What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 127 added, 215 removed, 458 unchanged (43% of the section changed)

4 unchanged sentences

(unaudited and in thousands, except share and per share amounts)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Current assets

53 unchanged sentences

5,000,000 shares authorized;

no shares issued at September 30, 2021, and December 31, 2020

no shares issued at March 31, 2022, and December 31, 2021

Common stock;

1 unchanged sentence

280,000,000 shares authorized;

140,525,055 shares issued at September 30, 2021, and December 31, 2020

140,525,055 shares issued at March 31, 2022, and December 31, 2021

Additional paid-in capital 685,354 688,313

Retained earnings 1,146,771 1,131,281

Treasury stock, at cost, 22,994,595 and 23,412,870 shares at September 30, 2021, and December 31, 2020, respectively

Treasury stock, at cost, 25,439,428 and 24,795,009 shares at March 31, 2022, and December 31, 2021, respectively

( 506,513 ) ( 475,972 )

7 unchanged sentences

(unaudited and in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Software as a service and platform as a service

24 unchanged sentences

2,250 ( 1,382 )

( 1,088 ) 1,356 ( 1,036 ) ( 6,361 )

Total other income (expense) ( 5,485 ) ( 10,003 )

Income before income taxes 18,517 22,540 20,667 7,219

Income tax expense 4,753 6,674 2,347 1,705

Net income $ 13,764 $ 15,866 $ 18,320 $ 5,514

Income per common share

Income (loss) before income taxes 22,181 ( 6,313 )

Income tax expense (benefit) 6,691 ( 4,368 )

Net income (loss) $ 15,490 $ ( 1,945 )

Income (loss) per common share

$ 0.13 $ ( 0.02 )

9 unchanged sentences

(unaudited and in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Net income $ 13,764 $ 15,866 $ 18,320 $ 5,514

Other comprehensive income (loss):

Foreign currency translation adjustments

( 4,223 ) 1,842 ( 5,873 ) ( 4,909 )

Total other comprehensive income (loss) ( 4,223 ) 1,842 ( 5,873 ) ( 4,909 )

Comprehensive income

$ 9,541 $ 17,708 $ 12,447 $ 605

The accompanying notes are an integral part of the condensed consolidated financial statements.

ACI WORLDWIDE, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands)

Three Months Ended September 30, 2021

Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Accumulated Other

Comprehensive Loss Total

Balance as of June 30, 2021 $ 702 $ 676,399 $ 1,008,046 $ ( 412,492 ) $ ( 94,095 ) $ 1,178,560

Net income — — 13,764 — — 13,764

Three Months Ended March 31,

Net income (loss) $ 15,490 $ ( 1,945 )

Other comprehensive loss:

Stock-based compensation

— 6,367 — — — 6,367

Shares issued and forfeited, net, under stock plans

— 278 — 845 — 1,123

Repurchase of stock-based compensation awards for tax withholdings

— — — ( 37 ) — ( 37 )

Balance as of September 30, 2021 $ 702 $ 683,044 $ 1,021,810 $ ( 411,684 ) $ ( 98,318 ) $ 1,195,554

Three Months Ended September 30, 2020

Common Stock Additional

Paid-in Capital Retained Earnings Treasury Stock Accumulated Other

Comprehensive Loss Total

Balance as of June 30, 2020 $ 702 $ 667,554 $ 920,478 $ ( 399,663 ) $ ( 98,334 ) $ 1,090,737

Net income — — 15,866 — — 15,866

Other comprehensive income — — — — 1,842 1,842

Stock-based compensation

— 8,061 — — — 8,061

Shares issued and forfeited, net, under stock plans

— 326 — 6,038 — 6,364

Repurchase of stock-based compensation awards for tax withholdings

Foreign currency translation adjustments

( 2,100 ) ( 3,116 )

Balance as of September 30, 2020 $ 702 $ 675,941 $ 936,344 $ ( 393,651 ) $ ( 96,492 ) $ 1,122,844

Total other comprehensive loss ( 2,100 ) ( 3,116 )

Comprehensive income (loss) $ 13,390 $ ( 5,061 )

The accompanying notes are an integral part of the condensed consolidated financial statements.

3 unchanged sentences

(unaudited and in thousands, except share amounts)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Common Stock Additional

13 unchanged sentences

— — — ( 5,537 ) — ( 5,537 )

Balance as of September 30, 2021 $ 702 $ 683,044 $ 1,021,810 $ ( 411,684 ) $ ( 98,318 ) $ 1,195,554

Nine Months Ended September 30, 2020

Balance as of March 31, 2022 $ 702 $ 685,354 $ 1,146,771 $ ( 506,513 ) $ ( 101,647 ) $ 1,224,667

Three Months Ended March 31, 2021

Paid-in Capital

4 unchanged sentences

Balance as of December 31, 2020 $ 702 $ 682,431 $ 1,003,490 $ ( 387,581 ) $ ( 92,445 ) $ 1,206,597

Net income — — 5,514 — — 5,514

Net loss — — ( 1,945 ) — — ( 1,945 )

Other comprehensive loss

4 unchanged sentences

— ( 19,116 ) — 22,800 — 3,684

Repurchase of 1,000,000 shares of common stock

— — — ( 28,881 ) — ( 28,881 )

Repurchase of stock-based compensation awards for tax withholdings

— — — ( 14,206 ) — ( 14,206 )

Balance as of September 30, 2020 $ 702 $ 675,941 $ 936,344 $ ( 393,651 ) $ ( 96,492 ) $ 1,122,844

Balance as of March 31, 2021 $ 702 $ 670,018 $ 1,001,545 $ ( 378,987 ) $ ( 95,561 ) $ 1,197,717

The accompanying notes are an integral part of the condensed consolidated financial statements.

3 unchanged sentences

(unaudited and in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income $ 18,320 $ 5,514

Adjustments to reconcile net income to net cash flows from operating activities:

15,838 18,012

Net income (loss) $ 15,490 $ ( 1,945 )

Adjustments to reconcile net income (loss) to net cash flows from operating activities:

26,508 28,167

4 unchanged sentences

Stock-based compensation expense

20,790 22,943

Changes in operating assets and liabilities:

55,953 41,261

Accounts payable

3 unchanged sentences

Deferred revenue

10,339 14,361

Other current and noncurrent assets and liabilities

14 unchanged sentences

Repurchases of common stock

( 39,411 ) ( 28,881 )

Proceeds from revolving credit facility

4 unchanged sentences

Payments on or proceeds from other debt, net ( 4,186 ) ( 3,600 )

Net decrease in settlement assets and liabilities ( 605 ) ( 71,264 )

Net cash flows from financing activities

1 unchanged sentence

Effect of exchange rate fluctuations on cash ( 2,464 ) ( 41 )

Net increase (decrease) in cash and cash equivalents ( 23,892 ) 12,447

Cash and cash equivalents, beginning of period

165,374 121,398

Cash and cash equivalents, end of period

$ 141,482 $ 133,845

Net decrease in cash and cash equivalents ( 8,075 ) ( 52,640 )

Cash and cash equivalents, including settlement deposits, beginning of period 184,142 265,382

Cash and cash equivalents, including settlement deposits, end of period $ 176,067 $ 212,742

Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets

Cash and cash equivalents $ 114,754 $ 184,364

Settlement deposits 61,313 28,378

Total cash and cash equivalents, including settlement deposits $ 176,067 $ 212,742

Supplemental cash flow information

11 unchanged sentences

All intercompany balances and transactions have been eliminated.

The condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods.

The condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods.

The condensed consolidated balance sheet as of December 31, 2021, is derived from the audited financial statements.

The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 24, 2022.

Results for the three and nine months ended September 30, 2021, are not necessarily indicative of results that may be attained in the future.

Results for the three months ended March 31, 2022, are not necessarily indicative of results that may be attained in the future.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

These estimates and assumptions are affected by management’s application of accounting policies, as well as uncertainty in the current economic environment due to COVID-19.

Actual results could differ from those estimates.

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic that began in early 2020.

The COVID-19 pandemic, and the measures imposed by the governments of various countries, states, cities, and other geographic regions to prevent its spread, have negatively impacted global economic and market conditions, including levels of consumer and business spending.

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as vaccination rates vary by geography, new variants spread, and the response to the pandemic and available information continues to be evolving.

The Company has experienced changes in volumes for certain Merchant and Biller customers and has received limited requests for extended payment terms under existing contracts.

Continuing economic disruptions could have a material adverse effect on our business as our customers curtail and reduce capital and overall spending.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted.

The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers.

As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Revision of Prior Period Financial Statements

As of December 31, 2021, the Company revised the previously reported consolidated statements of cash flows to include settlement deposits in total cash and cash equivalents and settlement receivables and settlement liabilities net activity in cash flows from financing activities, both of which were previously included in cash flows from operating activities.

This immaterial revision did not have an effect on its previously reported consolidated balance sheets, statements of operations, statements of comprehensive income, or statements of stockholders' equity.

A summary of the revisions to the previously reported balances are presented in the table below for comparative purposes (in thousands):

Three Months Ended March 31, 2021

As reported Revision adjustment As revised

Cash flows from operating activities:

Other current and noncurrent assets and liabilities $ ( 34,315 ) $ ( 366 ) $ ( 34,681 )

Net cash flows from operating activities 70,123 ( 366 ) 69,757

Cash flows from financing activities:

Net decrease in settlement assets and liabilities $ — $ ( 71,264 ) $ ( 71,264 )

Net cash flows from financing activities ( 38,693 ) ( 71,264 ) ( 109,957 )

Net increase (decrease) in cash and cash equivalents $ 18,990 $ ( 71,630 ) $ ( 52,640 )

Cash and cash equivalents, including settlement deposits, beginning of period 165,374 100,008 265,382

Cash and cash equivalents, including settlement deposits, end of period 184,364 28,378 212,742

Other Current Liabilities

The components of other current liabilities are included in the following table (in thousands):

September 30, 2021 December 31, 2020

Vendor financed licenses $ 9,776 $ 12,901

March 31, 2022 December 31, 2021

Operating lease liabilities $ 12,226 $ 11,518

Royalties payable 4,897 3,959

Vendor financed licenses 9,729 12,521

Accrued interest 3,020 8,776

Royalties payable 2,331 4,102

Other 40,617 42,677

Total other current liabilities $ 67,923 $ 79,594

The Company’s operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities.

During the nine months ended September 30, 2021, the new corporate headquarters operating lease commenced.

In recognition of this lease, an operating lease right of use asset of $ 12.9 million and an operating lease liability of $ 15.2 million was incurred.

These amounts, less amortization and payments to date, are included within operating lease right-of-use assets and other current liabilities and operating lease liabilities in the condensed consolidated balance sheet as of September 30, 2021.

Settlement Assets and Liabilities

13 unchanged sentences

The collection of interest on these settlement accounts is considered in the Company’s determination of its fee structure for clients and represents a portion of the payment for services performed by the Company.

The amount of settlement funds as of September 30, 2021, and December 31, 2020, was $ 196.0 million and $ 246.8 million, respectively.

The amount of settlement funds as of March 31, 2022, and December 31, 2021, was $ 198.1 million and $ 272.8 million, respectively.

The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the fair value hierarchy).

The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities.

The fair value of the Company’s 5.750 % Senior Notes due 2026 (“2026 Notes”) was $ 420.0 million and $ 424.5 million as of September 30, 2021, and December 31, 2020, respectively.

The fair value of the Company’s 5.750 % Senior Notes due 2026 (“2026 Notes”) was $ 411.5 million and $ 419.0 million as of March 31, 2022, and December 31, 2021, respectively.

The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy).

In accordance with the Accounting Standards Codification ("ASC") 350, Intangibles – Goodwill and Other , the Company assesses goodwill for impairment annually during the fourth quarter of its fiscal year using October 1 balances or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.

The Company evaluates goodwill at the reporting unit level and had previously identified ACI On Demand and ACI On Premise, the operating segments at the time, as the reporting units.As of September 30, 2021, the Company's goodwill balance of $ 1.3 billion was allocated to these two reporting units, with $ 554.3 million allocated to ACI On Demand and $ 725.9 million allocated to ACI On Premise.

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

The Company evaluates goodwill at the reporting unit level and has identified its operating segments, Banks, Merchants, and Billers, as the reporting units.

As of March 31, 2022, the Company's goodwill balance of $ 1.3 billion was allocated $ 725.9 million to Banks, $ 137.3 million to Merchants, and $ 417.0 million to Billers.

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

Use of a discounted cash flow model is common practice in impairment testing in the absence of available transactional market evidence to determine the fair value.

The calculated fair value was substantially in excess of the current carrying value for all reporting units based upon the October 1, 2020, annual impairment test.

Given the adverse economic and market conditions caused by the COVID-19 pandemic, the Company considered a variety of qualitative factors to determine if an additional quantitative impairment test was required subsequent to our annual impairment test.

Based on a variety of factors, including the excess of the fair value over the carrying amount in the most recent impairment test, we determined that an additional quantitative impairment test was not required.

As discussed in Note 9, Segment Information , during the first quarter of 2021, the Company made a change in organizational structure to better align with its strategic direction.

This change in the Company’s operating segments will also result in a change in reporting units.

The Company is currently in the process of calculating the allocation of goodwill for the new reporting units, which are expected to coincide with the new operating segments - Banks, Merchants, and Billers, and will be completed prior to year-end.

The calculated fair value was substantially in excess of the current carrying value for all reporting units based upon the October 1, 2021, annual impairment test and there have been no indications of impairment in the subsequent periods.

Equity Method Investment

2 unchanged sentences

The Company records its share of earnings and losses in the investment on a one-quarter lag basis.

Accordingly, the Company recorded an investment of $ 19.0 million and $ 19.3 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of September 30, 2021, and December 31, 2020, respectively.

New Accounting Standards Recently Adopted

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards update ("ASU") 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , as part of its initiative to reduce complexity in accounting standards.

The amendments in this update simplify the accounting for income taxes by removing certain exceptions within ASC 740, Income Taxes , as well as clarify and simplify other aspects of the accounting for income taxes to promote consistency among reporting entities.

ASU 2019-12 was effective for annual and interim periods beginning after December 15, 2020.

The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

Accordingly, the Company recorded an investment of $ 18.9 million and $ 19.3 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of March 31, 2022, and December 31, 2021, respectively.

In accordance with ASC 606, Revenue From Contracts With Customers , revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.

4 unchanged sentences

Total receivables, net is comprised of the following (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Billed receivables $ 152,027 $ 162,479

5 unchanged sentences

Total receivables, net $ 587,509 $ 596,569

No customer accounted for more than 10% of the Company’s consolidated receivables balance as of September 30, 2021, or December 31, 2020.

One customer accounted for 13.8 % of the Company's consolidated receivables balance as of March 31, 2022 and December 31, 2021.

Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and PaaS services in advance of recording the related revenue.

4 unchanged sentences

Foreign currency translation ( 133 )

Balance, September 30, 2021

Balance, March 31, 2022

Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

2 unchanged sentences

• SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient or meets the allocation objective.

Revenue allocated to remaining performance obligations was $ 871.2 million as of September 30, 2021, of which the Company expects to recognize approximately 55 % over the next 12 months and the remainder thereafter.

During the three and nine months ended September 30, 2021 and 2020, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant.

As of September 30, 2021, the Company had $ 687.9 million and $ 400.0 million outstanding under its Term Loans and Senior Notes, respectively, with up to $ 498.5 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $ 1.5 million of unused borrowings under the Letter of Credit agreement.

Revenue allocated to remaining performance obligations was $ 788.8 million as of March 31, 2022, of which the Company expects to recognize approximately 45 % over the next 12 months and the remainder thereafter.

During the three months ended March 31, 2022 and 2021, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant.

As of March 31, 2022, the Company had $ 30.0 million, $ 668.4 million, and $ 400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $ 468.5 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $ 1.5 million of unused borrowings under the Letter of Credit agreement.

The amount of unused borrowings actually available varies in accordance with the terms of the agreement.

11 unchanged sentences

Interest is due and payable monthly.

The interest rate in effect for the Credit Facility as of September 30, 2021, was 2.08 %.

The interest rate in effect for the Credit Facility as of March 31, 2022, was 2.20 %.

The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees.

Expected Discontinuation of LIBOR

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced it will no longer compel banks to submit rates for the calculation of LIBOR after 2021.

The administrator of LIBOR announced it would cease publication of the U.S.

dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023.

The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the first publication of SOFR rates was released in April 2018.

The Company is evaluating the potential impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including SOFR.

The Company's Credit Agreement is currently indexed to LIBOR and the maturity date of the Credit Agreement extends beyond 2021.

The Company's Credit Agreement is currently indexed to U.S dollar LIBOR and the maturity date of the Credit Agreement extends beyond June 30, 2023.

The Credit Agreement contemplates the discontinuation of LIBOR and provides options for the Company in such an event.

3 unchanged sentences

The 2026 Notes will mature on August 15, 2026.

Maturities on debt outstanding as of September 30, 2021, are as follows (in thousands):

Maturities on debt outstanding as of March 31, 2022, are as follows (in thousands):

Fiscal Year Ending December 31,

Remainder of 2022 $ 40,694

Thereafter 400,000

Total $ 1,098,423

As of September 30, 2021, and at all times during the period, the Company was in compliance with its financial debt covenants.

As of March 31, 2022, and at all times during the period, the Company was in compliance with its financial debt covenants.

Total debt is comprised of the following (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Term loans $ 668,423 $ 678,160

13 unchanged sentences

Amounts outstanding on the overdraft facility are included in other current liabilities in the condensed consolidated balance sheet.

As of September 30, 2021, there was $ 75.0 million available and no amount outstanding on the overdraft facility.

As of March 31, 2022, there was $ 75.0 million available and no amount outstanding on the overdraft facility.

As of December 31, 2021, there was no amount outstanding on the overdraft facility.

1 unchanged sentence

Upon execution, these arrangements have been treated as a non-cash investing and financing activity for purposes of the condensed consolidated statements of cash flows.

As of September 30, 2021, $ 5.1 million was outstanding on these agreements, of which $ 2.9 million and $ 2.2 million are included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet.

As of December 31, 2020, $ 7.8 million was outstanding on these agreements, of which $ 5.6 million and $ 2.2 million are included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet.

As of March 31, 2022, $ 2.3 million was outstanding on these agreements, all of which is included in other current liabilities in the condensed consolidated balance sheet.

As of December 31, 2021, $ 2.9 million was outstanding on these agreements, all of which is included in other current liabilities in the condensed consolidated balance sheet.

Software and Other Intangible Assets

The carrying amount and accumulated amortization of the Company's software assets subject to amortization at each balance sheet date are as follows (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance

Software for resale $ 129,771 $ ( 127,842 ) $ 1,929 $ 130,261 $ ( 123,418 ) $ 6,843

Software for internal use $ 443,487 $ ( 296,535 ) $ 146,952 $ 440,242 $ ( 283,109 ) $ 157,133

Software for resale 126,934 ( 126,934 ) — 127,904 ( 127,255 ) 649

Total software $ 570,421 $ ( 423,469 ) $ 146,952 $ 568,146 $ ( 410,364 ) $ 157,782

Amortization of software for resale is computed using the greater of (a) the ratio of current gross revenues to the total of current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining estimated useful life of generally five to ten years .

Software for resale amortization expense recorded during the three months ended September 30, 2021 and 2020, totaled $ 1.5 million and $ 2.1 million, respectively.

Software for resale amortization expense recorded during the nine months ended September 30, 2021 and 2020, totaled $ 4.9 million and $ 6.1 million, respectively.

These software amortization expense amounts are reflected in cost of revenue in the condensed consolidated statements of operations.

Amortization of software for internal use is computed using the straight-line method over an estimated useful life of generally three to eight years .

Software for internal use amortization expense recorded during the three months ended September 30, 2021 and 2020, totaled $ 17.5 million and $ 17.9 million, respectively.

Software for internal use amortization expense recorded during the nine months ended September 30, 2021 and 2020, totaled $ 51.8 million and $ 53.1 million, respectively.

Software for internal use amortization expense recorded during the three months ended March 31, 2022 and 2021, totaled $ 16.7 million and $ 16.9 million, respectively.

These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations.

Software for resale amortization expense recorded during the three months ended March 31, 2022 and 2021, totaled $ 0.7 million and $ 2.0 million, respectively.

These software amortization expense amounts are reflected in cost of revenue in the condensed consolidated statements of operations.

The carrying amount and accumulated amortization of the Company’s other intangible assets subject to amortization at each balance sheet date are as follows (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance

2 unchanged sentences

Total other intangible assets $ 530,965 $ ( 257,438 ) $ 273,527 $ 531,801 $ ( 248,797 ) $ 283,004

Other intangible assets amortization expense recorded during both the three months ended September 30, 2021 and 2020, totaled $ 9.3 million.

Other intangible assets amortization expense recorded during both the nine months ended September 30, 2021 and 2020, totaled $ 27.8 million.

Based on capitalized intangible assets as of September 30, 2021, estimated amortization expense amounts in future fiscal years are as follows (in thousands):

Other intangible assets amortization expense recorded during both the three months ended March 31, 2022 and 2021, totaled $ 9.2 million and $ 9.3 million, respectively.

Based on capitalized intangible assets as of March 31, 2022, estimated amortization expense amounts in future fiscal years are as follows (in thousands):

Fiscal Year Ending December 31, Software Amortization Other Intangible Assets Amortization

8 unchanged sentences

Employee Stock Purchase Plan

Shares issued under the 2017 Employee Stock Purchase Plan during the nine months ended September 30, 2021 and 2020, totaled 86,877 and 114,709 , respectively.

Shares issued under the 2017 Employee Stock Purchase Plan during the three months ended March 31, 2022 and 2021, totaled 31,406 and 27,117 , respectively.

Stock Options

7 unchanged sentences

Exercised ( 57,083 ) 17.91

Outstanding as of September 30, 2021 1,805,835 $ 17.63 3.27 $ 23,662,370

Exercisable as of September 30, 2021 1,805,835 $ 17.63 3.27 $ 23,662,370

The total intrinsic value of stock options exercised during the nine months ended September 30, 2021 and 2020, was $ 7.8 million and $ 14.3 million, respectively.

There were no stock options granted during the nine months ended September 30, 2021 or 2020.

Long-term Incentive Program Performance Share Awards

During the nine months ended September 30, 2021, the Company modified the performance target for the remaining outstanding long-term incentive program performance shares ("LTIP performance shares") in consideration of the impact of the COVID-19 pandemic, resulting in additional stock-based compensation expense of approximately $ 0.4 million.

During the nine months ended September 30, 2021, a total of 10,457 LTIP performance shares vested.

The Company withheld 4,527 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

Outstanding as of March 31, 2022 1,583,236 $ 18.44 3.12 $ 20,657,176

Exercisable as of March 31, 2022 1,583,236 $ 18.44 3.12 $ 20,657,176

The total intrinsic value of stock options exercised during the three months ended March 31, 2022 and 2021, was $ 0.9 million and $ 3.1 million, respectively.

There were no stock options granted during the three months ended March 31, 2022 or 2021.

Total Shareholder Return Awards

7 unchanged sentences

Change in payout rate ( 114,355 ) 45.92

Nonvested as of September 30, 2021 1,190,070 $ 40.10

During the nine months ended September 30, 2021, a total of 782,588 TSRs awards granted in fiscal 2018 vested and achieved a payout rate of 200 % based on the Company's total shareholder return as compared to a group of peer companies over a three-year performance period.

Nonvested as of March 31, 2022 1,341,062 $ 39.79

During the three months ended March 31, 2022, a total of 212,210 TSRs awards granted in fiscal 2019 vested and achieved a payout rate of 65 % based on the Company's total shareholder return as compared to a group of peer companies over a three-

year performance period.

The Company withheld 47,612 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

The fair value of TSRs granted during the nine months ended September 30, 2021 and 2020, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, Compensation - Stock Compensation , using the following weighted average assumptions:

Nine Months Ended September 30,

The fair value of TSRs granted during the three months ended March 31, 2022 and 2021, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, Compensation - Stock Compensation , using the following weighted average assumptions:

Three Months Ended March 31,

Expected life (years) 3.1 2.8

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Forfeited ( 9,364 ) 33.38

Nonvested as of September 30, 2021 941,060 $ 33.69

During the nine months ended September 30, 2021, a total of 522,608 RSUs vested.

Nonvested as of March 31, 2022 1,337,225 $ 33.00

During the three months ended March 31, 2022, a total of 356,079 RSUs vested.

The Company withheld 122,337 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

As of September 30, 2021, there were unrecognized compensation costs of $ 23.5 million and $ 21.3 million related to nonvested RSUs and TSRs, respectively, which the Company expects to recognize over weighted average periods of 1.9 years and 2.0 years, respectively.

The Company recorded stock-based compensation expense recognized under ASC 718 for the three months ended September 30, 2021 and 2020, of $ 6.4 million and $ 8.1 million, respectively, with corresponding tax benefits of $ 0.9 million and $ 1.4 million, respectively.

The Company recorded stock-based compensation expense recognized under ASC 718 for the nine months ended September 30, 2021 and 2020, of $ 20.8 million and $ 22.9 million, respectively, with corresponding tax benefits of $ 3.1 million and $ 4.2 million, respectively.

As of March 31, 2022, there were unrecognized compensation costs of $ 39.6 million and $ 36.1 million related to nonvested RSUs and TSRs, respectively, which the Company expects to recognize over weighted average periods of 2.4 years.

The Company recorded stock-based compensation expense recognized under ASC 718 for the three months ended March 31, 2022 and 2021, of $ 8.0 million and $ 6.7 million, respectively, with corresponding tax benefits of $ 1.1 million and $ 1.0 million, respectively.

Common Stock and Treasury Stock

In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program.

In February 2018, the board approved the repurchase of the Company's common stock of up to $ 200.0 million, in place of the remaining purchase amounts previously authorized.

The Company repurchased 1,000,000 shares for $ 39.4 million during the nine months ended September 30, 2021.

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

The Company repurchased 1,131,248 shares for $ 37.9 million during the three months ended March 31, 2022.

Under the program to date, the Company has repurchased 50,488,743 shares for approximately $ 757.6 million.

As of September 30, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was $ 72.7 million.

Earnings Per Share

Basic earnings per share is computed in accordance with ASC 260, Earnings Per Share , based on weighted average outstanding common shares.

Diluted earnings per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been achieved.

The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings per share (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

As of March 31, 2022, the maximum remaining amount authorized for purchase under the stock repurchase program was $ 178.4 million.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed in accordance with ASC 260, Earnings Per Share , based on weighted average outstanding common shares.

Diluted earnings (loss) per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been achieved.

The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings (loss) per share (in thousands):

Three Months Ended March 31,

Weighted average shares outstanding:

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Diluted weighted average shares outstanding 116,098 117,491

The diluted earnings per share computation excludes 1.6 million and 1.5 million options to purchase shares, RSUs, and contingently issuable shares during the three months ended September 30, 2021 and 2020, respectively, as their effect would be anti-dilutive.

The diluted earnings per share computation excludes 1.5 million and 1.7 million options to purchase shares, RSUs, and contingently issuable shares during the nine months ended September 30, 2021 and 2020, respectively, as their effect would be anti-dilutive.

Common stock outstanding as of September 30, 2021, and December 31, 2020, was 117,530,460 and 117,112,185 , respectively.

The diluted earnings (loss) per share computation excludes 1.8 million and 4.5 million options to purchase shares, RSUs, and contingently issuable shares during the three months ended March 31, 2022 and 2021, respectively, as their effect would be anti-dilutive.

Common stock outstanding as of March 31, 2022, and December 31, 2021, was 115,085,627 and 115,730,046 , respectively.

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

Other, net was $ 1.1 million of expense and $ 1.4 million of income for the three months ended September 30, 2021 and 2020, respectively.

Other, net was $ 1.0 million and $ 6.4 million of expense for the nine months ended September 30, 2021 and 2020, respectively.

Other, net was $ 2.3 million of income and $ 1.4 million of expense for the three months ended March 31, 2022 and 2021, respectively .

Segment Information

In January 2021, the Company made a change in organizational structure to align with its strategic direction.

As a result of this change, the Company reassessed its segment reporting structure due to changes in how the Company's chief operating decision maker ("CODM") assesses the Company's performance and allocates resources.

Beginning in the first quarter of 2021, the Company reports financial performance based on its new operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as a measure of segment profitability.

The Company’s Chief Executive Officer is also the CODM.

The Company reports financial performance based on its operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as a measure of segment profitability.

The Company’s Chief Executive Officer is also the 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.

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The following is selected financial data for the Company’s reportable segments for the periods indicated (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Banks $ 132,198 $ 95,917

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Other, net 2,250 ( 1,382 )

Income before income taxes $ 18,517 $ 22,540 $ 20,667 $ 7,219

Income (loss) before income taxes $ 22,181 $ ( 6,313 )

Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information.

The following is revenue by primary solution category for the Company’s reportable segments for the periods indicated (in thousands):

Three Months Ended September 30, 2021

Banks Merchants Billers Total

Primary Solution Categories

Bill Payments $ — $ — $ 146,181 $ 146,181

Digital Business Banking 16,527 — — 16,527

Merchant Payments — 38,989 — 38,989

Fraud Management 6,882 — — 6,882

Real-Time Payments 27,638 — — 27,638

Issuing and Acquiring 80,697 — — 80,697

Total $ 131,744 $ 38,989 $ 146,181 $ 316,914

Three Months Ended September 30, 2020

Banks Merchants Billers Total

Primary Solution Categories

Bill Payments $ — $ — $ 149,464 $ 149,464

Digital Business Banking 14,443 — — 14,443

Merchant Payments — 40,761 — 40,761

Fraud Management 11,513 — — 11,513

Real-Time Payments 12,998 — — 12,998

Issuing and Acquiring 86,704 — — 86,704

Total $ 125,658 $ 40,761 $ 149,464 $ 315,883

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Banks Merchants Billers Total

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Total $ 132,198 $ 41,002 $ 149,880 $ 323,080

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Banks Merchants Billers Total

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Total $ 95,917 $ 38,670 $ 150,599 $ 285,186

The following is revenue by the Company's reportable segments for the periods indicated (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Software as a service and platform as a service $ 13,952 $ 14,278

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Software as a service and platform as a service $ 149,843 $ 150,425

License — — 94 94

Maintenance 37 80

Services — — — —

Total $ 149,880 $ 150,599

The following is the Company's revenue by geographic location for the periods indicated (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

United States $ 199,315 $ 191,977

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The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Long-lived Assets

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Total $ 2,149,475 $ 2,170,529

No single customer accounted for more than 10% of the Company’s consolidated revenues during the three and nine months ended September 30, 2021 and 2020.

No other country outside the United States accounted for more than 10% of the Company's consolidated revenues during the three and nine months ended September 30, 2021 and 2020.

For the three and nine months ended September 30, 2021, the Company's effective tax rate was 26 % and 11 %, respectively.

The Company reported tax expense on pretax income for both the three and nine months ended September 30, 2021, with foreign entities recognizing earnings of $ 18.1 million and $ 27.7 million, respectively.

The effective tax rate for the three months ended September 30, 2021, was negatively impacted by excess tax expense on equity-based compensation.

The effective tax rate for the nine months ended September 30, 2021, was positively impacted by excess tax benefits on equity-based compensation.

For the three and nine months ended September 30, 2020, the Company's effective tax rate was 30 % and 24 %, respectively.

The Company reported tax expense on pretax income for both the three and nine months ended September 30, 2020, with foreign entities recognizing earnings of $ 23.4 million and losses of $ 19.7 million, respectively.

The effective tax rate for the three and nine months ended September 30, 2020, was negatively impacted by a change in tax rates in certain countries.

No single customer accounted for more than 10% of the Company’s consolidated revenues during the three months ended March 31, 2022 and 2021.

No other country outside the United States accounted for more than 10% of the Company's consolidated revenues during the three months ended March 31, 2022 and 2021.

For the three months ended March 31, 2022, the Company's effective tax rate was 30 %.

The Company’s foreign entities reported profits of $ 30.9 million for the three months ended March 31, 2022.

For the three months ended March 31, 2021, the Company's effective tax rate was 69 %.

The Company reported a tax benefit on overall pretax loss, with foreign entities reporting losses of $ 0.6 million.

The effective tax rate for the three months ended March 31, 2021, was positively impacted by excess tax benefits on stock-based compensation.

The Company’s effective tax rate could fluctuate on a quarterly basis due to the occurrence of significant and unusual or infrequent items, such as vesting of stock-based compensation or foreign currency gains and losses.

The Company’s effective tax rate could also fluctuate due to changes in the valuation of its deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.

In addition, the Company is occasionally subject to examination of its income tax returns by tax authorities in the jurisdictions in which it operates.

In addition, the Company is occasionally subject to examination of its income tax returns by tax authorities in the jurisdictions it operates.

The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.

As of September 30, 2021, and December 31, 2020, the amount of unrecognized tax benefits for uncertain tax positions was $ 25.8 million and $ 24.3 million, respectively, excluding related liabilities for interest and penalties of $ 1.3 million and $ 1.2 million as of September 30, 2021, and December 31, 2020, respectively.

As of March 31, 2022, and December 31, 2021, the amount of unrecognized tax benefits for uncertain tax positions was $ 24.3 million and $ 24.5 million, respectively, excluding related liabilities for interest and penalties of $ 1.1 million as of March 31, 2022, and December 31, 2021.

The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $ 5.8 million, due to the settlement of various audits and the expiration of statutes of limitation.

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The Company has been contacted by the U.S.

Consumer Finance Protection Bureau and various state consumer protection and regulatory agencies about this incident, and is cooperating in their investigations, which could result in fines or penalties that could be material.

Consumer Finance Protection Bureau and various state consumer protection and regulatory agencies about this incident and is cooperating in their investigations, which could result in fines or penalties that could be material and injunctive remedies that could be burdensome and costly to implement.

In addition, the Company has been named as a defendant in seven class action lawsuits filed in various federal courts purportedly on behalf of consumers whose mortgage accounts were affected.

3 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-Q

Item 1. Financial Statements