ACI WORLDWIDE, INC. 10-Q

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, 2021 December 31, 2020 ASSETS Current assets Cash and cash equivalents $ 146,213 $ 165,374 Receivables, net of allowances of $ 3,578 and $ 3,912 , respectively 289,351 342,879 Settlement assets 486,983 605,008 Prepaid expenses 31,258 24,288 Other current assets 31,425 17,365 Total current assets 985,230 1,154,914 Noncurrent assets Accrued receivables, net 190,399 215,772 Property and equipment, net 61,527 64,734 Operating lease right-of-use assets 51,511 41,243 Software, net 180,873 196,456 Goodwill 1,280,226 1,280,226 Intangible assets, net 303,151 321,983 Deferred income taxes, net 64,857 57,476 Other noncurrent assets 57,406 54,099 TOTAL ASSETS $ 3,175,180 $ 3,386,903 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 37,899 $ 41,223 Settlement liabilities 489,302 604,096 Employee compensation 39,894 48,560 Current portion of long-term debt 36,067 34,265 Deferred revenue 97,503 95,849 Other current liabilities 65,794 81,612 Total current liabilities 766,459 905,605 Noncurrent liabilities Deferred revenue 32,524 33,564 Long-term debt 1,071,822 1,120,742 Deferred income taxes, net 35,208 40,504 Operating lease liabilities 48,008 39,958 Other noncurrent liabilities 42,599 39,933 Total liabilities 1,996,620 2,180,306 Commitments and contingencies Stockholders’ equity Preferred stock; $ 0.01 par value; 5,000,000 shares authorized; no shares issued at June 30, 2021, and December 31, 2020 — — Common stock; $ 0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at June 30, 2021, and December 31, 2020 702 702 Additional paid-in capital 676,399 682,431 Retained earnings 1,008,046 1,003,490 Treasury stock, at cost, 23,040,631 and 23,412,870 shares at June 30, 2021, and December 31, 2020, respectively ( 412,492 ) ( 387,581 ) Accumulated other comprehensive loss ( 94,095 ) ( 92,445 ) Total stockholders’ equity 1,178,560 1,206,597 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,175,180 $ 3,386,903 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenues Software as a service and platform as a service $ 196,328 $ 180,573 $ 392,074 $ 373,523 License 34,727 50,136 55,929 78,265 Maintenance 53,155 52,749 105,518 106,029 Services 17,459 16,452 33,334 33,578 Total revenues 301,669 299,910 586,855 591,395 Operating expenses Cost of revenue (1) 158,614 147,346 318,099 313,183 Research and development 35,029 35,578 69,543 74,602 Selling and marketing 28,660 24,455 56,798 54,538 General and administrative 31,937 29,758 59,712 65,684 Depreciation and amortization 32,005 33,635 63,589 65,533 Total operating expenses 286,245 270,772 567,741 573,540 Operating income 15,424 29,138 19,114 17,855 Other income (expense) Interest expense ( 11,260 ) ( 14,142 ) ( 22,735 ) ( 31,313 ) Interest income 2,865 2,954 5,719 5,854 Other, net 1,434 2,041 52 ( 7,717 ) Total other income (expense) ( 6,961 ) ( 9,147 ) ( 16,964 ) ( 33,176 ) Income (loss) before income taxes 8,463 19,991 2,150 ( 15,321 ) Income tax expense (benefit) 1,962 5,916 ( 2,406 ) ( 4,969 ) Net income (loss) $ 6,501 $ 14,075 $ 4,556 $ ( 10,352 ) Income (loss) per common share Basic $ 0.06 $ 0.12 $ 0.04 $ ( 0.09 ) Diluted $ 0.05 $ 0.12 $ 0.04 $ ( 0.09 ) Weighted average common shares outstanding Basic 117,718 116,033 117,605 116,019 Diluted 119,010 117,264 118,958 116,019 (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. 4 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited and in thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income (loss) $ 6,501 $ 14,075 $ 4,556 $ ( 10,352 ) Other comprehensive income (loss): Foreign currency translation adjustments 1,466 ( 582 ) ( 1,650 ) ( 6,751 ) Total other comprehensive income (loss) 1,466 ( 582 ) ( 1,650 ) ( 6,751 ) Comprehensive income (loss) $ 7,967 $ 13,493 $ 2,906 $ ( 17,103 ) The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited and in thousands, except share amounts) Three Months Ended June 30, 2021 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of March 31, 2021 $ 702 $ 670,018 $ 1,001,545 $ ( 378,987 ) $ ( 95,561 ) $ 1,197,717 Net income — — 6,501 — — 6,501 Other comprehensive income — — — — 1,466 1,466 Stock-based compensation — 7,720 — — — 7,720 Shares issued and forfeited, net, under stock plans — ( 1,339 ) — 6,496 — 5,157 Repurchase of 1,000,000 shares of common stock — — — ( 39,411 ) — ( 39,411 ) Repurchase of stock-based compensation awards for tax withholdings — — — ( 590 ) — ( 590 ) Balance as of June 30, 2021 $ 702 $ 676,399 $ 1,008,046 $ ( 412,492 ) $ ( 94,095 ) $ 1,178,560 Three Months Ended June 30, 2020 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of March 31, 2020 $ 702 $ 656,723 $ 906,403 $ ( 398,278 ) $ ( 97,752 ) $ 1,067,798 Net income — — 14,075 — — 14,075 Other comprehensive loss — — — — ( 582 ) ( 582 ) Stock-based compensation — 7,932 — — — 7,932 Shares issued and forfeited, net, under stock plans — 2,899 — ( 1,234 ) — 1,665 Repurchase of stock-based compensation awards for tax withholdings — — — ( 151 ) — ( 151 ) Balance as of June 30, 2020 $ 702 $ 667,554 $ 920,478 $ ( 399,663 ) $ ( 98,334 ) $ 1,090,737 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited and in thousands, except share amounts) Six Months Ended June 30, 2021 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of December 31, 2020 $ 702 $ 682,431 $ 1,003,490 $ ( 387,581 ) $ ( 92,445 ) $ 1,206,597 Net income — — 4,556 — — 4,556 Other comprehensive loss — — — — ( 1,650 ) ( 1,650 ) Stock-based compensation — 14,423 — — — 14,423 Shares issued and forfeited, net, under stock plans — ( 20,455 ) — 29,296 — 8,841 Repurchase of 1,000,000 shares of common stock — — — ( 39,411 ) — ( 39,411 ) Repurchase of stock-based compensation awards for tax withholdings — — — ( 14,796 ) — ( 14,796 ) Balance as of June 30, 2021 $ 702 $ 676,399 $ 1,008,046 $ ( 412,492 ) $ ( 94,095 ) $ 1,178,560 Six Months Ended June 30, 2020 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of December 31, 2019 $ 702 $ 667,658 $ 930,830 $ ( 377,639 ) $ ( 91,583 ) $ 1,129,968 Net loss — — ( 10,352 ) — — ( 10,352 ) Other comprehensive loss — — — — ( 6,751 ) ( 6,751 ) Stock-based compensation — 14,882 — — — 14,882 Shares issued and forfeited, net, under stock plans — ( 14,986 ) — 17,981 — 2,995 Repurchase of 1,000,000 shares of common stock — — — ( 28,881 ) — ( 28,881 ) Repurchase of stock-based compensation awards for tax withholdings — — — ( 11,124 ) — ( 11,124 ) Balance as of June 30, 2020 $ 702 $ 667,554 $ 920,478 $ ( 399,663 ) $ ( 98,334 ) $ 1,090,737 The accompanying notes are an integral part of the condensed consolidated financial statements. 7 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income (loss) $ 4,556 $ ( 10,352 ) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation 10,708 11,752 Amortization 56,278 57,762 Amortization of operating lease right-of-use assets 5,000 8,801 Amortization of deferred debt issuance costs 2,357 2,416 Deferred income taxes ( 9,558 ) ( 4,742 ) Stock-based compensation expense 14,423 14,882 Other 436 1,772 Changes in operating assets and liabilities: Receivables 76,754 29,053 Accounts payable ( 2,540 ) 6,287 Accrued employee compensation ( 8,401 ) 8,177 Deferred revenue 297 22,236 Other current and noncurrent assets and liabilities ( 42,094 ) ( 22,515 ) Net cash flows from operating activities 108,216 125,529 Cash flows from investing activities: Purchases of property and equipment ( 8,075 ) ( 10,615 ) Purchases of software and distribution rights ( 15,652 ) ( 15,057 ) Net cash flows from investing activities ( 23,727 ) ( 25,672 ) Cash flows from financing activities: Proceeds from issuance of common stock 1,648 1,894 Proceeds from exercises of stock options 7,044 1,122 Repurchase of stock-based compensation awards for tax withholdings ( 14,796 ) ( 11,124 ) Repurchases of common stock ( 39,411 ) ( 28,881 ) Proceeds from revolving credit facility — 30,000 Repayment of revolving credit facility ( 30,000 ) ( 69,000 ) Repayment of term portion of credit agreement ( 19,475 ) ( 19,475 ) Payments on or proceeds from other debt, net ( 8,272 ) ( 4,686 ) Net cash flows from financing activities ( 103,262 ) ( 100,150 ) Effect of exchange rate fluctuations on cash ( 388 ) 8,118 Net increase (decrease) in cash and cash equivalents ( 19,161 ) 7,825 Cash and cash equivalents, beginning of period 165,374 121,398 Cash and cash equivalents, end of period $ 146,213 $ 129,223 Supplemental cash flow information Income taxes paid $ 21,263 $ 12,121 Interest paid $ 20,242 $ 29,026 The accompanying notes are an integral part of the condensed consolidated financial statements. 8 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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, 2021, and for the three and six months ended June 30, 2021 and 2020, 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, 2020, is derived from the audited financial statements. 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, 2020, filed on February 25, 2021. Results for the three and six months ended June 30, 2021, 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. Risks and Uncertainties The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic that began in early 2020. The COVID-19 pandemic, and the measures imposed by the governments of various countries, states, cities, and other geographic regions to prevent its spread, have negatively impacted global economic and market conditions, including levels of consumer and business spending. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as vaccination rates vary by geography, new variants spread, and the response to the pandemic and available information continues to be evolving. The Company has experienced changes in volumes for certain Merchant and Biller customers and has received limited requests for extended payment terms under existing contracts. Continuing economic disruptions could have a material adverse effect on our business as our customers curtail and reduce capital and overall spending. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. Other Current Liabilities The components of other current liabilities are included in the following table (in thousands): June 30, 2021 December 31, 2020 Vendor financed licenses $ 10,216 $ 12,901 Operating lease liabilities 11,174 13,438 Royalties payable 3,464 3,959 Accrued interest 8,735 8,745 Other 32,205 42,569 Total other current liabilities $ 65,794 $ 81,612 9 Table of contents Leases The Company’s operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities. During the six months ended June 30, 2021, the new corporate headquarters operating lease commenced. In recognition of this lease, an operating lease right of use asset of $ 12.9 million and an operating lease liability of $ 15.2 million was incurred. These amounts are included within operating lease right-of-use assets and other current liabilities and operating lease liabilities in the condensed consolidated balance sheet as of June 30, 2021. Settlement Assets and Liabilities Individuals and businesses settle their obligations to the Company’s various Biller clients using credit or debit cards or via automated clearing house (“ACH”) payments. The Company creates a receivable for the amount due from the credit or debit card processor 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 (1) receive the funds into bank accounts controlled by and in the Company’s name that are not disbursed to its clients by the end of the day, resulting in a settlement deposit on the Company’s books and (2) disburse funds to its clients in advance of receiving funds from the credit or debit card processor, resulting in a net settlement receivable position. Off Balance Sheet Settlement Accounts The Company also enters into agreements with certain Biller clients to process payment funds on their behalf. When an ACH or automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account, which is a trust account maintained for the benefit of the Company’s clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back” transactions are designed to settle at the same time, usually overnight, such that the Company receives the funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the benefit of the client, which is separate from the Company’s corporate assets. As the Company does not take ownership of the funds, these 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, 2021, and December 31, 2020, was $ 208.3 million and $ 246.8 million, respectively. Fair Value The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the fair value hierarchy). The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities. The fair value of the Company’s 5.750 % Senior Notes due 2026 (“2026 Notes”) was $ 419.5 million and $ 424.5 million as of June 30, 2021, and December 31, 2020, respectively. The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy). Goodwill In accordance with the 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 had previously identified ACI On Demand and ACI On Premise, the operating segments at the time, as the reporting units. As of June 30, 2021, the Company's goodwill balance of $ 1.3 billion was allocated to these two reporting units, with $ 554.3 million allocated to ACI On Demand and $ 725.9 million allocated to ACI On Premise. Recoverability of goodwill is measured using a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow 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 the October 1, 2020, annual impairment test. Given the adverse economic and market conditions caused by the COVID-19 pandemic, the Company considered a variety of qualitative factors to determine if an additional quantitative impairment test was required subsequent to our annual impairment test. Based 10 Table of contents on a variety of factors, including the excess of the fair value over the carrying amount in the most recent impairment test, we determined that an additional quantitative impairment test was not required. As discussed in Note 9, Segment Information , during the first quarter of 2021, the Company made a change in organizational structure to better align with its strategic direction. This change in the Company’s operating segments will also result in a change in reporting units. The Company is currently in the process of calculating the allocation of goodwill for the new reporting units, which are expected to coincide with the new operating segments - Banks, Merchants, and Billers. Equity Method Investment In July 2019, the Company invested $ 18.3 million for a 30 % non-controlling financial interest in a payment technology and services company in India. The Company accounted for this investment using the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures . The Company records its share of earnings and losses in the investment on a one-quarter lag basis. Accordingly, the Company recorded an investment of $ 19.4 million and $ 19.3 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of June 30, 2021, and December 31, 2020, respectively. New Accounting Standards Recently Adopted In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions within ASC 740, as well as clarify and simplify other aspects of the accounting for income taxes to promote consistency among reporting entities. ASU 2019-12 was effective for annual and interim periods beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements. 2. Revenue 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. See Note 9, Segment Information, for additional information, including disaggregation of revenue based on primary solution category. 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 platform 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 subsequent to invoicing. Total receivables, net is comprised of the following (in thousands): June 30, 2021 December 31, 2020 Billed receivables $ 142,264 $ 179,177 Allowance for doubtful accounts ( 3,578 ) ( 3,912 ) Billed receivables, net 138,686 175,265 Current accrued receivables, net 150,665 167,614 Long-term accrued receivables, net 190,399 215,772 Total accrued receivables, net 341,064 383,386 Total receivables, net $ 479,750 $ 558,651 No customer accounted for more than 10% of the Company’s consolidated receivables balance as of June 30, 2021, or December 31, 2020. 11 Table of contents 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): Balance, December 31, 2020 $ 129,413 Deferral of revenue 67,734 Recognition of deferred revenue ( 67,134 ) Foreign currency translation 14 Balance, June 30, 2021 $ 130,027 Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include: • Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty. • SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient or meets the allocation objective. Revenue allocated to remaining performance obligations was $ 804.2 million as of June 30, 2021, of which the Company expects to recognize approximately 53 % over the next 12 months and the remainder thereafter. During the three and six months ended June 30, 2021 and 2020, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant. 3. Debt As of June 30, 2021, the Company had $ 25.0 million, $ 697.6 million, and $ 400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $ 473.5 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $ 1.5 million of unused borrowings under the Letter of Credit agreement. The amount of unused borrowings actually available varies in accordance with the terms of the agreement. Credit Agreement On April 5, 2019, the Company and its wholly-owned subsidiaries, ACI Worldwide Corp. and ACI Payments, Inc. entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with the lenders, and Bank of America, N.A., as administrative agent for the lenders, to amend and restate the Company's existing agreement, as amended, 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”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans, (b) a five-year $ 279.0 million senior secured term loan facility (the "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 Credit Facility will mature on April 5, 2024. At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to, either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, or (3) a London Interbank Offered Rate (“LIBOR”) rate determined by reference to the costs of funds for U.S. dollar deposits for a one-month interest period, adjusted for certain additional costs, plus 1 % or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, plus an applicable margin. Based on the calculation of the applicable consolidated total leverage ratio, the applicable margin for borrowings under the Credit Facility is between 0.25 % to 1.25 % with respect to base rate borrowings and between 1.25 % and 2.25 % with respect to LIBOR rate borrowings. Interest is due and payable monthly. The interest rate in effect for the Credit Facility as of June 30, 2021, was 2.10 %. 12 Table of contents The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees. Expected Discontinuation of LIBOR In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced it will no longer compel banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the first publication of SOFR rates was released in April 2018. The Company is evaluating the potential impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including SOFR. The Company's Credit Agreement is currently indexed to LIBOR and the maturity date of the Credit Agreement extends beyond 2021. The Credit Agreement contemplates the discontinuation of LIBOR and provides options for the Company in such an event. The Company will continue to actively assess the related opportunities and risks involved in this transition. Senior Notes On August 21, 2018, the Company completed a $ 400.0 million offering of the 2026 Notes at an issue price of 100 % of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750 %, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes will mature on August 15, 2026. Maturities on debt outstanding as of June 30, 2021, are as follows (in thousands): Fiscal Year Ending December 31, Remainder of 2021 $ 19,475 2022 50,431 2023 69,906 2024 582,823 2025 — Thereafter 400,000 Total $ 1,122,635 As of June 30, 2021, and at all times during the period, the Company was in compliance with its financial debt covenants. Total debt is comprised of the following (in thousands): June 30, 2021 December 31, 2020 Term loans $ 697,635 $ 717,110 Revolving credit facility 25,000 55,000 5.750 % Senior notes, due August 2026 400,000 400,000 Debt issuance costs ( 14,746 ) ( 17,103 ) Total debt 1,107,889 1,155,007 Less: current portion of term loans 40,694 38,950 Less: current portion of debt issuance costs ( 4,627 ) ( 4,685 ) Total long-term debt $ 1,071,822 $ 1,120,742 13 Table of contents Overdraft Facility In 2019, the Company and ACI Payments, Inc. entered in to an uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at the federal funds effective rate plus 2.250 % 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, 2021, there was $ 75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2020, there was no amount outstanding on the overdraft facility. Other The Company finances certain multi-year license agreements for internal-use software. Upon execution, these arrangements have been treated as a non-cash investing and financing activity for purposes of the condensed consolidated statements of cash flows. As of June 30, 2021, $ 4.6 million was outstanding on these agreements, of which $ 2.4 million and $ 2.2 million are included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet. As of December 31, 2020, $ 7.8 million was outstanding on these agreements, of which $ 5.6 million and $ 2.2 million are included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet. 4. Software and Other Intangible Assets The carrying amount and accumulated amortization of the Company's software assets subject to amortization at each balance sheet date are as follows (in thousands): June 30, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance Software for resale $ 130,737 $ ( 127,237 ) $ 3,500 $ 130,261 $ ( 123,418 ) $ 6,843 Software for internal use 445,343 ( 267,970 ) 177,373 430,330 ( 240,717 ) 189,613 Total software $ 576,080 $ ( 395,207 ) $ 180,873 $ 560,591 $ ( 364,135 ) $ 196,456 Amortization of software for resale is computed using the greater of (a) the ratio of current gross revenues to the total of current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining estimated useful life of generally five to ten years . Software for resale amortization expense recorded during the three months ended June 30, 2021 and 2020, totaled $ 1.4 million and $ 2.1 million, respectively. Software for resale amortization expense recorded during the six months ended June 30, 2021 and 2020, totaled $ 3.4 million and $ 4.0 million, respectively. These software amortization expense amounts are reflected in cost of revenue in the condensed consolidated statements of operations. Amortization of software for internal use is computed using the straight-line method over an estimated useful life of generally three to eight years . Software for internal use amortization expense recorded during the three months ended June 30, 2021 and 2020, totaled $ 17.4 million and $ 18.5 million, respectively. Software for internal use amortization expense recorded during the six months ended June 30, 2021 and 2020, totaled $ 34.3 million and $ 35.2 million, respectively. These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations. The carrying amount and accumulated amortization of the Company’s other intangible assets subject to amortization at each balance sheet date are as follows (in thousands): June 30, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance Customer relationships $ 511,710 $ ( 214,845 ) $ 296,865 $ 512,389 $ ( 197,787 ) $ 314,602 Trademarks and trade names 24,049 ( 17,763 ) 6,286 24,115 ( 16,734 ) 7,381 Total other intangible assets $ 535,759 $ ( 232,608 ) $ 303,151 $ 536,504 $ ( 214,521 ) $ 321,983 14 Table of contents Other intangible assets amortization expense recorded during both the three months ended June 30, 2021 and 2020, totaled $ 9.2 million. Other intangible assets amortization expense recorded during both the six months ended June 30, 2021 and 2020, totaled $ 18.5 million. Based on capitalized intangible assets as of June 30, 2021, estimated amortization expense amounts in future fiscal years are as follows (in thousands): Fiscal Year Ending December 31, Software Amortization Other Intangible Assets Amortization Remainder of 2021 $ 36,132 $ 18,518 2022 56,235 36,881 2023 38,403 36,551 2024 23,197 32,016 2025 19,123 23,398 Thereafter 7,783 155,787 Total $ 180,873 $ 303,151 5. Stock-Based Compensation Plans Employee Stock Purchase Plan Shares issued under the 2017 Employee Stock Purchase Plan during the six months ended June 30, 2021 and 2020, totaled 55,486 and 72,228 , respectively. Stock Options A summary of stock option 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, 2020 2,186,511 $ 17.87 Exercised ( 369,103 ) 19.09 Outstanding as of June 30, 2021 1,817,408 $ 17.63 3.57 $ 35,460,553 Exercisable as of June 30, 2021 1,817,408 $ 17.63 3.57 $ 35,460,553 The total intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020, was $ 7.6 million and $ 10.5 million, respectively. There were no stock options granted during the six months ended June 30, 2021 or 2020. Long-term Incentive Program Performance Share Awards During the six months ended June 30, 2021, the Company modified the performance target for the remaining outstanding long-term incentive program performance shares ("LTIP performance shares") in consideration of the impact of the COVID-19 pandemic, resulting in additional stock-based compensation expense of approximately $ 0.4 million. During the six months ended June 30, 2021, a total of 10,457 LTIP performance shares vested. The Company withheld 4,527 of those shares to pay the employees’ portion of the minimum payroll withholding taxes. 15 Table of contents Total Shareholder Return Awards A summary of nonvested total shareholder return awards ("TSRs") is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2020 1,367,728 $ 34.59 Granted 367,317 50.60 Vested ( 782,588 ) 31.31 Forfeited ( 83,519 ) 37.18 Change in payout rate 391,294 31.31 Nonvested as of June 30, 2021 1,260,232 $ 40.11 During the six months ended June 30, 2021, a total of 782,588 TSRs awards granted in fiscal 2018 vested and achieved a payout rate of 200 % based on the Company's total shareholder return as compared to a group of peer companies over a three-year performance period. The Company withheld 205,373 of those shares to pay the employees’ portion of the minimum payroll withholding taxes. The fair value of TSRs granted during the six months ended June 30, 2021 and 2020, 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, 2021 2020 Expected life (years) 2.8 2.8 Risk-free interest rate 0.3 % 0.5 % Expected volatility 41.2 % 31.4 % Expected dividend yield — — Restricted Share Units A summary of nonvested restricted share unit awards ("RSUs") is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2020 1,118,182 $ 27.34 Granted 578,220 39.27 Vested ( 518,350 ) 27.66 Forfeited ( 149,623 ) 29.38 Nonvested as of June 30, 2021 1,028,429 $ 33.59 During the six months ended June 30, 2021, a total of 518,350 RSUs vested. The Company withheld 153,845 of those shares to pay the employees’ portion of the minimum payroll withholding taxes. As of June 30, 2021, there were unrecognized compensation costs of $ 29.9 million and $ 26.7 million related to nonvested RSUs and TSRs, respectively, which the Company expects to recognize over weighted average periods of 2.1 years and 2.2 years. The Company recorded stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2021 and 2020, of $ 7.7 million and $ 7.9 million, respectively, with corresponding tax benefits of $ 1.2 million and $ 1.4 million, respectively. The Company recorded stock-based compensation expense recognized under ASC 718 for the six months ended June 30, 2021 and 2020, of $ 14.4 million and $ 14.9 million, respectively, with corresponding tax benefits of $ 2.2 million and $ 2.8 million, respectively. 16 Table of contents 6. Common Stock and Treasury Stock In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program. In February 2018, the board approved the repurchase of the Company's common stock of up to $ 200.0 million, in place of the remaining purchase amounts previously authorized. The Company repurchased 1,000,000 shares for $ 39.4 million during the six months ended June 30, 2021. Under the program to date, the Company has repurchased 47,357,495 shares for approximately $ 651.7 million. As of June 30, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was $ 72.7 million. 7. Earnings (Loss) Per Share Basic earnings (loss) per share is computed in accordance with ASC 260, Earnings Per Share , based on weighted average outstanding common shares. Diluted earnings (loss) per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been achieved. The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings (loss) per share (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Weighted average shares outstanding: Basic weighted average shares outstanding 117,718 116,033 117,605 116,019 Add: Dilutive effect of stock options and RSUs 1,292 1,231 1,353 — Diluted weighted average shares outstanding 119,010 117,264 118,958 116,019 The diluted earnings per share computation excludes 1.3 million and 1.8 million options to purchase shares, RSUs, and contingently issuable shares during the three months ended June 30, 2021 and 2020, respectively, as their effect would be anti-dilutive. The diluted earnings (loss) per share computation excludes 1.4 million and 6.1 million options to purchase shares, RSUs, and contingently issuable shares during the six months ended June 30, 2021 and 2020, respectively, as their effect would be anti-dilutive. Common stock outstanding as of June 30, 2021, and December 31, 2020, was 117,484,424 and 117,112,185 , respectively. 8. Other, Net Other, net is primarily comprised of foreign currency transaction gains and losses. Other, net was $ 1.4 million and $ 2.0 million of income for the three months ended June 30, 2021 and 2020, respectively. Other, net was $ 0.1 million of income and $ 7.7 million of expense for the six months ended June 30, 2021 and 2020, respectively. 9. Segment Information In January 2021, the Company made a change in organizational structure to align with its strategic direction. As a result of this change, the Company reassessed its segment reporting structure due to changes in how the Company's chief operating decision maker ("CODM") assesses the Company's performance and allocates resources. Beginning in the first quarter of 2021, the Company reports financial performance based on its new operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as a measure of segment profitability. The Company’s Chief Executive Officer is also the CODM. The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from Corporate operations. No operating segments have been aggregated to form the reportable segments. Banks. ACI provides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands. 17 Table of contents Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who service them. These customers operate in a variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. The Company's solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop. Billers. Within the billers segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue. Revenue is attributed to the reportable segments based upon 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 projects, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities. Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’s segments, and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting. Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense). Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to corporate overhead costs that are not allocated to reportable segments. The overhead costs relate to human resources, finance, legal, accounting, and merger and acquisition activity. These costs along with depreciation and amortization and stock-based compensation are not considered when management evaluates segment performance. The following is selected financial data for the Company’s reportable segments for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue Banks $ 114,051 $ 125,386 $ 209,968 $ 231,207 Merchants 37,424 37,314 76,094 69,109 Billers 150,194 137,210 300,793 291,079 Total revenue $ 301,669 $ 299,910 $ 586,855 $ 591,395 Segment Adjusted EBITDA Banks $ 54,465 $ 68,385 $ 91,660 $ 110,821 Merchants 13,041 12,838 27,766 19,256 Billers 34,603 34,305 68,624 64,539 Depreciation and amortization ( 33,403 ) ( 35,692 ) ( 66,986 ) ( 69,514 ) Stock-based compensation expense ( 7,720 ) ( 7,932 ) ( 14,423 ) ( 14,882 ) Corporate and unallocated expenses ( 45,562 ) ( 42,766 ) ( 87,527 ) ( 92,365 ) Interest, net ( 8,395 ) ( 11,188 ) ( 17,016 ) ( 25,459 ) Other, net 1,434 2,041 52 ( 7,717 ) Income (loss) before income taxes $ 8,463 $ 19,991 $ 2,150 $ ( 15,321 ) Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information. 18 Table of contents The following is revenue by primary solution category for the Company’s reportable segments for the periods indicated (in thousands): Three Months Ended June 30, 2021 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 150,194 $ 150,194 Digital Business Banking 15,700 — — 15,700 Merchant Payments — 37,424 — 37,424 Fraud Management 10,457 — — 10,457 Real-Time Payments 17,711 — — 17,711 Issuing and Acquiring 70,183 — — 70,183 Total $ 114,051 $ 37,424 $ 150,194 $ 301,669 Three Months Ended June 30, 2020 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 137,210 $ 137,210 Digital Business Banking 15,056 — — 15,056 Merchant Payments — 37,314 — 37,314 Fraud Management 7,400 — — 7,400 Real-Time Payments 25,926 — — 25,926 Issuing and Acquiring 77,004 — — 77,004 Total $ 125,386 $ 37,314 $ 137,210 $ 299,910 Six Months Ended June 30, 2021 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 300,793 $ 300,793 Digital Business Banking 30,792 — — 30,792 Merchant Payments — 76,094 — 76,094 Fraud Management 16,681 — — 16,681 Real-Time Payments 30,896 — — 30,896 Issuing and Acquiring 131,599 — — 131,599 Total $ 209,968 $ 76,094 $ 300,793 $ 586,855 Six Months Ended June 30, 2020 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 291,079 $ 291,079 Digital Business Banking 30,884 — — 30,884 Merchant Payments — 69,109 — 69,109 Fraud Management 13,670 — — 13,670 Real-Time Payments 44,162 — — 44,162 Issuing and Acquiring 142,491 — — 142,491 Total $ 231,207 $ 69,109 $ 291,079 $ 591,395 19 Table of contents The following is revenue by the Company's reportable segments for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Banks Software as a service and platform as a service $ 14,482 $ 13,710 $ 28,761 $ 27,155 License 33,913 47,642 51,931 74,738 Maintenance 49,132 48,530 97,262 97,642 Services 16,524 15,504 32,014 31,672 Total $ 114,051 $ 125,386 $ 209,968 $ 231,207 Merchants Software as a service and platform as a service $ 31,732 $ 29,739 $ 62,775 $ 55,549 License 814 2,494 3,904 3,433 Maintenance 3,943 4,133 8,095 8,221 Services 935 948 1,320 1,906 Total $ 37,424 $ 37,314 $ 76,094 $ 69,109 Billers Software as a service and platform as a service $ 150,114 $ 137,124 $ 300,538 $ 290,819 License — — 94 94 Maintenance 80 86 161 166 Services — — — — Total $ 150,194 $ 137,210 $ 300,793 $ 291,079 The following is the Company's revenue by geographic location for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue United States $ 195,830 $ 207,381 $ 387,807 $ 412,174 Other 105,839 92,529 199,048 179,221 Total $ 301,669 $ 299,910 $ 586,855 $ 591,395 The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands): June 30, 2021 December 31, 2020 Long-lived Assets United States $ 1,400,384 $ 1,423,862 Other 724,709 750,651 Total $ 2,125,093 $ 2,174,513 No single customer accounted for more than 10% of the Company’s consolidated revenues during the three and six months ended June 30, 2021 and 2020. 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, 2021 and 2020. 10. Income Taxes For the three and six months ended June 30, 2021, the Company's effective tax rate was 23 % and ( 112 )%, respectively. The Company reported tax expense on pretax income for the three months ended June 30, 2021, and a tax benefit on pretax income for the six months ended June 30, 2021, with foreign entities recognizing earnings of $ 10.2 million and $ 9.6 million, respectively. The effective tax rate for the three and six months ended June 30, 2021, was positively impacted by excess tax benefits on equity-based compensation. 20 Table of contents For the three and six months ended June 30, 2020, the Company's effective tax rate was 30 % and 32 %, respectively. The Company reported tax expense on pretax income for the three months ended June 30, 2020 and a tax benefit on a pretax loss for the six months ended June 30, 2020, with foreign entities recognizing earnings of $ 10.7 million and losses of $ 3.7 million, respectively. The effective tax rate for the three months ended June 30, 2020, was negatively impacted by state income tax charges on a domestic profit. The effective tax rate for the six months ended June 30, 2020, was positively impacted by excess tax benefits on equity-based compensation and state income tax benefits on a domestic loss. The Company’s effective tax rate could fluctuate on a quarterly basis due to the occurrence of significant and unusual or infrequent items, such as vesting of stock-based compensation or 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. As of June 30, 2021, and December 31, 2020, the amount of unrecognized tax benefits for uncertain tax positions was $ 24.6 million and $ 24.3 million, respectively, excluding related liabilities for interest and penalties of $ 1.3 million and $ 1.2 million as of June 30, 2021, and December 31, 2020, respectively. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $ 3.6 million, due to the settlement of various audits and the expiration of statutes of limitation.