capacity events during the six months ended June 30,
2018,2019, as compared to the same period in
2017.2018.
Maintenance revenue decreased $4.7 million, or 4%, during the six months ended June 30, 2019, as compared to the same period in 2018. Maintenance revenue was $2.9 million lower for the six months ended June 30, 2019, as compared to the same period in 2018 due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, maintenance revenue for the six months ended June 30, 2019, decreased $1.8 million, or 2%, compared to the same period in 2018.
Services Revenue
Services revenue increased $1.2$0.6 million, or 2%, during the six months ended June 30, 2019, as compared to the same period in 2018. Services revenue was $1.0 million lower for the six months ended June 30, 2019, as compared to the same period in 2018 due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, services revenue for the six months ended June 30, 2019, increased $1.7 million, or 4%, compared to the same period in 2018.
Operating Expenses
Total operating expenses for the six months ended June 30, 2019, increased $74.3 million, or 16%, as compared to the same period in 2018, of which $41.8 million, or 9%, and $21.3 million, or 5%, was due to the acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively.
Total operating expenses for the six months ended June 30, 2018, included $5.0 million of significant integration and divestiture-related expenses. Total operating expenses were $8.8 million lower for the six months ended June 30, 2019, compared to the same period in 2018, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay, significant acquisition and integration-related expenses, and foreign currency, total operating expenses for the six months ended June 30, 2019, increased $25.1 million, or 6%, compared to the same period in 2018, primarily due to higher cost of revenue, general and administrative, research and development, and depreciation and amortization expenses, partially offset by lower selling and marketing.
Cost of Revenue
Cost of revenue increased $46.6 million, or 21%, during the six months ended June 30, 2019, compared to the same period in 2018, of which $33.9 million, or 15%, was due to the acquisition of Speedpay. Cost of revenue was $3.3 million lower for the six months ended June 30, 2019, as compared to the same period in 2018, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, cost of revenue increased $16.0 million, or 7%, for the six months ended June 30, 2019, as compared to the same period in 2018, primarily due to a $9.9 million increase in payment card interchange and processing fees and $6.1 million in personnel and related expenses.
Research and Development
R&D expense increased $0.8 million, or 1%, during the six months ended June 30,
2018,2019, as compared to the same period in
2017. Total maintenance revenue2018. The acquisition of Speedpay contributed $1.8 million to R&D expense during the six months ended June 30, 2019. R&D expense was
$2.8$2.3 million
higherlower for the six months ended June 30,
2018,2019, as compared to the same period in
20172018, due to the impact of foreign currencies
strengthening against the U.S. dollar. Excluding the impact of adopting ASC 606 and foreign currency, total maintenance revenue for the six months ended June 30, 2018, decreased $1.3 million, or 1%, compared to the same period in 2017.Services Revenue
Services revenue increased $6.0 million, or 17%, during the six months ended June 30, 2018, as compared to the same period in 2017. Total services revenue was $0.8 million higher for the six months ended June 30, 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 services revenue for the six months ended June 30, 2018, increased $4.8 million, or 14%, compared to the same period in 2017.
Operating Expenses
Total operating expenses for the six months ended June 30, 2018 decreased $43.7 million, or 9%, as compared to the same period in 2017.
For the six months ended June 30, 2017, there was $46.7 million of expense recorded in relation to the BHMI judgment. The application of ASC 606 resulted in a $2.8 million increase in total operating expenses for the six months ended June 30, 2018, compared to the same period in 2017, which is primarily due to differences in the timing of expense recognition for sales commissions. Total operating expenses were $8.1 million higher for the six months ended June 30, 2018, compared to the same period in 2017 due to the impact of foreign currencies strengtheningweakening against the U.S. dollar. Excluding the impact of the BHMI judgment, the impactacquisition of applying ASC 606Speedpay and foreign currency, operating expenses decreased $7.9R&D expense increased $1.3 million, or 2%, for the six months ended June 30, 2019, as compared to the same period in 2018, primarily because of lower cost of revenuedue to an increase in personnel and depreciationrelated expenses.
Selling and amortization expenses, partially offset by higher salesMarketing
Selling and marketing
expenses.Cost of Revenue
Cost of revenueexpense decreased $5.3$2.7 million, or 2%4%, during the six months ended June 30, 2018,2019, as compared to the same period in 2017. Cost2018. The acquisition of revenueSpeedpay contributed $1.2 million to selling and marketing expense during the six months ended June 30, 2019. Selling and marketing expense was $2.6$1.7 million higherlower for the six months ended June 30, 2019, as compared to the same period in 2018, due to the impact of foreign currencies strengtheningweakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, cost of revenueselling and marketing expense decreased $7.9$2.1 million, or 3%, for the six months ended June 30, 2018,2019, as compared to the same period in 2017 primarily2018, due to lower personnela decrease in advertising and related costspromotions expense.
General and
DevelopmentR&DAdministrative
General and administrative expense increased
$2.4$23.4 million, or
3%41%, during the six months ended June 30,
2018,2019, as compared to the same period in
2017. R&D expense2018, of which $0.6 million, or 1%, and $21.2 million, or 37%, was
$1.7 million higher due to the
impactacquisition of
foreign currencies strengthening againstSpeedpay and significant transaction and integration-related expenses associated with the
U.S. dollar. Excluding the impactacquisition of
foreign currency, R&DSpeedpay, respectively. General and administrative expense
increased $0.7 million, or 1%, for the six months ended June 30, 2018,
included $4.4 million of significant integration and divestiture-related expenses. General and administrative expense was $0.8 million lower for the six months ended June 30, 2019, as compared to the same period in
2017.Selling and Marketing
Selling and marketing expense increased $9.1 million, or 16%, during the six months ended June 30, 2018, as compared to the same period in 2017. The application of ASC 606 resulted in a $2.8 million increase in selling and marketing for the six months ended June 30, 2018, as compared to the same period in 2017. Selling and marketing was $1.6 million higher for the six months ended June 30, 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, selling and marketing expense increased $4.7 million, or 8%, for the six months ended June 30, 2018, as compared to the same period in 2017 due to an increase in personnel and related expenses primarily as the result of an increase in new bookings.
General and Administrative
General and administrative expense decreased $47.5 million, or 45%, during the six months ended June 30, 2018, as compared to the same period in 2017. For the six months ended June 30, 2017, there was $46.7 million of expense recorded in relation to the BHMI judgment. General and administrative was $1.3 million higher for the six months ended June 30, 2018, as compared to the same period in 2017 due to the impact of foreign currencies strengtheningweakening against the U.S. dollar. Excluding the impact of the BHMI judgmentacquisition of Speedpay, significant acquisition and integration-related expense, and foreign currency, general and administrative decreased $2.1expense increased $6.8 million, or 2%13%, for the six months ended June 30, 2018,2019, as compared to the same period in 20172018, primarily due to a decreasean increase in professionalpersonnel and related expenses.
Depreciation and Amortization
Depreciation and amortization
decreased $2.4increased $6.2 million, or
5%15%, during the six months ended June 30,
2018,2019, as compared to the same period in
2017.2018, of which $4.3 million, or 10%, was due to the acquisition of Speedpay. Depreciation and amortization was
$0.9$0.7 million
higherlower for the six months ended June 30,
2018,2019, as compared to the same period in
20172018, due to the impact of foreign currencies
strengtheningweakening against the U.S. dollar. Excluding the impact of
the acquisition of Speedpay and foreign currency, depreciation and amortization
decreased $3.3increased $2.7 million, or
7%6%, for the six months ended June 30,
2018,2019, as compared to the same period in
2017.2018.
Interest expense for the six months ended June 30,
2018, decreased $1.72019, increased $7.9 million, or
8%41%, as compared to the same period in
20172018, primarily due to
lowerhigher comparative debt balances
and interest rates, as well as $1.8 million of interest expense related to royalty payments recorded during the first
quarter of 2019. Excluding the impact of interest expense related to royalty payments, interest expense for the six months
ofended June 30, 2019, increased $6.1 million, or 32%, as compared to the same period in 2018.
Interest income for the six months ended June 30,
20182019, increased
$5.2$0.5 million,
or 10%, as compared to the same period in
2017, which is primarily due to the impact of applying ASC 606. Excluding the impact of applying ASC 606, interest income was flat.2018.
Other, net consists of foreign currency loss and other
non-operating items. Foreign currency
lossesloss for the six months ended June 30,
2019 and 2018,
was $0.5 million and
2017, were $1.7 million,
and $1.1 million, respectively.
Refer to Note 11,12, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form10-Q for additional information.
Segment Results
The Company reports
We report financial performance based on
itsour segments, ACI On Premise and ACI On Demand, and
analyzesanalyze Segment Adjusted EBITDA as a measure of segment profitability.
The Company’s
Our Chief Executive Officer is also our chief operating decision maker (“CODM”)
, which is also our Chief Executive Officer,. The CODM, together with other senior management personnel, focus their review
ofon consolidated financial information and the allocation of resources based
upon theon operating results, including revenues and Segment Adjusted EBITDA, for
the segments ACI On Premise and ACI On Demand,each segment, separate from the
Corporatecorporate operations.
ACI On Premise serves customers who manage their software on site. These
on premiseon-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. 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 Demandserves the needs of
retailbanks, merchants and
financial institutionscorporates who use payments to facilitate their core business.
The Company sees an increasing demandThese on-demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-tenant environment for SaaS
andofferings, or in a multi-tenant environment for PaaS
offerings, which offer reduced complexity and cost as well as the ability to rapidly implement and scale.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 CompanyWe also
allocatesallocate 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’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).
Corporate and
other 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.
The following is selected financial data for
the Company’sour reportable segments (in thousands):
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2018 | | | June 30, 2017 | | | June 30, 2018 | | | June 30, 2017 | |
Revenue | | | | | | | | | | | | | | | | |
ACI On Premise | | $ | 121,395 | | | $ | 127,194 | | | $ | 226,425 | | | $ | 259,102 | |
ACI On Demand | | | 113,600 | | | | 113,405 | | | | 217,880 | | | | 212,959 | |
| | | | | | | | | | | | | | | | |
Total revenue | | $ | 234,995 | | | $ | 240,599 | | | $ | 444,305 | | | $ | 472,061 | |
| | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA | | | | | | | | | | | | | | | | |
ACI On Premise | | $ | 54,760 | | | $ | 62,527 | | | $ | 93,658 | | | $ | 130,922 | |
ACI On Demand | | | (3,364 | ) | | | (546 | ) | | | (7,597 | ) | | | (7,553 | ) |
Depreciation and amortization | | | (24,351 | ) | | | (25,581 | ) | | | (49,344 | ) | | | (51,219 | ) |
Stock-based compensation | | | (7,705 | ) | | | (8,343 | ) | | | (14,067 | ) | | | (14,640 | ) |
Corporate and unallocated expenses | | | (21,498 | ) | | | (66,500 | ) | | | (41,512 | ) | | | (92,330 | ) |
Interest, net | | | (6,975 | ) | | | (10,514 | ) | | | (13,596 | ) | | | (20,568 | ) |
Other, net | | | (1,677 | ) | | | (1,766 | ) | | | (1,732 | ) | | | (1,117 | ) |
| | | | | | | | | | | | | | | | |
Loss before income taxes | | $ | (10,810 | ) | | $ | (50,723 | ) | | $ | (34,190 | ) | | $ | (56,505 | ) |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
ACI On Premise | | $ | 2,849 | | | $ | 3,333 | | | $ | 5,824 | | | $ | 6,594 | |
ACI On Demand | | | 7,826 | | | | 9,009 | | | | 15,562 | | | | 17,397 | |
Corporate | | | 13,676 | | | | 13,239 | | | | 27,958 | | | | 27,228 | |
| | | | | | | | | | | | | | | | |
Total depreciation and amortization | | $ | 24,351 | | | $ | 25,581 | | | $ | 49,344 | | | $ | 51,219 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | | | | | | |
ACI On Premise | $ | 125,119 |
| | $ | 121,395 |
| | $ | 221,126 |
| | $ | 226,425 |
|
ACI On Demand | 172,499 |
| | 113,600 |
| | 282,347 |
| | 217,880 |
|
Total revenue | $ | 297,618 |
| | $ | 234,995 |
| | $ | 503,473 |
| | $ | 444,305 |
|
Segment Adjusted EBITDA | | | | | | | |
ACI On Premise | 57,069 |
| | 54,760 |
| | 85,337 |
| | 93,658 |
|
ACI On Demand | 17,340 |
| | (3,364 | ) | | 17,078 |
| | (7,597 | ) |
Depreciation and amortization | (29,778 | ) | | (24,351 | ) | | (54,630 | ) | | (49,344 | ) |
Stock-based compensation expense | (14,372 | ) | | (7,705 | ) | | (20,957 | ) | | (14,067 | ) |
Corporate and unallocated expenses | (36,141 | ) | | (21,498 | ) | | (60,803 | ) | | (41,512 | ) |
Interest, net | (12,326 | ) | | (6,975 | ) | | (20,907 | ) | | (13,596 | ) |
Other, net | 1,402 |
| | (1,677 | ) | | (510 | ) | | (1,732 | ) |
Loss before income taxes | $ | (16,806 | ) | | $ | (10,810 | ) | | $ | (55,392 | ) | | $ | (34,190 | ) |
Depreciation and amortization | | | | | | | |
ACI On Premise | $ | 3,019 |
| | $ | 2,849 |
| | $ | 6,049 |
| | $ | 5,824 |
|
ACI On Demand | 8,489 |
| | 7,826 |
| | 16,051 |
| | 15,562 |
|
Corporate | 18,270 |
| | 13,676 |
| | 32,530 |
| | 27,958 |
|
Total depreciation and amortization | $ | 29,778 |
| | $ | 24,351 |
| | $ | 54,630 |
| | $ | 49,344 |
|
Stock-based compensation expense | | | | | | | |
ACI On Premise | $ | 2,051 |
| | $ | 1,838 |
| | $ | 4,007 |
| | $ | 3,305 |
|
ACI On Demand | 2,214 |
| | 1,834 |
| | 4,165 |
| | 3,297 |
|
Corporate | 10,107 |
| | 4,033 |
| | 12,785 |
| | 7,465 |
|
Total stock-based compensation expense | $ | 14,372 |
| | $ | 7,705 |
| | $ | 20,957 |
| | $ | 14,067 |
|
ACI On Premise Segment Adjusted EBITDA
decreased $7.8increased $2.3 million for the three months ended June 30,
2018,2019, compared to the same period in
20172018, primarily due to
the $6.4a $3.7 million
impact of applying ASC 606.increase in revenue.
ACI On Premise Segment Adjusted EBITDA decreased
$37.3$8.3 million for the six months ended June 30,
2018,2019, compared to the same period in
20172018, primarily due to
the $21.1 million impact of applying ASC 606 and a
$11.6$5.3 million decrease in revenue
primarily driven by the timing and
relative size of license and capacity events during the six months ended June 30, 2018, as compared to the same perioda $3.0 million increase in
2017.operating expenses.
ACI On Demand Segment Adjusted EBITDA
decreased $2.8increased $20.7 million for the three months ended June 30,
2018,2019, compared to the same period in
2017 primarily2018, of which $12.0 million was due to
a $2.0 million increase in costthe acquisition of
revenue, inclusiveSpeedpay. Excluding the impact of
a $0.6 million increase in interchange processing fees.the acquisition of Speedpay, ACI On Demand Segment Adjusted EBITDA was flatincreased $8.7 million, primarily due to a $9.7 million increase in revenue.
ACI On Demand Segment Adjusted EBITDA increased $24.7 million for the six months ended June 30, 2018,2019, compared to the same period in 20172018, of which $12.0 million was due to the acquisition of Speedpay. Excluding the impact of the acquisition of Speedpay, ACI On Demand Segment Adjusted EBITDA increased $12.7 million, primarily due to a $5.0$15.3 million increase in SaaS and PaaS revenue, partially offset by a $2.2 million impact of applying ASC 606 and a $3.2$2.6 million increase in costoperating expenses.
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, our cash and cash equivalents, and available borrowings under our revolving credit facility.
The following table sets forth our available liquidity for the periods indicated
(amount in(in thousands):
| | | | | | | | |
| | As of June 30, | | | As of December 31, | |
| | 2018 | | | 2017 | |
Cash and cash equivalents | | $ | 59,033 | | | $ | 69,710 | |
Availability under Revolving Credit Facility | | | 497,000 | | | | 498,000 | |
| | | | | | | | |
Total liquidity | | $ | 556,033 | | | $ | 567,710 | |
| | | | | | | | |
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Cash and cash equivalents | $ | 139,396 |
| | $ | 148,502 |
|
Availability under revolving credit facility | 265,000 |
| | 500,000 |
|
Total liquidity | $ | 404,396 |
| | $ | 648,502 |
|
The decrease in total liquidity is primarily attributable to
positive operating cash flows$235.0 million of
$71.1 million, offset by repurchases of common stock of $54.5 millionoutstanding revolving credit facility borrowings and
$27.9$21.2 million of payments to purchase property and equipment and software and distribution
rights.rights, partially offset by positive operating cash flows.
The Company and Official Payments Corporation, a wholly owned subsidiary, maintain a $140.0 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 June 30, 2019, the full $140.0 million was available.
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of June 30, 2018, $39.1 million of the $59.02019, we had $139.4 million of cash and cash equivalents, of which $71.3 million was held by our foreign subsidiaries. If these funds were needed for our operations in the U.S., we may potentially be required to accrue and pay foreign and U.S. state income taxes to repatriate these funds. As of June 30, 2019, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested. The earnings of all other foreign entities are no longer indefinitely reinvested. We are currently evaluating our existing position regarding the permanent reinvestment of ouralso permanently reinvested for outside book/tax basis difference related to foreign funds in lightsubsidiaries. These outside basis differences could reverse through sales of the enactmentforeign subsidiaries, as well as various other events, none of which are considered probable as of June 30, 2019.
Cash Flows
The following table sets forth summarized cash flow data for the
Tax Act. We expect to complete our evaluation and determine the impact the Tax Act may have on our permanent reinvestment assertion within the measurement period provided by SAB 118. | | | | | | | | |
| | Six Months Ended June 30, | |
| | 2018 | | | 2017 | |
Net cash provided by (used by): | | | | | | | | |
Operating activities | | $ | 71,111 | | | $ | 99,097 | |
Investing activities | | | (29,351 | ) | | | (26,235 | ) |
Financing activities | | | (51,570 | ) | | | (55,406 | ) |
periods indicated (in thousands):
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
Net cash provided by (used by): | | | |
Operating activities | $ | 56,865 |
| | $ | 71,111 |
|
Investing activities | (779,761 | ) | | (29,351 | ) |
Financing activities | 714,655 |
| | (51,570 | ) |
Cash Flows from Operating Activities
Net cash flows provided by operating activities
during the six months ended June 30, 2019, were $56.9 million as compared to $71.1 million during the same period in 2018. Net cash provided by operating activities primarily consists of net income (loss) adjusted to add back depreciation, amortization, and stock-based compensation. Cash flows provided by operating activities were $14.2 million lower for the six months ended June 30,
2018, was $71.1 million as compared to $99.1 million during the same period in 2017. The comparative period decrease was primarily due to the timing of payments and cash collections from customers during the first six months of 20182019, compared to the same period in
2017.2018, 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 Flows from Investing Activities
During the first six months of
20182019, we
paid $755.2 million, net of $0.1 million in cash acquired, to acquire Speedpay. We also used cash of
$27.9$21.2 million to purchase software, property and equipment, as compared to
$26.2$27.9 million during the same period in
2017.2018.
Cash Flows from Financing Activities
Net cash flows
usedprovided by financing activities for the six months ended June 30,
2018, was $51.62019, were $714.7 million as compared to
$55.4net cash flows used by financing activities of $51.6 million during the same period in
2017.2018. During the first six months of 2019, we received proceeds of $500.0 million from our Delayed Draw Term Loan and $250.0 million from our Revolving Credit Facility to fund our purchase of Speedpay, and we repaid $9.4 million on the Initial Term Credit Loan and $15.0 million on the Revolving Credit Facility. In addition, we received proceeds of $7.6 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and used $2.8 million for the repurchase of restricted share awards (“RSAs”) and restricted share units (“RSUs”) for tax withholdings. We also used $0.6 million to repurchase common stock. During the first six months of 2018, we repaid $10.4 million on the
Initial Term
Credit Facility.Loan. In addition,
during the first six months of 2018 we received proceeds of
$16.6$16.5 million from the
exercisesexercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and used $2.6 million for the repurchase of
restricted stockRSAs for tax withholdings.
During the six months ended June 30, 2018, weWe also used $54.5 million to repurchase common stock.
During the first six months of 2017 we received net proceeds of $39.3 million on the Term Credit Facility and repaid a net $88.0 million on the Revolving Credit Facility. In addition, during the six months ended June 30, 2017, we received proceeds of $9.4 million from the exercises of stock options and the issuance of common stock under our 2005 Employee Stock Purchase Plan, as amended, and used $4.8 million for the repurchase of restricted stock for tax withholdings.
We may decide to use cash to 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 other companies.
We believe
that our existing sources of liquidity, including cash on hand and cash provided by operating activities, will satisfy our projected liquidity requirements, which primarily consists of working capital
and debt service requirements, for the next twelve months and foreseeable future.
On April 5, 2019, we entered into the Second Amended and Restated Credit Agreement
(the “Credit Agreement”) to amend and restate our existing agreement, dated February 24, 2017. The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), (b) a five-year $279.0 million senior secured term loan facility (the “Initial Term Loan”), and (c) a five-year $500.0 million senior secured term loan facility (the “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”).
As of June 30, 2018,2019, we had $3.0$235.0 million and $383.9$775.5 million outstanding under our Revolving Credit Facility and Term Credit Facility,Loans, respectively, with up to $497.0$265.0 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended. The amount of unused borrowings actually 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 relating to maximum permitted leverage ratio and the minimum interest coverage ratio. The facility does not contain any subjective acceleration features and does not have any required payment or principal reduction schedule and is included as a long-term liability in our condensed consolidated balance sheet. At June 30, 2018 (and at all times during this period) we were in compliance with our debt covenants.Facility. The interest rate in effect atfor the Credit Facility as of June 30, 20182019, was 3.84%4.65%. Senior Notes
On August 20, 2013, the Company completed a $300.0As of June 30, 2019, we also had $400.0 million offeringoutstanding of 6.375%5.750% Senior Notes due 2026 (the “2026 Notes”). Refer to Note 4,
Debt, to our unaudited condensed consolidated financial statements in 2020 (the “Notes”) at an issue pricePart I of 100% of the principal amount in a private placementthis Form 10-Q for resale to qualified institutional buyers. The Notes bear an interest rate of 6.375% per annum, payable semi-annually in arrears on August 15 and February 15 of each year, commencing on February 15, 2014. The Notes will mature on August 15, 2020.additional information.
In 2005,
the Company’s Boardour board of
Directorsdirectors (“the
Board”board”) approved a stock repurchase program authorizing
the Company, from time to timeus, as market and business conditions warrant, to acquire
itsour common stock and periodically
authorizesauthorize additional funds for the program. In February 2018, the
Boardboard approved
an additionalthe repurchase of our common stock for up to $200.0 million,
forin place of the
stock repurchase program.The Companyremaining purchase amounts previously authorized.
We repurchased
2,346,42723,802 shares for
$54.5$0.6 million under the program during the six months ended June 30,
2018.2019. Under the program to date,
the Company haswe have repurchased
44,129,39344,153,195 shares for approximately
$547.8$548.5 million.
TheAs of June 30, 2019, the maximum remaining
amount authorized for purchase under the stock repurchase program was
$176.6 million as of June 30, 2018.approximately $176.0 million.
There is no guarantee as to the exact number of shares thatwe will be repurchased by us.repurchase. Repurchased shares are returned to the status of authorized but unissued shares of common stock. In March 2005, our Board of Directorsboard 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
For the six months ended June 30,
2018,2019, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form
10-K for the fiscal year ended December 31,
2017.2018, except as disclosed below (in thousands).
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Term loan | | $ | 775,535 |
| | $ | 38,950 |
| | $ | 79,644 |
| | $ | 656,941 |
| | $ | — |
|
Term loan interest (1) | | 152,542 |
| | 35,401 |
| | 65,366 |
| | 51,775 |
| | — |
|
Revolving credit facility | | 235,000 |
| | — |
| | — |
| | 235,000 |
| | — |
|
Revolving credit facility interest (2) | | 52,035 |
| | 10,955 |
| | 21,909 |
| | 19,171 |
| | — |
|
Financed internal-use software (3) | | 19,795 |
| | 11,634 |
| | 8,161 |
| | — |
| | — |
|
Total | | $ | 1,234,907 |
| | $ | 96,940 |
| | $ | 175,080 |
| | $ | 962,887 |
| | $ | — |
|
| |
(1) | Based on Term Loan debt outstanding and interest rate in effect at June 30, 2019, of 4.65%. |
| |
(2) | Based on Revolving Credit Facility debt outstanding and interest rate in effect at June 30, 2019, of 4.65%. |
| |
(3) | During the six months ended June 30, 2019, the Company financed certain multi-year license agreements for internal-use software for $10.4 million with annual payments through April 2022. As of June 30, 2019, $19.8 million is outstanding under these and other agreements previously entered into, of which $11.6 million and $8.2 million is included in other current liabilities and other noncurrent liabilities, respectively, in the accompanying condensed consolidated balance sheet. |
We are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740,Income Tax. The liability for unrecognized tax benefits atas of June 30, 20182019, is $27.6$28.3 million. Critical Accounting Estimates
The preparation of the condensed 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 condensed consolidated financial statements. Actual results could differ from those estimates.
The accounting policies that reflect our more significant estimates, judgments, and assumptions, and
whichthat we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:
Allowance for Doubtful Accounts
Intangible Assets and Goodwill
Accounting for Income Taxes
During the six months ended June 30, 2018,2019, there were no significant changes to our critical accounting policies and estimates other than as discussed in Note 2,Revenue,andNote 11,Income Taxes,in the Notes to the Condensed Consolidated Financial Statements.estimates. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form10-K for our fiscal year ended December 31, 2017,2018, filed on February 27, 2018,March 1, 2019, for a more complete discussion of our critical accounting policies and estimates.
ItemITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Excluding the impact of changes in interest rates and the uncertainty in the global financial markets, there have been no material changes to our market risk for the six months ended June 30, 2018.2019. 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. Thus, anyAny 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, and incustomer. In those instances where our goods and services have already been sold, receivables may result in the receivables beingbe more difficult to collect. Additionally, any decline in the value of the U.S. dollar 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.
We atAt times,
we enter into revenue contracts that are denominated in the country’s local currency,
principallyprimarily in Australia, Canada, the United Kingdom, and other European countries. 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
the purpose of speculation or arbitrage.
The primary objective of our cash investment policy is to preserve principal without significantly increasing risk.
BasedIf we maintained similar cash investments for a period of one year based on our cash investments and interest rates on these investments at June 30,
2018, and if we maintained this level of similar cash investments for a period of one year,2019, a hypothetical ten percent increase or decrease in effective interest rates would increase or decrease interest income by
less thanapproximately $0.1 million annually.
We had approximately
$686.9 million$1.4 billion of debt outstanding
atas of June 30,
2018,2019, with
$300.0 million in Senior Notes and $386.9 million$1.0 billion outstanding under our Credit
Facility.Facility and $400.0 million in 2026 Senior Notes. Our
SeniorCredit Facility has a floating interest rate, which was 4.65% as of June 30, 2019. Our 2026 Notes are fixed-rate long-term debt obligations with a
6.375%5.750% interest rate.
Our Credit Facility has a floating rate which was 3.84% at June 30, 2018. The potential increase (decrease) in interest expense for the Credit Facility from aA hypothetical ten percent increase
(decrease)or decrease in effective interest rates would
beincrease or decrease interest expense related to the Credit Facility by approximately
$1.5$4.7 million.
ITEM 4. CONTROLSAND
PROCEDURES
Disclosure Controls and Procedures
Our management,
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, as amended
(the “Exchange Act”)) as of the end of the period covered by this
report, June 30, 2018.report. Based on that evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded
that the Company’sour disclosure controls and procedures are effective as of June 30,
2018.2019.
Changes in Internal Control over Financial Reporting
The Company adopted ASC 606,Revenue from Contracts with Customers,on January 1, 2018, which required management to make changes
On May 9, 2019, we completed the acquisition of Speedpay. We consider the transaction material to our policiesresults of operations, cash flows, and processesfinancial position from the date of the acquisition through June 30, 2019, and believe the internal controls and procedures of Speedpay have a material effect on our internal control over financial reporting. See Note 3, Acquisition, to implement new or modify existingour unaudited condensed consolidated financial statements included in Part 1 of this Form 10-Q for discussion of the acquisition and related financial data.
We are currently in the process of integrating Speedpay operations, and we anticipate a successful integration of operations and internal controls over financial
reporting. Management will continue to evaluate its internal control over financial reporting
during the quarter ended March 31, 2018. This included modifications to our existing internal controls over contract reviews and new controls related to the enhanced disclosure requirements.as it executes integration activities.
There
have beenwere no
additional changes
during our quarter ended June 30, 2018, in our internal control over financial reporting (as defined in Rules
13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.Our management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer evaluated any change in the Company’s internal control over financial reporting (as defined in Rules13a-15(f) under the Exchange Act) during the Company’s quarter ended June 30, 2018, and determined that there were no other changes in the Company’s internal control over financial reporting2019, that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
PART II – OTHER INFORMATION
ItemITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various litigation matters arising in the ordinary course of our business. We are not currently a party to any legal proceedings, the adverse outcome 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.
Item
There have been no material changes to the risk factors disclosed in Item 1A of our Form10-K for the fiscal year ended December 31, 2017.2018, other than as disclosed below. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.
We may experience difficulties integrating Speedpay, which could cause us to fail to realize the anticipated benefits of the acquisition.
Achieving the anticipated benefits of our acquisition of Speedpay will depend in part upon whether we are able to integrate the business in an effective and efficient manner. There can be no assurance that we will be able to fully integrate all aspects of
Speedpay successfully, advance our business strategy, or fully realize the potential benefits of bringing the businesses together, and the process of integrating Speedpay may disrupt our business and divert our resources. Any delay or inability of management to successfully integrate the operations of Speedpay could compromise our potential to achieve the anticipated long-term strategic benefits of the acquisitions and could have a material adverse effect on the business, financial condition, cash flows, and results of operations.
ItemITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding
the Company’sour repurchases of
its common stock during the
sixthree months ended June 30,
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 | |
April 1, 2018 through April 30, 2018 | | | 501 | (1) | | $ | 24.15 | | | | — | | | $ | 200,000,000 | |
May 1, 2018 through May 31, 2018 | | | 1,000,000 | | | | 23.41 | | | | 1,000,000 | | | | 176,587,000 | |
June 1, 2018 through June 30, 2018 | | | 65,836 | (1) | | | 25.24 | | | | — | | | | 176,587,000 | |
| | | | | | | | | | | | | | | | |
Total | | | 1,066,337 | | | $ | 23.53 | | | | 1,000,000 | | | | | |
| | | | | | | | | | | | | | | | |
2019: |
| | | | | | | | | | | | | |
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 |
April 1, 2019 through April 30, 2019 | 502 |
| (1) | $ | 33.96 |
| | — |
| | $ | 175,956,000 |
|
May 1, 2019 through May 31, 2019 | — |
| | — |
| | — |
| | 175,956,000 |
|
June 1, 2019 through June 30, 2019 | 5,120 |
| (1) | 32.71 |
| | — |
| | 175,956,000 |
|
Total | 5,622 |
| | $ | 32.82 |
| | — |
| | |
| |
(1) | Pursuant to our 2005 Incentive Plan, we granted restricted share awards (“RSAs”).RSAs and RSUs. Under each arrangement, stock isshares are issued without direct cost to the employee. During the sixthree months ended June 30, 2018, 289,8342019, 90,429 shares of the RSAs and RSUs vested. We withheld 66,3375,622 of those shares to pay the employees’ portion of the applicable payroll taxes. |
In fiscal 2005, we announced that our Board of Directors (the “Board”)board approved a stock repurchase program authorizing us, from time to time as market and business conditions warrant, to acquire our common stock and that we intended to useperiodically authorize additional funds for the program, with the intention of using existing cash and cash equivalents to fund these repurchases. Periodically the Board authorizes additional funds for the program. In February 2018, the Boardboard approved the repurchase of the Company's common stock for up to $200.0 million, forin place of the stock repurchase program. Theremaining purchase amounts previously authorized. As of June 30, 2019, the maximum remaining amount authorized for purchase under the stock repurchase program was $176.6 million as of June 30, 2018. approximately $176.0 million.
There is no guarantee as to the exact number of shares thatwe will be repurchased by us.repurchase. Repurchased shares are returned to the status of authorized but unissued shares of common stock. In March 2005, our Board of Directorsboard 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.
ItemITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ItemITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ItemITEM 5. OTHER INFORMATION
Not applicable.
ItemThe following lists exhibits filed as part of this quarterly report on Form
10-Q: |
| | | |
Exhibit No. | | | Description |
2.01 | (1) | | |
3.01 | (2) | | |
3.02 | (3) | | |
4.01 | (4) | | Form of Common Stock Certificate (P) |
10.01 | (5) | | |
10.02 | (6) | | |
10.03 | (7) | | |
10.04 | (8) | | |
10.05 | (9) | | |
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 |
101.PRE | | | XBRL Taxonomy Extension Presentation Linkbase |
101.DEF | | | XBRL Taxonomy Extension Definition Linkbase |
____________
* | 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 2.1 to the registrant’s quarterly report on Form 10-Q for the period ended March 31, 2019. |
| |
(2) | Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form8-K filed August 17, 2017. |
| (2) |
(3) | Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form8-K filed February 27, 2017. |
| (3) |
(4) | Incorporated herein by reference to Exhibit 4.01 to the registrant’s Registration StatementNo. 33-88292 on FormS-1. |
| |
(5) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed March 8, 2019. |
| |
(6) | Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed March 8, 2019. |
| |
(7) | Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed March 8, 2019. |
| |
(8) | Incorporated herein by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed March 8, 2019. |
| |
(9) | Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed April 11, 2019. |
Pursuant to the requirements 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.
| | | | |
| | ACI WORLDWIDE, INC.
(Registrant)
|
| | |
Date: August 2, 2018 | | By: |
| ACI WORLDWIDE, INC. (Registrant) |
| | |
Date: August 8, 2019 | By: | /s/ SCOTT W. BEHRENS |
| | | | Scott W. Behrens |
| | | | Senior Executive Vice President, Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer) |
47