What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 136 added, 199 removed, 351 unchanged (49% of the section changed)

6 unchanged sentences

Each region has its own 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 POS terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

Our products and solutions are used globally by banks and 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 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.

1 unchanged sentence

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.

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.

9 unchanged sentences

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.

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 launched in November 2020.

ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as the leaders in real-time 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.

To leverage lower-cost computing technologies, increase time to market, accelerate innovation, and ensure scalability and resiliency, banks and 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.

4 unchanged sentences

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.

Banks and 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.

8 unchanged sentences

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 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.

10 unchanged sentences

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.

On May 9, 2019, we acquired Speedpay for $754.1 million in cash, including working capital adjustments, pursuant to a Stock Purchase Agreement, among the Company, Western Union, and ACI Worldwide Corp., our wholly owned subsidiary.

To fund the acquisition, we amended our existing Credit Agreement, dated February 24, 2017, for an additional $500.0 million senior secured term loan, in addition to drawing $250.0 million on the available Revolving Credit Facility.

See Note 4, Debt , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for terms of the Credit Agreement.

The remaining acquisition consideration was funded with cash on hand.

Backlog is comprised of:

29 unchanged sentences

2021 December 31,

ACI On Demand

$ 3,965 $ 3,868 $ 3,863 $ 3,781 $ 3,855

ACI On Premise

2,074 2,041 1,976 1,933 1,977

Banks $ 2,272 $ 2,310 $ 2,248 $ 2,117 $ 2,167

Merchants 754 788 839 811 808

Billers 3,084 3,112 3,094 3,016 3,064

$ 6,110 $ 6,210 $ 6,181 $ 5,944 $ 6,039

17 unchanged sentences

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue $ Change

vs 2020 % Change

30 unchanged sentences

Total revenue for the year ended December 31, 2021, increased $76.3 million, or 6%, as compared to the same period in 2020.

• Speedpay contributed an incremental $123.3 million in total revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• The impact of certain foreign currencies weakening against the U.S.

dollar resulted in a $2.1 million decrease in total revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay revenue and foreign currency, total revenue for the year ended December 31, 2020, decreased $85.2 million, or 7%, as compared to the same period in 2019.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $7.3 million increase in total revenue during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, total revenue for the year ended December 31, 2021, increased $69.0 million, or 5%, as compared to the same period in 2020.

Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue

6 unchanged sentences

SaaS and PaaS revenue increased $5.2 million, or 1%, during the year ended December 31, 2021, as compared to the same period in 2020.

• Speedpay contributed an incremental $123.3 million in SaaS and PaaS revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $3.1 million increase in SaaS and PaaS revenue during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of the incremental revenue from Speedpay and foreign currency, SaaS and PaaS revenue for the year ended December 31, 2020, decreased $32.4 million, or 5%, as compared to the same period in 2019.

• The decrease was primarily due to declines in transaction volumes within our Biller customer base as a result of the economic impact of COVID-19.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the year ended December 31, 2021, increased $2.1 million, as compared to the same period in 2020.

License Revenue

8 unchanged sentences

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 $41.4 million, or 14%, during the year ended December 31, 2020, as compared to the same period in 2019.

• The impact of foreign currencies was not significant for license revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• The decrease in license revenue was primarily driven by the timing and relative size of license and capacity events during the year ended December 31, 2020, as compared to the same period in 2019.

License revenue increased $73.0 million, or 30%, during the year ended December 31, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies weakening against the U.S.

dollar resulted in a $0.8 million decrease in license revenue during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, license revenue for the year ended December 31, 2021, increased $73.8 million, as compared to the same period in 2020.

• The increase in license revenue was primarily driven by renewal timing and relative size of license and capacity events during the year ended December 31, 2021, as compared to the same period in 2020.

Maintenance Revenue

1 unchanged sentence

Maintenance revenue decreased $1.2 million, or 1%, during the year ended December 31, 2021, as compared to the same period in 2020.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $1.8 million decrease in maintenance revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of foreign currency, maintenance revenue for the year ended December 31, 2020, remained flat as compared to the same period in 2019.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $3.9 million increase in maintenance revenue during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, maintenance revenue for the year ended December 31, 2021, decreased $5.1 million, or 2%, as compared to the same period in 2020.

Services Revenue

4 unchanged sentences

Services revenue decreased $0.7 million, or 1%, during the year ended December 31, 2021, as compared to the same period in 2020.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $0.7 million decrease in services revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.1 million increase in services revenue during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, services revenue for the year ended December 31, 2021, decreased $1.8 million, or 3%, as compared to the same period in 2020.

• The decrease was primarily driven by the timing and magnitude of project-related work during the year ended December 31, 2020, as compared to the same period in 2019.

Operating Expenses

Total operating expenses for the year ended December 31, 2021, increased $11.1 million, or 1%, as compared to the same period in 2020.

• Speedpay contributed an incremental $105.5 million to total operating expenses during the year ended December 31, 2020, as compared to the same period in 2019.

• Total operating expenses for the year ended December 31, 2020, included $44.6 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period and ongoing integration of the acquisition of Speedpay.

Total operating expenses for the year ended December 31, 2019, included $24.9 million of significant transaction-related expenses associated with the acquisition of Speedpay.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $5.5 million decrease in total operating expenses for the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay operating expenses, significant transaction-related expenses, and foreign currency, total operating expenses for the year ended December 31, 2020, decreased $104.7 million, or 9%, as compared to the same period in 2019.

• Total operating expenses for the year ended December 31, 2021, included $13.4 million of expense related to significant transactions and cost reduction strategies implemented during the period.

Total operating expenses for the year ended December 31, 2020, included $44.6 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period and integration of the Speedpay acquisition.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $9.4 million increase in total operating expenses for the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the year ended December 31, 2021, increased $32.9 million, or 3%, as compared to the same period in 2020.

Cost of Revenue

5 unchanged sentences

Cost of revenue increased $16.4 million, or 3%, during the year ended December 31, 2021, as compared to the same period in 2020.

• Speedpay contributed an incremental $84.9 million to cost of revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• Cost of revenue for the year ended December 31, 2020, included $4.3 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $2.2 million decrease in cost of revenue during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay expense, significant transaction-related expenses, and foreign currency, cost of revenue decreased $81.9 million, or 13%, for the year ended December 31, 2020, as compared to the same period in 2019.

• The decrease was primarily due to lower payment card interchange and biller related expenses, personnel and related expenses, travel and entertainment expenses, and amortization of acquired software of $57.2 million, $18.6 million, $3.7 million, and $2.4 million, respectively.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $3.8 million increase in cost of revenue during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue increased $16.9 million, or 3%, for the year ended December 31, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher payment card interchange and processing fees of $18.3 million, partially offset by lower personnel and related expenses of $3.8 million.

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 $7.3 million, or 5%, during the year ended December 31, 2020, as compared to the same period in 2019.

• Speedpay contributed an incremental $4.1 million to R&D expense during the year ended December 31, 2020, as compared to the same period in 2019.

• R&D expense for the year ended December 31, 2020, included $1.0 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

R&D expense for the year ended December 31, 2019, included $0.4 million of significant transaction-related expenses associated with the acquisition of Speedpay.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $1.5 million decrease in R&D expense during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay expense, significant transaction-related expenses, and foreign currency, R&D expense decreased $10.4 million, or 7%, during the year ended December 31, 2020, as compared to the same period in 2019, primarily due to lower personnel and related expenses.

R&D expense increased $5.0 million, or 4%, during the year ended December 31, 2021, as compared to the same period in 2020.

• R&D expense for the years ended December 31, 2021 and 2020, included $2.4 million and $1.0 million, respectively, of expenses related to significant transactions and cost reduction strategies implemented during the period.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.6 million increase in R&D expense during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense increased $2.0 million, or 1%, during the year ended December 31, 2021, as compared to the same period in 2020.

Selling and Marketing

3 unchanged sentences

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 decreased $20.1 million, or 16%, during the year ended December 31, 2020, as compared to the same period in 2019.

• Speedpay contributed an incremental $3.9 million to selling and marketing expense during the year ended December 31, 2020, as compared to same period in 2019.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $1.0 million decrease in selling and marketing expense during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay expense and foreign currency, selling and marketing expense decreased $23.0 million, or 19%, for the year ended December 31, 2020, as compared to the same period in 2019.

• The decrease was primarily due to lower advertising costs, personnel and related expenses, travel and entertainment, and commissions of $8.7 million, $6.6 million, $3.9 million, and $3.8 million, respectively.

Selling and marketing expense increased $23.0 million, or 22%, during the year ended December 31, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.6 million increase in selling and marketing expense during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $21.4 million, or 20%, for the year ended December 31, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher personnel and related expenses and advertising expenses of $17.0 million and $4.4 million, respectively.

General and Administrative

General and administrative expenses are primarily human resource costs including executive salaries and benefits, personnel administration costs, and the costs of corporate support functions such as legal, administrative, human resources, and finance and accounting.

General and administrative expense increased $17.2 million, or 13%, during the year ended December 31, 2020, as compared to the same period in 2019.

• Speedpay contributed an incremental $0.7 million to general and administrative expense during the year ended December 31, 2020, as compared to the same period in 2019.

• General and administrative expenses for the year ended December 31, 2020, included $39.3 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

General and administrative expense for the year ended December 31, 2019, included $24.4 million of significant transaction-related expenses associated with the acquisition of Speedpay.

• The impact of foreign currencies weakening against the U.S.

dollar resulted in a $0.7 million decrease in general and administrative expenses during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay expense, significant transaction-related expenses, and foreign currency, general and administrative expense increased $2.2 million, or 2%, for the year ended December 31, 2020, as compared to the same period in 2019.

• The increase was primarily due to higher professional and other fees of $5.6 million, partially offset by lower travel and entertainment expenses and personnel and related expenses of $2.0 million and $1.4 million, respectively.

General and administrative expense decreased $28.7 million, or 19%, during the year ended December 31, 2021, as compared to the same period in 2020.

• General and administrative expenses for the year ended December 31, 2021 and 2020, included $11.0 million and $39.3 million, respectively, of expenses related to significant transaction and cost reduction strategies implemented during the period.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.4 million increase in general and administrative expense during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $1.8 million, or 2%, for the year ended December 31, 2021, as compared to the same period in 2020.

Depreciation and Amortization

Depreciation and amortization increased $20.3 million, or 18%, during the year ended December 31, 2020, as compared to the same period in 2019.

• Speedpay contributed an incremental $11.9 million of depreciation and amortization expense during the year ended December 31, 2020, as compared to the same period in 2019.

• The impact of foreign currencies was not significant for depreciation and amortization expense during the year ended December 31, 2020, as compared to the same period in 2019.

• Adjusted for the impact of incremental Speedpay expense, depreciation and amortization increased $8.4 million, or 8%, for the year ended December 31, 2020, as compared to the same period in 2019, primarily due to additional amortization of internal-use software in our On Demand business.

Depreciation and amortization decreased $4.6 million, or 3%, during the year ended December 31, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.0 million increase in depreciation and amortization expense during the year ended December 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, depreciation and amortization decreased $5.6 million, or 4%, for the year ended December 31, 2021, as compared to the same period in 2020.

Other Income and Expense

Interest expense for the year ended December 31, 2020, decreased $7.4 million, or 12%, as compared to the same period in 2019, primarily due to lower interest rates, partially offset by higher comparative debt balances.

Interest expense for the year ended December 31, 2021, decreased $11.6 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.

1 unchanged sentence

Other, net is primarily comprised of foreign currency transaction gains and losses.

Other, net was $1.1 million of expense for the year ended December 31, 2020, and $0.5 million of income for the year ended December 31, 2019.

Other, net was $1.3 million and $1.1 million of expense for the years ended December 31, 2021 and 2020.

The effective tax rates for the years ended December 31, 2021 and 2020, were approximately 27% and 26%, respectively.

Our effective tax rates vary from our federal statutory rates due to operating in multiple foreign countries where we apply foreign tax laws and rates which differ from those we apply to the income generated from our domestic operations.

Of the foreign jurisdictions in which we operate, our December 31, 2020, effective rate was most impacted by our operations in Ireland, Mexico, Singapore, and the United Kingdom, and our December 31, 2019, effective tax rate was most impacted by our operations in Ireland, Luxembourg, and the United Kingdom.

Of the foreign jurisdictions in which we operate, our December 31, 2021, effective rate was most impacted by our operations in Colombia, Ireland, and Singapore, and our December 31, 2020, effective tax rate was most impacted by our operations in Ireland, Mexico, Singapore, and the United Kingdom.

Refer to Note 11, Income Taxes , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.

2 unchanged sentences

Segment Results

We report financial performance based on our segments, ACI On Demand and ACI On Premise, and analyze Segment Adjusted EBITDA as a measure of segment profitability.

Our Chief Executive Officer is also our chief operating decision maker ("CODM").

The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from corporate operations.

ACI On Demand serves the needs of banks, merchants, and billers who use payments to facilitate their core business.

These on-demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-tenant environment for SaaS offerings, or in a multi-tenant environment for PaaS offerings.

ACI On Premise serves customers who manage their software on site or through a third-party public cloud environment.

These on-premise customers use the Company’s software to develop sophisticated solutions, which are often part of a larger system located and managed at the customer specified site.

These customers require a level of control and flexibility that ACI On Premise solutions can offer, and they have the resources and expertise to take a lead role in managing these solutions.

Revenue is attributed to the reportable segments based upon the product sold and mechanism for delivery to the customer.

Expenses are attributed to the reportable segments in one of three methods, (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual products, or (3) costs that are allocated.

Allocated costs are generally marketing and sales related activities as well as information technology and facilities related expense for which multiple segments benefit.

We also allocate certain depreciation costs to the segments.

In January 2021, we made a change in organizational structure to align with our strategic direction.

As a result, 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 with 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.

No operating segments have been aggregated to form the reportable segments.

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.

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.

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.

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 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 stock-based compensation, and net other income (expense).

Corporate and unallocated expenses consist of the corporate overhead costs that are not allocated to reportable segments.

These overhead costs relate to human resources, finance, legal, accounting, merger and acquisition activity, and other costs that are not considered when management evaluates segment performance.

Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to the corporate overhead costs that are not allocated to reportable segments.

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):

Years Ended December 31,

ACI On Demand

$ 769,180 $ 678,960

ACI On Premise

525,142 579,334

Banks $ 625,125 $ 558,498

Merchants 152,988 149,342

Billers 592,485 586,482

Total revenue

1 unchanged sentence

Segment Adjusted EBITDA

ACI On Demand

$ 149,610 $ 66,501

ACI On Premise

290,310 321,305

Banks $ 372,949 $ 331,445

Merchants 54,266 53,383

Billers 129,048 135,144

Depreciation and amortization

6 unchanged sentences

(33,538) (45,002)

Income before income taxes $ 98,626 $ 72,210

Depreciation and amortization

ACI On Demand

(1,294) (1,116)

ACI On Premise

13,207 11,992

86,515 76,182

Total depreciation and amortization

$ 140,316 $ 122,569

Stock-based compensation expense

ACI On Demand

$ 8,852 $ 7,995

ACI On Premise

Corporate and other

11,878 21,117

Total stock-based compensation expense

$ 29,602 $ 36,763

ACI On Demand Segment Adjusted EBITDA increased $83.1 million for the year ended December 31, 2020, compared to the same period in 2019, of which $30.0 million was due to the acquisition of Speedpay.

Excluding the impact of the acquisition of Speedpay, ACI On Demand Segment Adjusted EBITDA increased $53.1 million, primarily due to a $86.2 million decrease in cash operating expense, partially offset by a $33.1 million decrease in revenue.

ACI On Premise Segment Adjusted EBITDA decreased $31.0 million for the year ended December 31, 2020, compared to the same period in 2019, primarily due to a $54.2 million decrease in revenue, partially offset by $23.2 million decrease in cash operating expense.

Income before income taxes $ 175,065 $ 98,626

Banks Segment Adjusted EBITDA increased $41.5 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to a $66.6 million increase in revenue, partially offset by a $25.1 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $0.9 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to a $3.6 million increase in revenue, partially offset by a $2.7 million increase in cash operating expense.

Billers Segment Adjusted EBITDA decreased $6.1 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to a $12.1 million increase in cash operating expense, partially offset by a $6.0 million increase in revenue.

Prior Year Results

5 unchanged sentences

and (iii) to fund acquisitions, capital expenditures, and lease payments.

We believe these needs will be satisfied using cash flow generated by our operations, cash and cash equivalents, and available borrowings under our revolving credit facility.

We believe these needs will be satisfied using cash flow generated by our operations, cash and cash equivalents, and available borrowings under our revolving credit facility over the next 12 months and beyond.

Our cash requirements in the future may be financed through additional equity or debt financings.

2 unchanged sentences

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 .

As the challenges posed by COVID-19 on our business and the economy as a whole evolve, we continue to evaluate our liquidity and financial position in light of further developments, particularly those relating to COVID-19 .

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.

As of December 31, 2021, we had $122.1 million of cash and cash equivalents, of which $59.7 million was held by our foreign subsidiaries.

If these funds were needed for our operations in the United States, we may potentially be required to accrue and pay foreign and U.S.

state income taxes to repatriate these funds.

As of December 31, 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 differences related to foreign subsidiaries.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of December 31, 2021.

Available Liquidity

11 unchanged sentences

As of December 31, 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 December 31, 2020, we had $165.4 million of cash and cash equivalents, of which $69.9 million was held by our foreign subsidiaries.

If these funds were needed for our operations in the United States, we may potentially be required to accrue and pay foreign and U.S.

state income taxes to repatriate these funds.

As of December 31, 2020, 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 differences related to foreign subsidiaries.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of December 31, 2020.

Stock Repurchase Program

Our board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorizes additional funds for the program.

In December 2021, the board approved the repurchase of the Company's common stock of up to $250.0 million, in place of the remaining purchase amounts previously authorized.

We repurchased 3,000,000 shares for $107.4 million under our stock repurchase program during the year ended December 31, 2021.

Under the program to date, we have repurchased 49,357,495 shares for approximately $719.7 million.

As of December 31, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $216.3 million.

Subsequent to December 31, 2021, the Company has repurchased additional shares under the repurchase program.

Our stock repurchase authorization does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, cash requirements for acquisitions, debt repayment obligations, our stock price, and global economic and market conditions.

Our stock repurchases may be affected from time to time through open market purchases and pursuant to a Rule 10b5-1 plan and they may be accelerated, suspended, delayed or discontinued at any time.

See Note 7, Common Stock and Treasury Stock , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.

The following table sets forth summary cash flow data for the periods indicated (in thousands).

7 unchanged sentences

(256,878) (159,889)

Cash Flow from Operating Activities

Net cash flows provided by operating activities for the year ended December 31, 2020, were $336.3 million as compared to $137.6 million during the same period in 2019.

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 $198.7 million higher for the year ended December 31, 2020, compared to the same period in 2019, due to higher net income and the timing of working capital.

Cash Flows from Operating Activities

The primary source of operating cash flows is cash collections from our customers for purchase and renewal of licensed software products and various services including software and platform as a service, maintenance, and other professional services.

Our primary uses of operating cash flows includes employee expenditures, taxes, interest payments, leased facilities,

Cash flows provided by operating activities were $94.4 million lower for the year ended December 31, 2021, compared to the same period in 2020, due to the timing of working capital.

Our current policy is to use our operating cash flow primarily for funding capital expenditures, lease payments, stock repurchases, and acquisitions.

Cash Flow from Investing Activities

Cash Flows from Investing Activities

The changes in cash flows from investing activities primarily relate to the timing of our purchases and investments in capital and other assets, including strategic acquisitions, that support our growth.

During the year ended December 31, 2021, we used $45.4 million to purchase software, property, and equipment, as compared to $46.6 million during the same period in 2020.

During the year ended December 31, 2019, we paid $753.9 million, net of $0.1 million in cash acquired, to acquire Speedpay.

We also used cash of $18.5 million to invest in a payment technology and services company in India and $7.0 million to acquire the technology assets of RevChip, LLC and TranSend Integrated Technologies Inc in 2019.

Cash Flow from Financing Activities

Net cash flows used by financing activities for the year ended December 31, 2020, were $261.6 million, as compared to net cash flows provided by financing activities of $667.2 million during the same period in 2019.

Cash Flows from Financing Activities

The changes in cash flows from financing activities primarily relate to borrowings and repayments related to our debt instruments and other debt, stock repurchases, and net proceeds related to employee stock programs.

During 2021, we repaid a net $55.0 million on the Revolving Credit Facility and $39.0 million on the Term Loans.

In addition, we used $107.4 million to repurchase common stock and we received proceeds of $12.3 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

We also used $11.6 million for the repurchase of stock-based compensation awards for tax withholdings.

During 2019, we received proceeds of $500.0 million from our Delayed Draw Term Loan and $280.0 million from our Revolving Credit Facility to fund our purchase of Speedpay and stock repurchases, and we repaid $41.0 million on the Revolving Credit Facility and $28.9 million on the Initial Term Loan.

We also used $14.8 million for the repurchase of stock-based compensation awards for tax withholdings and $37.8 million for settlement assets and liabilities due to processing timing.

During 2020, we repaid a net $184.0 million on the Revolving Credit Facility and $39.0 million on the Term Loans.

In addition, we used $28.9 million to repurchase common stock, and we received proceeds of $15.7 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

We also used $4.0 million for the repurchase of stock-based compensation awards for tax withholdings.

We also used $11.6 million for the repurchase of stock-based compensation awards for tax withholdings and received $101.7 million from settlement assets and liabilities due to processing timing.

Prior Year Results

For discussion of 2020 compared to 2019, see Liquidity and Capital Resources in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2020.

On April 5, 2019, we entered into the Second Amended and Restated Credit Agreement (the "Credit Agreement") to amend and restate our existing agreement, dated February 24, 2017.

The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), (b) a five-year $279.0 million senior secured term loan facility (the “Initial Term Loan”) and (c) a five-year $500.0 million senior secured term loan facility (the "Delayed Draw Term Loan", together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility, the “Credit Facility”).

On August 12, 2020, we entered a standby letter of credit agreement (the “Letter of Credit”), under the terms of the Credit Agreement, for $1.5 million.

The Letter of Credit expires on July 31, 2021, with automatic renewal for twelve month periods thereafter.

The Letter of Credit reduces the maximum available borrowings under our Revolving Credit Facility to $498.5 million.

Upon expiration of the Letter of Credit, maximum borrowings will return to $500.0 million.

As of December 31, 2020, we had $55.0 million and $717.1 million outstanding under our Revolving Credit Facility and Term Loans, respectively, with up to $443.5 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.

As of December 31, 2020, and at all times during the year, we were in compliance with our debt covenants.

The interest rate in effect for the Credit Facility was 2.15% as of December 31, 2020.

We also had $400.0 million outstanding of the 2026 Notes as of December 31, 2020.

See Note 4, Debt , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.

Stock Repurchase Program

We repurchased 1,000,000 shares for $28.9 million under our stock repurchase program during the year ended December 31, 2020.

Under the program to date, we have repurchased 46,357,495 shares for approximately $612.3 million.

As of December 31, 2020, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $112.1 million.

See Note 7, Common Stock and Treasury Stock , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.

Contractual Obligations and Commercial Commitments

We lease office space and equipment under operating leases that run through October 2028.

Additionally, we have entered into a Credit Agreement that matures in April 2024 and have issued Senior Notes that mature in August 2026.

Contractual obligations as of December 31, 2020, are as follows (in thousands):

Payments Due by Period

Operating lease obligations $ 59,677 $ 15,116 $ 23,427 $ 9,561 $ 11,573

Term loans 717,110 38,950 120,337 557,823 —

Term loans interest (1) 46,198 15,081 27,160 3,957 —

Revolving credit facility 55,000 — — 55,000 —

Revolving credit facility interest (2) 3,840 1,182 2,363 295 —

Senior notes 400,000 — — — 400,000

Senior notes interest (3) 138,000 23,000 46,000 46,000 23,000

Financed internal-use software (4) 7,847 5,660 2,187 — —

$ 1,427,672 $ 98,989 $ 221,474 $ 672,636 $ 434,573

(1) Based on the Term Loans debt outstanding and interest rate in effect at December 31, 2020, of 2.15%.

(2) Based on Revolving Credit Facility debt outstanding and interest rate in effect at December 31, 2020, of 2.15%.

(3) Based on 2026 Notes issued of $400.0 million with an annual interest rate of 5.750%.

(4) As of December 31, 2020, $7.8 million is outstanding under certain multi-year license agreements for internal-use software, with $5.6 million and $2.2 million included in other current liabilities and other noncurrent liabilities, respectively, in our Consolidated Balance Sheet in Part IV, Item 15 of this Form 10-K as of December 31, 2020.

We are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes under ASC 740, Income Taxes .

The liability for unrecognized tax benefits at December 31, 2020, is $24.3 million.

Off-Balance Sheet Arrangements

Settlement Accounts

We enter into agreements with certain Biller clients to process payment funds on their behalf.

When an ACH or ATM network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account.

This settlement account is a trust account maintained for the benefit of our clients.

A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account.

These “back to back” transactions are designed to settle at the same time, usually overnight, so we receive the funds from the source at the same time it sends the funds to their destination.

However, due to the transactions being with various financial institutions, there may be timing differences that result in float balances.

These funds are maintained in accounts for the benefit of our clients, which are separate from our corporate assets.

As we do not take ownership of the funds, the settlement accounts are not included in our balance sheet.

We are entitled to interest earned on the fund balances.

The collection of interest on these settlement accounts is considered in our determination of fee structures for clients and represents a portion of the payment for services performed by us.

The amount of settlement funds as of December 31, 2020 and 2019, were $246.8 million and $274.0 million, respectively.

We do not have any other obligations that meet the definition of an off-balance sheet arrangement and that have or are reasonably likely to have a material effect on our consolidated financial statements.

Contractual Obligations

Our largest contractual obligations as of December 31, 2021, include the following:

• principal payments related to our Credit Agreement that are included in our consolidated balance sheet and the related periodic interest payments;

• semi-annual interest payments on our 2026 Notes and the ultimate principal payment that is included in our consolidated balance sheet;

• scheduled payments related to liabilities for certain multi-year license agreements for internal-use software that are included in our consolidated balance sheet;

• operating lease obligations that are included in our consolidated balance sheet;

• other contractual commitments associated with agreements that are enforceable and legally binding.

In addition, we have gross unrecognized income tax benefits, including related interest and penalties, recorded on our consolidated balance sheet, the nature of which is uncertain with respect to settlement or release with the relevant tax authorities.

See Note 11, Income Taxes, of our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.

Notes 4, Debt, 12, Leases, and 13, Commitments and Contingencies , of our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K provide additional information regarding our contractual obligations and contingencies.

Critical Accounting Policies and Estimates

21 unchanged sentences

Our SaaS-based and PaaS-based arrangements represent a single promise to provide continuous access to its software solutions and their processing capabilities in the form of a service through one of our data centers.

These arrangements may include fixed

and/or variable consideration.

These arrangements may include fixed and/or variable consideration.

Fixed consideration is recognized over the term of the arrangement and variable consideration, which is a function of transaction volume or another usage-based measure, generally meets the allocation objective and revenue is recognized as the usage occurs.

24 unchanged sentences

In accordance with ASC 350, Intangibles – Goodwill and Other, we assess goodwill for impairment annually during the fourth quarter of our fiscal year using October 1 balances, or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.

We evaluate goodwill at the reporting unit level and have identified our reportable segments, ACI On Demand and ACI On Premise, as our reporting units.

We evaluate goodwill at the reporting unit level and have identified our reportable segments, Banks, Merchants, and Billers, as our reporting units.

Recoverability of goodwill is measured using a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved.

7 unchanged sentences

If the calculated fair value is less than the current carrying value, impairment of the reporting unit may exist.

implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination.

The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination.

If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment.

20 unchanged sentences

Following the approval of the 2020 Plan, the 2016 Incentive Plan was terminated.

Termination of the 2016 Incentive Plan did not affect any equity awards outstanding under the 2016 Incentive Plan.

On March 23, 2016, our board approved the 2016 Incentive Plan.

The 2016 Incentive Plan was intended to meet our objective of balancing stockholder concerns about dilution with the need to provide appropriate incentives to achieve Company performance objectives.

The 2016 Incentive Plan was adopted by the stockholders on June 14, 2016.

Following the adoption of the 2016 Incentive Plan, the 2005 Equity and Performance Incentive Plan, as amended (the “2005 Incentive Plan”) was terminated.

Termination of the 2005 Incentive Plan did not affect any equity awards outstanding under the 2005 Incentive Plan.

In accordance with ASC 718, Compensation – Stock Compensation , stock-based compensation expense for stock option awards is estimated at the grant date based on the award’s fair value, as calculated by the Black-Scholes option-pricing model and is recognized as expense ratably over the requisite service period.

The Black-Scholes option-pricing model requires various highly judgmental assumptions, including volatility and expected option life.

If any assumptions used in the Black-Scholes option-pricing model change significantly, stock-based compensation expense may differ materially for future awards from that recorded for existing awards.

Termination of the 2016 Incentive Plan did not affect any equity awards outstanding under the 2016 Incentive Plan or 2005 Incentive Plan.

Total shareholder return awards (“TSRs”) are performance shares that are earned, if at all, based upon our total shareholder return as compared to a group of peer companies over a three-year performance period.

3 unchanged sentences

Restricted share unit awards (“RSUs”) generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates.

Under each arrangement, RSUs are issued without direct cost to the employee on the vesting

Under each arrangement, RSUs are issued without direct cost to the employee on the vesting date.

We estimate the fair value of RSUs based upon the market price of our stock on the date of grant.

We recognize compensation expense for RSUs on a straight-line basis over the requisite service period.

The assumptions utilized in the Black-Scholes option-pricing and Monte Carlo simulation models, as well as the description of the plans the stock-based awards are granted under are described in further detail in Note 6, Stock-Based Compensation Plans , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.

The assumptions utilized in the Monte Carlo simulation models, as well as the description of the plans the stock-based awards are granted under are described in further detail in Note 6, Stock-Based Compensation Plans , to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.

Accounting for Income Taxes

15 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis