What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 103 added, 243 removed, 240 unchanged (59% of the section changed)

13 unchanged sentences

The cautionary statements in this report expressly qualify all of our forward-looking statements.

Factors that could cause actual results to differ from those expressed or implied in the forward-looking

statements include, but are not limited to, those discussed in our Risk Factors in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in Part 2, Item 1A of this Form 10-Q.

Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in our Risk Factors in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and in Part 2, Item 1A of this Form 10-Q.

The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and with our financial statements and related notes contained in this Form 10-Q.

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.

COVID-19 Pandemic

6 unchanged sentences

We believe we have sufficient liquidity to continue business operations during this volatile and uncertain period.

We have $640.0 million of available liquidity as of September 30, 2021, consisting of cash on hand and availability under our revolving credit facility.

To address the potential long-term financial impacts of the virus, we have delayed non-essential capital spending and operating expenses.

The pandemic presents potential new risks to our business.

We began to see the impacts of COVID-19 on certain customer transaction volumes in late March 2020 and continued to see changes into 2021, primarily within the Merchants and Billers segment.

The effect of COVID-19 and related events, including those described above, could have an ongoing negative effect on our stock price, business prospects, financial condition, and results of operations.

More specifically, f or those customer s under consumption-based contracts, continued declines in transaction volumes could negatively impact our financial position, results of operations, and cash flows.

We have also experienced atypical fluctuations in Biller volumes as a result of the change in timing of assessments and due dates for federal, state, and local taxes.

We have $583.3 million of available liquidity as of March 31, 2022, consisting of cash on hand and availability under our revolving credit facility.

The effect of COVID-19 and related events could have an ongoing negative effect on our stock price, business prospects, financial condition, and results of operations.

More specifically, for those customers under consumption-based contracts, continued declines in transaction volumes could negatively impact our financial position, results of operations, and cash flows.

For the reasons discussed above, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity.

8 unchanged sentences

Each region has a globally coordinated sales force, supplemented with local independent reseller and/or distributor networks.

Our products and solutions are used globally by banks, intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges, and a wide range of transaction-generating endpoints, including ATMs, merchant point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

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 point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

Accordingly, our business and operating results are influenced by trends such as information technology spending levels, the growth rate of digital payments, mandated regulatory changes, and changes in the number and type of customers in the financial services industry, as well as economic growth and purchasing habits.

5 unchanged sentences

Increasing digital payment transaction volumes.

The adoption of digital payments continues to accelerate, propelled by the digitization of cash, the Internet of Things, rapid growth of eCommerce, proliferation of cryptocurrencies, and the adoption of real-time payments.

The adoption of digital payments continues to accelerate, propelled by the digitization of cash, financial inclusion efforts of countries throughout the world, the Internet of Things, rapid growth of eCommerce, proliferation of cryptocurrencies, and the adoption of real-time payments.

COVID-19 has further accelerated this growth as more people, governments, and businesses have embraced digital payments—a change likely to continue once the pandemic is over.

8 unchanged sentences

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, accelerate 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, 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.

40 unchanged sentences

In the event a significant revision to renewal assumptions is determined to be necessary, prior periods will be adjusted for comparability purposes.

The following table sets forth our 60-month backlog estimate, by reportable segment, as of September 30, 2021, June, 30, 2021, March 31, 2021, and December 31, 2020 (in millions).

The following table sets forth our 60-month backlog estimate, by reportable segment, as of March 31, 2022, and December 31, 2021 (in millions).

Dollar amounts reflect foreign currency exchange rates as of each period end.

September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020

This is a non-GAAP financial measure being presented to provide comparability across accounting periods.

We believe this measure provides useful information to investors and others in understanding and evaluating our financial performance.

March 31, 2022 December 31, 2021

Banks $ 2,282 $ 2,272

2 unchanged sentences

Total $ 6,182 $ 6,110

September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Committed $ 2,038 $ 2,095

11 unchanged sentences

The following table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our condensed consolidated statements of operations (in thousands):

Three Month Period Ended September 30, 2021 Compared to the Three Month Period Ended September 30, 2020

Three Months Ended September 30,

Three Month Period Ended March 31, 2022 Compared to the Three Month Period Ended March 31, 2021

Three Months Ended March 31,

Amount % of Total

20 unchanged sentences

Total other income (expense) (5,485) (1) % 4,518 (45) % (10,003) (3) %

Income before income taxes 18,517 6 % (4,023) (18) % 22,540 6 %

Income tax expense 4,753 1 % (1,921) (29) % 6,674 2 %

Net income $ 13,764 5 % $ (2,102) (13) % $ 15,866 4 %

Total revenue for the three months ended September 30, 2021, increased $1.0 million, as compared to the same period in 2020.

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

dollar resulted in a $2.2 million increase in total revenue during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, total revenue for the three months ended September 30, 2021, decreased $1.2 million, as compared to the same period in 2020.

Income (loss) before income taxes 22,181 7 % 28,494 451 % (6,313) (2) %

Income tax expense (benefit) 6,691 2 % 11,059 253 % (4,368) (2) %

Net income (loss) $ 15,490 5 % $ 17,435 896 % $ (1,945) — %

Total revenue for the three months ended March 31, 2022, increased $37.9 million, or 13%, as compared to the same period in 2021.

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

dollar resulted in a $2.0 million decrease in total revenue during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, total revenue for the three months ended March 31, 2022, increased $39.9 million, or 14%, as compared to the same period in 2021.

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

5 unchanged sentences

All fees from SaaS and PaaS arrangements that do not qualify for treatment as a distinct performance obligation, which includes set-up fees, implementation or customization services, and product support services, are included in SaaS and PaaS revenue.

SaaS and PaaS revenue increased $1.1 million, or 1%, during the three months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $0.7 million increase in SaaS and PaaS revenue during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended September 30, 2021, increased $0.4 million, as compared to the same period in 2020.

SaaS and PaaS revenue decreased $1.2 million, or 1%, during the three months ended March 31, 2022, as compared to the same period in 2021.

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

dollar resulted in a $0.8 million decrease in SaaS and PaaS revenue during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended March 31, 2022, decreased $0.4 million as compared to the same period in 2021.

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 $2.3 million, or 4%, during the three months ended September 30, 2021, as compared to the same period in 2020.

• The decrease was primarily driven by the timing and relative size of license and capacity events during the three months ended September 30, 2021, as compared to the same period in 2020.

License revenue increased $39.1 million, or 184%, during the three months ended March 31, 2022, as compared to the same period in 2021.

• The increase was primarily driven by the timing and relative size of license and capacity events during the three months ended March 31, 2022, as compared to the same period in 2021.

Maintenance Revenue

Maintenance revenue includes standard and premium maintenance and any post contract support fees received from customers for the provision of product support services.

Maintenance revenue increased $0.5 million, or 1%, during the three months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $1.1 million increase in maintenance revenue during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, maintenance revenue for the three months ended September 30, 2021, decreased $0.7 million, or 1%, as compared to the same period in 2020.

Maintenance revenue decreased $0.9 million, or 2%, during the three months ended March 31, 2022, as compared to the same period in 2021.

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

dollar resulted in a $0.8 million decrease in maintenance revenue during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, maintenance revenue for the three months ended March 31, 2022, remained flat compared to the same period in 2021.

Services Revenue

3 unchanged sentences

These services include new customer implementations as well as existing customer migrations to new products or new releases of existing products.

Services revenue increased $1.8 million, or 11%, during the three months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $0.3 million increase in services revenue during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, services revenue for the three months ended September 30, 2021, increased $1.5 million, or 9%, as compared to the same period in 2020.

• The increase was primarily driven by the timing and magnitude of project-related work during the three months ended September 30, 2021, as compared to the same period in 2020.

Services revenue increased $0.9 million, or 6%, during the three months ended March 31, 2022, as compared to the same period in 2021.

Operating Expenses

Total operating expenses for the three months ended September 30, 2021, increased $4.2 million, or 1%, as compared to the same period in 2020.

• Total operating expenses for the three months ended September 30, 2021, included $6.0 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

Total operating expenses for the three months ended September 30, 2020, included $12.3 million of significant transaction-related expenses associated with the acquisition of Speedpay from The Western Union Company and cost reduction strategies implemented during the period.

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

dollar resulted in a $2.2 million increase in total operating expenses during the three months ended September 30, 2021, compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the three months ended September 30, 2021, increased $8.3 million, or 3%, compared to the same period in 2020.

Total operating expenses for the three months ended March 31, 2022, increased $13.9 million, or 5%, as compared to the same period in 2021.

• Total operating expenses for the three months ended March 31, 2022, included $0.5 million of significant transaction-related expenses during the period compared to $1.2 million for the same period in 2021.

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

dollar resulted in a $2.4 million decrease in total operating expenses during the three months ended March 31, 2022, compared to the same period in 2021.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the three months ended March 31, 2022, increased $17.0 million, or 6%, compared to the same period in 2021.

Cost of Revenue

4 unchanged sentences

Such efforts include project management, delivery, product customization and implementation, installation support, consulting, configuration, and on-site support.

Cost of revenue increased $0.1 million during the three months ended September 30, 2021, compared to the same period in 2020.

Cost of revenue increased $6.8 million, or 4%, during the three months ended March 31, 2022, compared to the same period in 2021.

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

dollar resulted in a $0.9 million decrease in cost of revenue during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, cost of revenue increased $7.7 million, or 5%, for the three months ended March 31, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses and payment card interchange and processing fees of $3.1 million and $5.9 million, respectively, partially offset by a decrease in depreciation and amortization expense of $1.3 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 increased $1.7 million, or 5%, during the three months ended September 30, 2021, as compared to the same period in 2020.

• R&D expense for the three months ended September 30, 2021 and 2020, included $0.9 million and $0.3 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 $0.3 million increase in R&D expense during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense increased $0.8 million, or 2%, for the three months ended September 30, 2021, as compared to the same period in 2020, primarily due to higher personnel and related expenses.

R&D expense increased $3.3 million, or 10%, during the three months ended March 31, 2022, as compared to the same period in 2021.

• Total R&D expenses for the three months ended March 31, 2021, included $0.4 million of significant transaction-related expenses.

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

dollar resulted in a $0.6 million decrease in R&D expense during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense increased $4.3 million, or 13%, for the three months ended March 31, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses and professional fees of $2.1 million and $2.2 million, respectively.

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 increased $11.3 million, or 51%, during the three months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $0.4 million increase in selling and marketing expense during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $10.9 million, or 48%, for the three months ended September 30, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher personnel and related expenses and professional fees of $9.3 million and $1.6 million, respectively.

Selling and marketing expense increased $6.5 million, or 23%, during the three months ended March 31, 2022, as compared to the same period in 2021.

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

dollar resulted in a $0.4 million decrease in selling and marketing expense during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $6.9 million, or 25%, for the three months ended March 31, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses.

General and Administrative

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

General and administrative expense decreased $7.3 million, or 20%, during the three months ended September 30, 2021, as compared to the same period in 2020.

• General and administrative expenses for the three months ended September 30, 2021, included $5.0 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

General and administrative expenses for the three months ended September 30, 2020, included $10.8 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period.

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

dollar resulted in a $0.4 million increase in general and administrative expense during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $1.9 million, or 7%, for the three months ended September 30, 2021, as compared to the same period in 2020, primarily due to lower personnel and related expenses.

General and administrative expense decreased $1.9 million, or 7%, during the three months ended March 31, 2022, as compared to the same period in 2021.

• General and administrative expenses for the three months ended March 31, 2022, included $0.5 million of significant transaction-related expenses compared to $0.8 million in the same period in 2021.

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

dollar resulted in a $0.3 million decrease in general and administrative expense during the three months ended March 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $1.3 million, or 5%, for the three months ended March 31, 2022, as compared to the same period in 2021.

• The decrease is primarily due to a decrease in professional fees of $3.3 million, partially offset by an increase in personnel and related expenses of $2.0 million.

Depreciation and Amortization

Depreciation and amortization decreased $1.6 million, or 5%, during the three months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $0.2 million increase in depreciation and amortization during the three months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, depreciation and amortization decreased $1.8 million, or 5%, for the three months ended September 30, 2021, as compared to the same period in 2020.

Depreciation and amortization decreased $0.7 million, or 2%, during the three months ended March 31, 2022, as compared to the same period in 2021.

Other Income and Expense

Interest expense for the three months ended September 30, 2021, decreased $1.7 million, or 13%, as compared to the same period in 2020, primarily due to lower comparative debt balances.

Interest expense for the three months ended March 31, 2022, decreased $0.6 million, or 5%, as compared to the same period in 2021, primarily due to lower comparative debt balances.

Interest income includes the portion of software license fees paid by customers under extended payment terms that is attributed to the significant financing component.

Interest income for the three months ended September 30, 2021, decreased $0.1 million, or 3%, as compared to the same period in 2020.

Interest income for the three months ended March 31, 2022, increased $0.3 million, or 11%, as compared to the same period in 2021.

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.

See Note 10, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

RESULTS OF OPERATIONS

Nine Month Period Ended September 30, 2021 Compared to the Nine Month Period Ended September 30, 2020

Nine Months Ended September 30,

Amount % of Total

Revenue $ Change

vs 2020 % Change

vs 2020 Amount % of Total

Software as a service and platform as a service $ 583,530 65 % $ 19,638 3 % $ 563,892 62 %

License 110,383 11 % (24,655) (18) % 135,038 15 %

Maintenance 159,037 18 % (41) — % 159,078 18 %

Services 50,819 6 % 1,549 3 % 49,270 5 %

Total revenues 903,769 100 % (3,509) — % 907,278 100 %

Operating expenses:

Cost of revenue 476,811 53 % 5,049 1 % 471,762 52 %

Research and development 104,791 12 % (3,384) (3) % 108,175 12 %

Selling and marketing 90,211 10 % 13,519 18 % 76,692 8 %

General and administrative 89,429 10 % (13,255) (13) % 102,684 11 %

Depreciation and amortization 95,434 11 % (3,494) (4) % 98,928 11 %

Total operating expenses 856,676 96 % (1,565) — % 858,241 94 %

Operating income 47,093 4 % (1,944) (4) % 49,037 6 %

Other income (expense):

Interest expense (33,943) (4) % 10,295 (23) % (44,238) (5) %

Interest income 8,553 1 % (228) (3) % 8,781 1 %

Other, net (1,036) — % 5,325 (84) % (6,361) (1) %

Total other income (expense) (26,426) (3) % 15,392 (37) % (41,818) (5) %

Income before income taxes 20,667 1 % 13,448 186 % 7,219 1 %

Income tax expense 2,347 — % 642 38 % 1,705 — %

Net income $ 18,320 1 % $ 12,806 232 % $ 5,514 1 %

Total revenue for the nine months ended September 30, 2021, decreased $3.5 million, as compared to the same period in 2020.

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

dollar resulted in a $9.6 million increase in total revenue during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, total revenue for the nine months ended September 30, 2021, decreased $13.1 million, or 1%, compared to the same period in 2020.

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

SaaS and PaaS revenue increased $19.6 million, or 3%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $3.3 million increase in SaaS and PaaS revenue during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the nine months ended September 30, 2021, increased $16.3 million, or 3%, compared to the same period in 2020.

• The increase was driven by transaction volumes recovering from declines seen in 2020 as a result of the COVID-19 pandemic.

License Revenue

License revenue decreased $24.7 million, or 18%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $0.9 million increase in license revenue during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, license revenue for the nine months ended September 30, 2021, decreased $25.6 million, or 19%, compared to the same period in 2020.

• The decrease was primarily driven by the timing and relative size of license and capacity events during the nine months ended September 30, 2021, as compared to the same period in 2020.

Maintenance Revenue

Maintenance revenue remained flat during the nine months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $4.2 million increase in maintenance revenue during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, maintenance revenue for the nine months ended September 30, 2021, decreased $4.2 million, or 3%, compared to the same period in 2020.

Services Revenue

Services revenue increased $1.5 million, or 3%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $1.3 million increase in services revenue during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, services revenue for the nine months ended September 30, 2021, increased $0.2 million compared to the same period in 2020.

Operating Expenses

Total operating expenses for the nine months ended September 30, 2021, decreased $1.6 million as compared to the same period in 2020.

• Total operating expenses for the nine months ended September 30, 2021, included $10.5 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

Total operating expenses for the nine months ended September 30, 2020, included $26.0 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period.

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

dollar resulted in a $10.0 million increase in total operating expenses for the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the nine months ended September 30, 2021, increased $3.9 million compared to the same period in 2020.

Cost of Revenue

Cost of revenue increased $5.0 million, or 1%, during the nine months ended September 30, 2021, compared to the same period in 2020.

• Cost of revenue for the nine months ended September 30, 2020, included $3.4 million of significant transaction-related expenses associated with the acquisition of Speedpay.

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

dollar resulted in a $4.0 million increase in cost of revenue during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue increased $4.4 million, or 1%, for the nine months ended September 30, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher payment card interchange and processing fees of $10.9 million, partially offset by lower personnel and related expenses of $6.5 million.

Research and Development

R&D expense decreased $3.4 million, or 3%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

• R&D expense for the nine months ended September 30, 2021 and 2020, included $1.9 million and $0.6 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 $1.7 million increase in R&D expense during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related items and foreign currency, R&D expense decreased $6.4 million, or 6%, for the nine months ended September 30, 2021, as compared to the same period in 2020.

• The decrease was primarily due to lower personnel and related expenses and professional fees of $5.0 million and $1.4 million, respectively.

Selling and Marketing

Selling and marketing expense increased $13.5 million, or 18%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $1.7 million increase in selling and marketing expense for the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $11.8 million, or 15%, for the nine months ended September 30, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher personnel and related expenses and professional fees of $9.8 million and $2.0 million, respectively.

General and Administrative

General and administrative expense decreased $13.3 million, or 13%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

• General and administrative expenses for the nine months ended September 30, 2021 and 2020, included $8.7 million and $22.0 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 $1.5 million increase in general and administrative expenses during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $1.5 million or 2%, for the nine months ended September 30, 2021, as compared to the same period in 2020.

• The decrease was primarily due to lower personnel and related expenses of $4.2 million, partially offset by higher professional fees of $2.7 million.

Depreciation and Amortization

Depreciation and amortization decreased $3.5 million, or 4%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

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

dollar resulted in a $1.1 million increase in depreciation and amortization expense during the nine months ended September 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, depreciation and amortization decreased $4.6 million, or 5%, for the nine months ended September 30, 2021, as compared to the same period in 2020.

Other Income and Expense

Interest expense for the nine months ended September 30, 2021, decreased $10.3 million, or 23%, as compared to the same period in 2020, primarily due to lower comparative debt balances.

Interest income for the nine months ended September 30, 2021, decreased $0.2 million, or 3%, as compared to the same period in 2020.

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

Foreign currency loss was higher in 2020 due to the market volatility in the wake of the COVID-19 pandemic.

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.

See Note 10, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Segment Results

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

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

Beginning in the first quarter of 2021, we report financial performance based on our new segments, Banks, Merchants, and Billers, and analyze Segment Adjusted EBITDA as a measure of segment profitability.

Our Chief Executive Officer is also our CODM.

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

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

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.

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

Allocated costs are generally marketing and sales related activities.

Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of our segments and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting.

Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense).

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

The overhead costs relate to human resources, finance, legal, accounting, and merger and acquisition activity.

These costs along with depreciation and amortization and stock-based compensation are not considered when management evaluates segment performance.

See Note 9, Segment Information , to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information regarding segments.

The following is selected financial data for our 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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Income (loss) before income taxes $ 22,181 $ (6,313)

Banks Segment Adjusted EBITDA decreased $4.1 million for the three months ended September 30, 2021, compared to the same period in 2020, due to a $6.1 million increase in revenue, primarily license revenue, offset by a $10.2 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $4.7 for the three months ended September 30, 2021, compared to the same period in 2020, due to a $1.8 million decrease in revenue and a $2.9 million increase in cash operating expense.

Billers Segment Adjusted EBITDA decreased $1.9 for the three months ended September 30, 2021, compared to the same period in 2020, due to a $3.3 million decrease in SaaS and PaaS revenue, partially offset by a $1.4 million decrease in cash operating expense.

Banks Segment Adjusted EBITDA decreased $23.2 million for the nine months ended September 30, 2021, compared to the same period in 2020, due to a $15.2 million decrease in revenue, primarily license revenue, and a $8.0 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $3.8 million for the nine months ended September 30, 2021, compared to the same period in 2020, due to a $5.2 million increase in revenue, primarily SaaS and PaaS revenue, partially offset by a $1.4 million increase in cash operating expense.

Billers Segment Adjusted EBITDA increased $2.2 million for the nine months ended September 30, 2021, compared to the same period in 2020, due to a $6.4 million increase in SaaS and PaaS revenue, partially offset by a $4.2 million increase in cash operating expense, primarily due to higher payment card interchange and processing fees.

Banks Segment Adjusted EBITDA increased $27.5 million for the three months ended March 31, 2022, compared to the same period in 2021, due to a $36.3 million increase in revenue primarily related to an increase in license revenues, partially offset by a $8.8 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA remained flat for the three months ended March 31, 2022, compared to the same period in 2021.

Billers Segment Adjusted EBITDA decreased $7.7 million for the three months ended March 31, 2022, compared to the same period in 2021, due to a $7.0 million increase in cash operating expense primarily for payment card interchange and other processing fees.

Liquidity and Capital Resources

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

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

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

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

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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.

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

As of March 31, 2022, we had $114.8 million of cash and cash equivalents, of which $42.1 million was held by our foreign subsidiaries.

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

state income taxes to repatriate these funds.

As of March 31, 2022, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

The earnings of all other foreign entities are no longer indefinitely reinvested.

We are also permanently reinvested for outside book/tax basis difference related to foreign subsidiaries.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of March 31, 2022.

Available Liquidity

The following table sets forth our available liquidity for the dates indicated (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 114,754 $ 122,059

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Total liquidity $ 583,254 $ 620,559

The increase in total liquidity is primarily attributable to positive operating cash flows of $147.9 million, partially offset by $39.4 million of payments related to stock repurchases, $33.0 million of payments to purchase property and equipment and software and distribution rights, $55.0 million of repayments on the Revolving Credit Facility, $29.2 million of repayments on the Term Loans, and $10.2 million of repayments on other debt.

The decrease in total liquidity is primarily attributable to $8.5 million of payments to purchase property and equipment and software and distribution rights, $9.7 million of repayments on the Term Loans, and $37.9 million for stock repurchases, partially offset by positive operating cash flows of $28.9 million.

The Company and ACI Payments, Inc., a wholly owned subsidiary, maintain a $75.0 million uncommitted overdraft facility with Bank of America, N.A.

The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process.

As of September 30, 2021, the full $75.0 million was available.

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

As of September 30, 2021, we had $141.5 million of cash and cash equivalents, of which $53.7 million was held by our foreign subsidiaries.

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

state income taxes to repatriate these funds.

As of September 30, 2021, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

The earnings of all other foreign entities are no longer indefinitely reinvested.

We are also permanently reinvested for outside book/tax basis difference related to foreign subsidiaries.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of September 30, 2021.

As of March 31, 2022, the full $75.0 million was available.

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 1,131,248 shares for $37.9 million under the program during the three months ended March 31, 2022.

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

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

See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash provided by (used by):

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Cash Flows from Operating Activities

Net cash flows provided by operating activities during the nine months ended September 30, 2021, were $147.9 million as compared to $192.1 million during the same period in 2020.

Net cash provided by operating activities primarily consists of net income adjusted to add back depreciation, amortization, and stock-based compensation.

Cash flows provided by operating activities were $44.2 million lower for the nine months ended September 30, 2021, compared to the same period in 2020, primarily attributable to the timing of working capital.

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, and leased facilities.

Cash flows provided by operating activities were $40.9 million lower for the three months ended March 31, 2022, compared to the same period in 2021, primarily due to timing of cash receipts on accounts receivable.

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

Cash Flows from Investing Activities

During the first nine months of 2021, we used cash of $33.0 million to purchase software, property, and equipment, as compared to $35.6 million during the same period in 2020.

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 first three months of 2022, we used cash of $8.5 million to purchase software, property, and equipment, as compared to $12.4 million during the same period in 2021.

Cash Flows from Financing Activities

Net cash flows used by financing activities for the nine months ended September 30, 2021, were $138.9 million as compared to $148.9 million during the same period in 2020.

During the first nine months of 2021, we repaid $55.0 million on the Revolving Credit Facility and $29.2 million on the Term Loans.

In addition, we used $39.4 million to repurchase common stock and $14.8 million for the repurchase of stock-based compensation awards for tax withholdings.

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 the first three months of 2022, we received net proceeds of $30.0 million on the Revolving Credit Facility and repaid $9.7 million on the Term Loans.

In addition, we used $5.5 million for the repurchase of stock-based compensation awards for tax withholdings.

We also received proceeds of $1.9 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

During the first nine months of 2020, we repaid a net $79.0 million on the Revolving Credit Facility and $29.2 million on the Initial Term Loans.

In addition, we used $28.9 million to repurchase common stock and $11.2 million for the repurchase of stock-based compensation awards for tax withholdings.

During the first three months of 2021, we repaid $15.0 million on the Revolving Credit Facility and $9.7 million on the Initial Term Loan.

In addition, we used $14.2 million for the repurchase of stock-based compensation awards for tax withholdings and $71.3 million for settlement assets and liabilities due to processing timing.

We also received proceeds of $3.9 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

We may decide to use cash to acquire new products and services or enhance existing products and services through acquisitions of other companies, product lines, technologies, and personnel, or through investments in other companies.

We believe our existing sources of liquidity, including cash on hand and cash provided by operating activities, will satisfy our projected liquidity requirements, which primarily consists of working capital and debt service requirements, for the next twelve months and foreseeable future.

As of September 30, 2021, we had $687.9 million outstanding under our Term Loans, with up to $498.5 million of unused borrowings under the Revolving Credit Facility, as amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement.

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

As of September 30, 2021, we also had $400.0 million outstanding for the 2026 Notes.

See Note 3, Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Stock Repurchase Program

We repurchased 1,000,000 shares for $39.4 million under the program during the nine months ended September 30, 2021.

Under the program to date, we have repurchased 47,357,495 shares for approximately $651.7 million.

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

See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Contractual Obligations and Commercial Commitments

For the nine months ended September 30, 2021, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2020, other than as noted below.

Miami Facility Lease

During the nine months ended September 30, 2021, the 10-year facility lease for our new headquarters in Miami, Florida commenced.

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

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

Microsoft Azure Agreement

During the nine months ended September 30, 2021, we entered into a five-year, $45 million Microsoft Azure server and cloud commitment.

For the three months ended March 31, 2022, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2021.

Critical Accounting Estimates

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• Accounting for Income Taxes

During the nine months ended September 30, 2021, there were no significant changes to our critical accounting policies and estimates.

During the three months ended March 31, 2022, there were no significant changes to our critical accounting policies and estimates.

Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2021, for a more complete discussion of our critical accounting policies and estimates.

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 2. Management’s Discussion and Analysis