ACI WORLDWIDE, INC. 10-Q

ITEM 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 forward-looking statements in this report are expressly qualified by the risk factors discussed in our filings with the Securities and Exchange Commission (“SEC”). The cautionary statements in this report expressly qualify all of our forward-looking statements. Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in our Risk Factors in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in Part 2, Item 1A of this Form 10-Q. The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and with our financial statements and related notes contained in this Form 10-Q. Results for the three and six months ended June 30, 2021, are not necessarily indicative of results that may be attained in the future. 21 Table of contents COVID-19 Pandemic The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the virus. These measures may remain in place for a significant period of time, or may be reinstituted after being temporarily lifted, and could adversely affect our business, operations and financial condition as well as the business, operations and financial conditions of our customers and business partners. The spread of the virus has also caused us to modify our business practices (including employee work locations and cancellation of physical participation in meetings) in ways that may be detrimental to our business (including working remotely and its attendant cybersecurity risks). We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and customers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. We created a dedicated Crisis Management Team to oversee and execute our business continuity plans and a variety of measures designed to ensure the ongoing availability of our products, solutions and services for our customers, while taking health and safety measures for our employees, including telecommuting, travel restrictions, social distancing policies, and stepped-up facility cleaning practices. We believe we have sufficient liquidity to continue business operations during this volatile and uncertain period. We have $619.7 million of available liquidity as of June 30, 2021, consisting of cash on hand and availability under our revolving credit facility. To address the potential long-term financial impacts of the virus, we have delayed non-essential capital spending and operating expenses. The pandemic presents potential new risks to our business. We began to see the impacts of COVID-19 on certain customer transaction volumes in late March 2020 and continued to see changes into 2021, primarily within the Merchants and Billers segment. The effect of COVID-19 and related events, including those described above, could have an ongoing negative effect on our stock price, business prospects, financial condition, and results of operations. More specifically, f or those customer s under consumption-based contracts, continued declines in transaction volumes could negatively impact our financial position, results of operations, and cash flows. We have also experienced atypical fluctuations in Biller volumes as a result of the change in timing of assessments and due dates for federal, state, and local taxes. For the reasons discussed above, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity. Notwithstanding any actions by national, state, and local governments to mitigate the impact of COVID-19 or by us to address the adverse impacts of COVID-19, there can be no assurance that any of the foregoing activities will be successful in mitigating or preventing significant adverse effects on the Company. Overview ACI Worldwide powers digital payments for more than 6,000 organizations around the world. More than 1,000 of the largest banks and intermediaries, as well as thousands of global merchants, rely on ACI to execute $14 trillion each day in payments and securities. In addition, myriad organizations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software solutions delivered on customers' premises, through the public cloud or through ACI's private cloud, we provide real-time, immediate payments capabilities and enable the industry's most complete omni-channel payments experience. Our products are sold and supported directly and through distribution networks covering three geographic regions – the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific. Each region has a globally coordinated sales force, supplemented with local independent reseller and/or distributor networks. Our products and solutions are used globally by banks, intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges, and a wide range of transaction-generating endpoints, including ATMs, merchant point-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 digital payments, mandated regulatory changes, and changes in the number and type of customers in the financial services industry, as well as economic growth and purchasing habits. Our products are marketed under the ACI Worldwide brand. We derive a majority of our revenues from domestic operations and believe we have large opportunities for growth in international markets, as well as continued expansion domestically in the United States. Refining our global infrastructure is a critical component of driving our growth. We also continue to maintain centers of expertise in Timisoara, Romania and Pune and Bangalore in India, as well as key operational centers such as in Cape Town, South Africa and in multiple locations in the United States. 22 Table of contents Key trends that currently impact our strategies and operations include: Increasing digital payment transaction volumes. The adoption of digital payments continues to accelerate, propelled by the digitization of cash, the Internet of Things, rapid growth of eCommerce and the adoption of real-time payments. COVID-19 has further accelerated this growth as more people, governments, and businesses have embraced digital payments—a change likely to continue once the pandemic is over. We leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems cannot handle increased volume, through the sale of capacity upgrades to existing customers, and through the scalability of our platform-based solutions. Adoption of real-time payments. Expectations from both consumers and businesses, are continuing to drive the payments world to more real-time delivery. This is bolstered by the new data-rich ISO 20022 messaging format, which promises to deliver greater value to banks and their customers. We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth (further driven by COVID-19) and new payment types. Mature markets, including India, the United Kingdom, Australia, Malaysia, Singapore, Thailand, and the Nordics (P27), continue to accelerate innovation, especially in terms of overlay services and cross-border connectivity. The United States is driving real-time payments adoption through Zelle, TCH Real-Time Payments, and the planned FedNow service, while Brazil's PIX was recently launched in November. ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as the leader in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world. Adoption of cloud technology. To leverage lower-cost computing technologies, increase time to market, accelerate innovation, and ensure scalability and resiliency, banks, intermediaries, merchants, and billers are seeking to transition their systems to make use of cloud technology. Our investments and partnerships, as demonstrated by our product enablement and initial optimization onto Microsoft Azure, enable us to leverage the hybrid cloud technology benefits of automation and rapid deployment and delivery, while preserving the ACI fundamentals of resiliency and scalability, to deliver cloud capabilities now and in the future. Market sizing data from Ovum (now Omdia) indicates that spend on SaaS and PaaS payment systems is growing faster than spend on installed applications. Digital payments fraud and compliance . The rise in digital payment transaction volumes and payment types has subsequently led to an increase in online fraud in many guises and across all channels. Driven in part by COVID-19, we have seen an increase in phishing and friendly fraud, as well as remote banking fraud and authorized push payment scams. Real-time payments bring a new level of urgency, as money cannot easily be retrieved once it has been sent. Banks, intermediaries, merchants, and billers must find faster, smarter, more accurate and increasingly automated ways to secure customers and meet regulatory pressures. We continue to see opportunity to offer our fraud detection solutions with advanced machine learning capabilities to help customers manage the growing levels of digital payments fraud and compliance activity. Omni-commerce. Shoppers are increasingly browsing, buying, and returning items across channels, including in-store, online, and mobile. COVID-19 has accelerated this trend, leading to an increase in contactless payments, click and collect, and curbside collection. Merchants from all industries, including grocers, fuel and convenience stores, are being tasked with delivering seamless experiences that include pay-in-aisle, kiosks, mobile app payments, QR code payments, eCommerce, traditional and mobile POS, buy online pickup in-store (BOPIS) and buy online return in-store (BORIS). We believe there is significant opportunity to provide merchants with the tools to deliver a seamless, secure, personalized experience that creates loyalty and satisfaction, and drives conversion rates while protecting consumer data and preventing fraud. Request for Payment (RfP). Markets across the world are introducing an innovative payments service called Request for Payment (RfP). This technology is known by different names in different markets: Collect payments in India, Request 2 Pay in Europe, Request To Pay (RTP) in the United Kingdom, or Request for Payment (RfP) in the United States. RfP offers secure messaging between consumers and billers or merchants, wherein a biller or merchant can request a payment from a consumer through the use of a trusted app, most likely a banking app. RfP is primarily being implemented on top of real-time payments, which are continuing to grow and flourish as countries around the world develop and launch their real-time schemes as noted above. ACI is in a unique position to deliver this overlay service given our real-time payments software, our relationships with banks, merchants and billers, and global real-time connectivity. 23 Table of contents Several other factors related to our business may have a significant impact on our operating results from year to year. For example, the accounting rules governing the timing of revenue recognition are complex, and it can be difficult to estimate when we will recognize revenue generated by a given transaction. Factors such as creditworthiness of the customer and timing of transfer of control or acceptance of our products may cause revenues related to sales generated in one period to be deferred and recognized in later periods. For arrangements in which services revenue is deferred, related direct and incremental costs may also be deferred. Additionally, while the majority of our contracts are denominated in the U.S. dollar, a substantial portion of our sales are made, and some of our expenses are incurred, in the local currency of countries other than the United States. Fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period. We continue to seek ways to grow through organic sources, partnerships, alliances, and acquisitions. We continually look for potential acquisitions designed to improve our solutions’ breadth or provide access to new markets. As part of our acquisition strategy, we seek acquisition candidates that are strategic, capable of being integrated into our operating environment, and accretive to our financial performance. Backlog Backlog is comprised of: • Committed Backlog, which includes (1) contracted revenue that will be recognized in future periods (contracted but not recognized) from software license fees, maintenance fees, service fees, and SaaS and PaaS fees specified in executed contracts (including estimates of variable consideration if required under ASC 606) and included in the transaction price for those contracts, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods and (2) estimated future revenues from software license fees, maintenance fees, services fees, and SaaS and PaaS fees specified in executed contracts. • Renewal Backlog, which includes estimated future revenues from assumed contract renewals to the extent we believe recognition of the related revenue will occur within the corresponding backlog period. 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 the 60-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 the 60-month backlog period. In computing our 60-month backlog estimate, the following items are specifically not taken into account: • Anticipated increases in transaction, account, or processing volumes by our customers. • Optional annual uplifts or inflationary increases in recurring fees. • Services engagements, other than SaaS and PaaS arrangements, are not assumed to renew over the 60-month backlog period. • The potential impact of consolidation activity within our markets and/or customers. We review our customer renewal experience on an annual basis. The impact of this review and subsequent updates may result in a revision to the renewal assumptions used in computing the 60-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. 24 Table of contents The following table sets forth our 60-month backlog estimate, by reportable segment, as of June 30, 2021, March 31, 2021, and December 31, 2020 (in millions). Dollar amounts reflect foreign currency exchange rates as of each period end. June 30, 2021 March 31, 2021 December 31, 2020 Banks $ 2,248 $ 2,117 $ 2,167 Merchants 839 811 808 Billers 3,094 3,016 3,064 Total $ 6,181 $ 5,944 $ 6,039 June 30, 2021 March 31, 2021 December 31, 2020 Committed $ 2,283 $ 2,308 $ 2,447 Renewal 3,898 3,636 3,592 Total $ 6,181 $ 5,944 $ 6,039 Estimates of future financial results require substantial judgment and are based on several assumptions, as described above. These assumptions may turn out to be inaccurate or wrong for reasons outside of management’s control. For example, our customers may attempt to renegotiate or terminate their contracts for many reasons, including mergers, changes in their financial condition, or general changes in economic conditions (e.g. economic declines resulting from COVID-19) in the customer’s industry or geographic location. We may also experience delays in the development or delivery of products or services specified in customer contracts, which may cause the actual renewal rates and amounts to differ from historical experiences. Changes in foreign currency exchange rates may also impact the amount of revenue recognized in future periods. Accordingly, there can be no assurance that amounts included in backlog estimates will generate the specified revenues or that the actual revenues will be generated within the 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. 25 Table of contents RESULTS OF OPERATIONS The following table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our condensed consolidated statements of operations (in thousands): Three Month Period Ended June 30, 2021, Compared to the Three Month Period Ended June 30, 2020 Three Months Ended June 30, 2021 2020 Amount % of Total Revenue $ Change vs 2020 % Change vs 2020 Amount % of Total Revenue Revenues: Software as a service and platform as a service $ 196,328 65 % $ 15,755 9 % $ 180,573 60 % License 34,727 11 % (15,409) (31) % 50,136 17 % Maintenance 53,155 18 % 406 1 % 52,749 18 % Services 17,459 6 % 1,007 6 % 16,452 5 % Total revenues 301,669 100 % 1,759 1 % 299,910 100 % Operating expenses: Cost of revenue 158,614 53 % 11,268 8 % 147,346 49 % Research and development 35,029 12 % (549) (2) % 35,578 12 % Selling and marketing 28,660 10 % 4,205 17 % 24,455 8 % General and administrative 31,937 11 % 2,179 7 % 29,758 10 % Depreciation and amortization 32,005 11 % (1,630) (5) % 33,635 11 % Total operating expenses 286,245 97 % 15,473 6 % 270,772 90 % Operating income 15,424 3 % (13,714) (47) % 29,138 10 % Other income (expense): Interest expense (11,260) (4) % 2,882 (20) % (14,142) (5) % Interest income 2,865 1 % (89) (3) % 2,954 1 % Other, net 1,434 — % (607) (30) % 2,041 1 % Total other income (expense) (6,961) (3) % 2,186 (24) % (9,147) (3) % Income before income taxes 8,463 — % (11,528) (58) % 19,991 7 % Income tax expense 1,962 1 % (3,954) (67) % 5,916 2 % Net income $ 6,501 (1) % $ (7,574) (54) % $ 14,075 5 % Revenues Total revenue for the three months ended June 30, 2021, increased $1.8 million, or 1%, as compared to the same period in 2020. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $4.3 million increase in total revenue during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, total revenue for the three months ended June 30, 2021, decreased $2.6 million, or 1%, as compared to the same period in 2020. 26 Table of contents Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue The Company’s SaaS arrangements allow customers to use certain software solutions (without taking possession of the software) in a single-tenant cloud environment on a subscription basis. The Company’s PaaS arrangements allow customers to use certain software solutions (without taking possession of the software) in a multi-tenant cloud environment on a subscription or consumption basis. Included in SaaS and PaaS revenue are fees paid by our customers for use of our Biller solutions. Biller-related fees may be paid by our clients or directly by their customers and may be a percentage of the underlying transaction amount, a fixed fee per executed transaction, or a monthly fee for each customer enrolled. SaaS and PaaS costs include payment card interchange fees, the amounts payable to banks and payment card processing fees, which are included in cost of revenue in the condensed consolidated statements of operations. All fees from SaaS and PaaS arrangements that do 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 increased $15.8 million, or 9%, during the three months ended June 30, 2021, as compared to the same period in 2020. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $1.5 million increase in SaaS and PaaS revenue during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended June 30, 2021, increased $14.3 million, or 8%, as compared to the same period in 2020. • The increase was primarily due to changes in the timing of assessments and due dates by Billers that use the Company's technology to enable customer payments of federal, state and local taxes. License Revenue 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). The Company recognizes revenue in advance of billings for software license arrangements with extended payment terms and adjusts for the effects of the financing component, if significant. License revenue decreased $15.4 million, or 31%, during the three months ended June 30, 2021, as compared to the same period in 2020. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $0.4 million increase in license revenue during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, license revenue for the three months ended June 30, 2021, decreased $15.8 million, or 32%, as compared to the same period in 2020. • The decrease was primarily driven by the timing and relative size of license and capacity events during the three months ended June 30, 2021, as compared to the same period in 2020. Maintenance Revenue 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 increased $0.4 million, or 1%, during the three months ended June 30, 2021, as compared to the same period in 2020. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $2.0 million increase in maintenance revenue during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, maintenance revenue for the three months ended June 30, 2021, decreased $1.6 million, or 3%, as compared to the same period in 2020. 27 Table of contents Services Revenue 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 $1.0 million, or 6%, during the three months ended June 30, 2021, as compared to the same period in 2020. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $0.4 million increase in services revenue during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, services revenue for the three months ended June 30, 2021, increased $0.6 million, or 3%, as compared to the same period in 2020. Operating Expenses Total operating expenses for the three months ended June 30, 2021, increased $15.5 million, or 6%, as compared to the same period in 2020. • Total operating expenses for the three months ended June 30, 2021, included $3.4 million of expenses related to significant transaction and cost reduction strategies implemented during the period. Total operating expenses for the three months ended June 30, 2020, included $5.0 million of significant transaction-related expenses associated with the acquisition of Speedpay from The Western Union Company and cost reduction strategies implemented during the period. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $4.5 million increase in total operating expenses during the three months ended June 30, 2021, compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the three months ended June 30, 2021, increased $12.6 million, or 5%, compared to the same period in 2020. Cost of Revenue Cost of revenue includes costs to provide SaaS and PaaS services, third-party royalties, amortization of purchased and developed software for resale, the costs of maintaining our software products, as well as the costs required to deliver, install, and support software at customer sites. SaaS and PaaS service costs include payment card interchange fees, amounts payable to banks, and payment card processing fees. Maintenance costs include the efforts associated with providing the customer with upgrades, 24-hour help desk, 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 increased $11.3 million, or 8%, during the three months ended June 30, 2021, compared to the same period in 2020. • Cost of revenue for the three months ended June 30, 2020, included $2.3 million of significant transaction-related expenses associated with the acquisition of Speedpay. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $1.8 million increase in cost of revenue during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue increased $11.7 million, or 8%, for the three months ended June 30, 2021, as compared to the same period in 2020. • The increase was primarily due to higher payment card interchange and processing fees of $12.7 million, partially offset by lower personnel and related expenses of $1.0 million. 28 Table of contents Research and Development 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 decreased $0.5 million, or 2%, during the three months ended June 30, 2021, as compared to the same period in 2020. • R&D expense for the three months ended June 30, 2021, included $0.5 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period. R&D expense for the three months ended June 30, 2020, included $0.3 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $0.8 million increase in R&D expense during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense decreased $1.6 million, or 4%, for the three months ended June 30, 2021, as compared to the same period in 2020, primarily due to lower personnel and related expenses. Selling and Marketing 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 $4.2 million, or 17%, during the three months ended June 30, 2021, as compared to the same period in 2020. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $0.8 million increase in selling and marketing expense during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, selling and marketing expense increased $3.4 million, or 14%, for the three months ended June 30, 2021, as compared to the same period in 2020. • The increase was primarily due to higher personnel and related expenses and professional fees of $2.4 million and $1.0 million, respectively. General and Administrative General and administrative expenses are primarily human resource costs including executive salaries and benefits, personnel administration costs, and the costs of corporate support functions such as legal, administrative, human resources, and finance and accounting. General and administrative expense increased $2.2 million, or 7%, during the three months ended June 30, 2021, as compared to the same period in 2020. • General and administrative expenses for the three months ended June 30, 2021, included $2.9 million of significant transaction-related expenses and cost reduction strategies implemented during the period. General and administrative expenses for the three months ended June 30, 2020, included $2.5 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period. • The impact of foreign currencies strengthening against the U.S. dollar resulted in a $0.7 million increase in general and administrative expense during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense increased $1.1 million, or 4%, for the three months ended June 30, 2021, as compared to the same period in 2020, primarily due to higher personnel and related expenses. 29 Table of contents Depreciation and Amortization Depreciation and amortization decreased $1.6 million, or 5%, during the three months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $0.5 million increase in depreciation and amortization during the three months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, depreciation and amortization decreased $2.1 million, or 6%, for the three months ended June 30, 2021, as compared to the same period in 2020. Other Income and Expense Interest expense for the three months ended June 30, 2021, decreased $2.9 million, or 20%, as compared to the same period in 2020, primarily due to lower comparative debt balances. Interest income includes the portion of software license fees paid by customers under extended payment terms that is attributed to the significant financing component. Interest income for the three months ended June 30, 2021 was flat compared to the same period in 2020. 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. Income Taxes See Note 10, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information. 30 Table of contents RESULTS OF OPERATIONS The following table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our condensed consolidated statements of operations (in thousands): Six Month Period Ended June 30, 2021, Compared to the Six Month Period Ended June 30, 2020 Six Months Ended June 30, 2021 2020 Amount % of Total Revenue $ Change vs 2020 % Change vs 2020 Amount % of Total Revenue Revenues: Software as a service and platform as a service $ 392,074 67 % $ 18,551 5 % $ 373,523 63 % License 55,929 9 % (22,336) (29) % 78,265 13 % Maintenance 105,518 18 % (511) — % 106,029 18 % Services 33,334 6 % (244) (1) % 33,578 6 % Total revenues 586,855 100 % (4,540) (1) % 591,395 100 % Operating expenses: Cost of revenue 318,099 54 % 4,916 2 % 313,183 53 % Research and development 69,543 12 % (5,059) (7) % 74,602 13 % Selling and marketing 56,798 10 % 2,260 4 % 54,538 9 % General and administrative 59,712 10 % (5,972) (9) % 65,684 11 % Depreciation and amortization 63,589 11 % (1,944) (3) % 65,533 11 % Total operating expenses 567,741 97 % (5,799) (1) % 573,540 97 % Operating income 19,114 3 % 1,259 7 % 17,855 3 % Other income (expense): Interest expense (22,735) (4) % 8,578 (27) % (31,313) (5) % Interest income 5,719 1 % (135) (2) % 5,854 1 % Other, net 52 — % 7,769 (101) % (7,717) (1) % Total other income (expense) (16,964) (3) % 16,212 (49) % (33,176) (5) % Income (loss) before income taxes 2,150 — % 17,471 (114) % (15,321) (2) % Income tax benefit (2,406) — % 2,563 (52) % (4,969) (1) % Net income (loss) $ 4,556 — % $ 14,908 (144) % $ (10,352) (1) % Revenues Total revenue for the six months ended June 30, 2021, decreased $4.5 million, or 1%, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $7.4 million increase in total revenue during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, total revenue for the six months ended June 30, 2021, decreased $11.9 million, or 2%, compared to the same period in 2020. 31 Table of contents Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue SaaS and PaaS revenue increased $18.6 million, or 5%, during the six months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in $2.6 million increase in SaaS and PaaS revenue during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the six months ended June 30, 2021, increased $15.9 million, or 4%, compared to the same period in 2020. • The increase was primarily due to changes in the timing of assessments and due dates by Billers that use the Company's technology to enable customer payments of federal, state, and local taxes. License Revenue License revenue decreased $22.3 million, or 29%, during the six months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $0.8 million increase in license revenue during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, license revenue for the six months ended June 30, 2021, decreased $23.1 million, or 30%, compared to the same period in 2020. • The decrease was primarily driven by the timing and relative size of license and capacity events during the six months ended June 30, 2021, as compared to the same period in 2020. Maintenance Revenue Maintenance revenue decreased $0.5 million during the six months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $3.0 million increase in maintenance revenue during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, maintenance revenue for the six months ended June 30, 2021, decreased $3.5 million, or 3%, compared to the same period in 2020. Services Revenue Services revenue decreased $0.2 million, or 1%, during the six months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $1.0 million increase in services revenue during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, services revenue for the six months ended June 30, 2021, decreased $1.2 million, or 4%, compared to the same period in 2020. Operating Expenses Total operating expenses for the six months ended June 30, 2021, decreased $5.8 million, or 1%, as compared to the same period in 2020. • Total operating expenses for the six months ended June 30, 2021, included $4.6 million of expenses related to significant transaction and cost reduction strategies implemented during the period. Total operating expenses for the six months ended June 30, 2020, included $13.5 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $7.9 million increase in total operating expenses for the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the six months ended June 30, 2021, decreased $4.7 million, or 1%, compared to the same period in 2020. 32 Table of contents Cost of Revenue Cost of revenue increased $4.9 million, or 2%, during the six months ended June 30, 2021, compared to the same period in 2020. • Cost of revenue for the six months ended June 30, 2020, included $2.3 million of significant transaction-related expenses associated with the acquisition of Speedpay. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $3.1 million increase in cost of revenue during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue increased $4.1 million, or 1%, for the six months ended June 30, 2021, as compared to the same period in 2020. • The increase was primarily due to higher payment card interchange and processing fees of $11.2 million, partially offset by lower personnel and related expenses of $7.1 million. Research and Development R&D expense decreased $5.1 million, or 7%, during the six months ended June 30, 2021, as compared to the same period in 2020. • R&D expense for the six months ended June 30, 2021, included $0.9 million of expenses related to significant transaction and cost reduction strategies implemented during the period. R&D expense for the six months ended June 30, 2020, included $0.3 million of significant transaction-related expenses and cost reduction strategies implemented during the period. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $1.4 million increase in R&D expense during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related items and foreign currency, R&D expense decreased $7.1 million, or 9%, for the six months ended June 30, 2021, as compared to the same period in 2020. • The decrease was primarily due to lower personnel and related expenses and professional fees of $5.8 million and $1.3 million, respectively. Selling and Marketing Selling and marketing expense increased $2.3 million, or 4%, during the six months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $1.4 million increase in selling and marketing expense for the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, selling and marketing expense increased $0.9 million, or 2%, for the six months ended June 30, 2021, as compared to the same period in 2020, primarily due to higher professional fees. General and Administrative General and administrative expense decreased $6.0 million, or 9%, during the six months ended June 30, 2021, as compared to the same period in 2020. • General and administrative expenses for the six months ended June 30, 2021 included $3.7 million of expenses related to significant transaction and cost reduction strategies implemented during the period. General and administrative expense for the six months ended June 30, 2020, included $11.0 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $1.1 million increase in general and administrative expenses during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense increased $0.3 million, for the six months ended June 30, 2021, as compared to the same period in 2020. 33 Table of contents Depreciation and Amortization Depreciation and amortization decreased $1.9 million, or 3%, during the six months ended June 30, 2021, as compared to the same period in 2020. • The impact of certain foreign currencies strengthening against the U.S. dollar resulted in a $0.9 million increase in depreciation and amortization expense during the six months ended June 30, 2021, as compared to the same period in 2020. • Adjusted for the impact of foreign currency, depreciation and amortization decreased $2.8 million, or 4%, for the six months ended June 30, 2021, as compared to the same period in 2020. Other Income and Expense Interest expense for the six months ended June 30, 2021, decreased $8.6 million, or 27%, as compared to the same period in 2020, primarily due to lower comparative debt balances. Interest income for the six months ended June 30, 2021, decreased $0.1 million, or 2%, as compared to the same period in 2020. 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. Foreign currency loss was higher in 2020 due to the market volatility in the wake of the COVID-19 pandemic. Income Taxes See Note 10, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information. Segment Results In January 2021, we made a change in organizational structure to align with our 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, we report financial performance based on our new segments, Banks, Merchants, and Billers, and analyze Segment Adjusted EBITDA as a measure of segment profitability. Our Chief Executive Officer is also our CODM. The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from the corporate operations. No operating segments have been aggregated to form the reportable segments. Banks. ACI provides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands. Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who service them. These customers operate in a variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. Our solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop. Billers. Within the biller segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue. Revenue is attributed to the reportable segments based upon the 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. 34 Table of contents Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of our 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 our 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) Banks Segment Adjusted EBITDA decreased $13.9 million for the three months ended June 30, 2021, compared to the same period in 2020, due to a $11.3 million decrease in revenue, primarily license revenue, and a $2.6 million increase in cash operating expense. Merchants Segment Adjusted EBITDA increased $0.2 for the three months ended June 30, 2021, compared to the same period in 2020, due to a $0.1 million increase in revenue and a $0.1 million decrease in cash operating expense. Billers Segment Adjusted EBITDA increased $0.3 for the three months ended June 30, 2021, compared to the same period in 2020, due to a $13.0 million increase in SaaS and PaaS revenue, partially offset by a $12.7 million increase in cash operating expense, primarily due to higher payment card interchange and processing fees. Banks Segment Adjusted EBITDA decreased $19.2 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a $21.2 million decrease in revenue, primarily license revenue, partially offset by a $2.1 million decrease in cash operating expense, primarily due to lower travel and entertainment expenses. Merchants Segment Adjusted EBITDA increased $8.5 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a $7.0 million increase in revenue, primarily SaaS and PaaS revenue, and a $1.5 million decrease in cash operating expense, primarily due to lower personnel and related expenses. Billers Segment Adjusted EBITDA increased $4.1 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a $9.7 million increase in SaaS and PaaS revenue, partially offset by a $5.6 million increase in cash operating expense, primarily due to higher payment card interchange and processing fees. 35 Table of contents Liquidity and Capital Resources General 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. Our cash requirements in the future may be financed through additional equity or debt financings. However, the disruption in the capital markets caused by the COVID-19 pandemic could make any new financing more challenging, and there can be no assurance that such financings will be obtained on commercially reasonable terms, or at all. We believe our liquidity will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. We are compliant with our debt covenants and do not anticipate an inability to service our debt. As the challenges posed by COVID-19 on our business and the economy as a whole evolve rapidly, we will continue to evaluate our liquidity and financial position in light of future developments, particularly those relating to COVID-19. Available Liquidity The following table sets forth our available liquidity for the dates indicated (in thousands): June 30, 2021 December 31, 2020 Cash and cash equivalents $ 146,213 $ 165,374 Availability under revolving credit facility 473,500 443,500 Total liquidity $ 619,713 $ 608,874 The increase in total liquidity is primarily attributable to positive operating cash flows of $108.2 million, partially offset by $39.4 million of payments related to stock repurchases, $23.7 million of payments to purchase property and equipment and software and distribution rights, $30.0 million of repayments on the Revolving Credit Facility, and $19.5 million of repayments on the Term Loans. The Company and ACI Payments, Inc., a wholly owned subsidiary, maintain a $75.0 million uncommitted overdraft facility with Bank of America, N.A. The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process. As of June 30, 2021, the full $75.0 million was available. Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of June 30, 2021, we had $146.2 million of cash and cash equivalents, of which $49.4 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, 2021, 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 also permanently reinvested for outside book/tax basis difference related to foreign subsidiaries. These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of June 30, 2021. Cash Flows The following table sets forth summarized cash flow data for the periods indicated (in thousands): Six Months Ended June 30, 2021 2020 Net cash provided by (used by): Operating activities $ 108,216 $ 125,529 Investing activities (23,727) (25,672) Financing activities (103,262) (100,150) 36 Table of contents Cash Flows from Operating Activities Net cash flows provided by operating activities during the six months ended June 30, 2021, were $108.2 million as compared to $125.5 million during the same period in 2020. Net cash provided by operating activities primarily consists of net income adjusted to add back depreciation, amortization, and stock-based compensation. Cash flows provided by operating activities were $17.3 million lower for the six months ended June 30, 2021, compared to the same period in 2020, primarily attributable to the timing of working capital. Our current policy is to use our operating cash flow primarily for funding capital expenditures, lease payments, debt repayments, stock repurchases, and acquisitions. Cash Flows from Investing Activities During the first six months of 2021, we used cash of $23.7 million to purchase software, property, and equipment, as compared to $25.7 million during the same period in 2020. Cash Flows from Financing Activities Net cash flows used by financing activities for the six months ended June 30, 2021, were $103.3 million as compared to $100.2 million during the same period in 2020. During the first six months of 2021, we repaid $30.0 million on the Revolving Credit Facility and $19.5 million on the Term Loans. In addition, we used $39.4 million to repurchase common stock and $14.8 million for the repurchase of stock-based compensation awards for tax withholdings. We also received proceeds of $8.7 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended. During the first six months of 2020, we repaid a net $39.0 million on the Revolving Credit Facility and $19.5 million on the Initial Term Loans. In addition, we used $28.9 million to repurchase common stock and $11.1 million for the repurchase of stock-based compensation awards for tax withholdings. We also received proceeds of $3.0 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended. 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 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. Debt As of June 30, 2021, we had $25.0 million and $697.6 million outstanding under our Revolving Credit Facility and Term Loans, respectively, with up to $473.5 million of unused borrowings under the Revolving Credit Facility, as amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement. The interest rate in effect for the Credit Facility as of June 30, 2021, was 2.10%. As of June 30, 2021, we also had $400.0 million outstanding for the 2026 Notes. See Note 3, Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information. Stock Repurchase Program We repurchased 1,000,000 shares for $39.4 million under the program during the six months ended June 30, 2021. Under the program to date, we have 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 approximately $72.7 million. See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information. 37 Table of contents Contractual Obligations and Commercial Commitments For the six months ended June 30, 2021, 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, 2020, other than as noted below. Miami Facility Lease During the six months ended June 30, 2021, the 10-year facility lease for our new headquarters in Miami, Florida commenced. In recognition of the lease an operating lease asset of $12.9 million and operating lease liability of $15.2 million was incurred. These amounts are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheet as of June 30, 2021. Microsoft Azure Agreement During the six months ended June 30, 2021, we entered into a five-year, $45 million Microsoft Azure server and cloud commitment. Critical Accounting Estimates The preparation of the condensed consolidated financial statements requires us to 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 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 that we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following: • Revenue Recognition • Intangible Assets and Goodwill • Business Combinations • Stock-Based Compensation • Accounting for Income Taxes During the six months ended June 30, 2021, there were no significant changes to our critical accounting policies and 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 Form 10-K for our fiscal year ended December 31, 2020, for a more complete discussion of our critical accounting policies and estimates.