What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 183 added, 89 removed, 254 unchanged (52% of the section changed)

15 unchanged sentences

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

COVID-19 Pandemic

The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the virus.

These measures may remain in place for a significant period of time, or may be reinstituted after being temporarily lifted, and could adversely affect our business, operations and financial condition as well as the business, operations and financial conditions of our customers and business partners.

The spread of the virus has also caused us to modify our business practices (including employee work locations and cancellation of physical participation in meetings) in ways that may be detrimental to our business (including working remotely and its attendant cybersecurity risks).

We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and customers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

We created a dedicated Crisis Management Team to oversee and execute our business continuity plans and a variety of measures designed to ensure the ongoing availability of our products, solutions and services for our customers, while taking health and safety measures for our employees, including telecommuting, travel restrictions, social distancing policies, and stepped-up facility cleaning practices.

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

We have $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.

Notwithstanding any actions by national, state, and local governments to mitigate the impact of COVID-19 or by us to address the adverse impacts of COVID-19, there can be no assurance that any of the foregoing activities will be successful in mitigating or preventing significant adverse effects on the Company.

Results for the three and six months ended June 30, 2022, are not necessarily indicative of results that may be attained in the future.

Since early 2020, the world has been, and continues to be impacted by the COVID-19 pandemic.

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, and may continue to negatively impact, global economic and market conditions, including levels of consumer and business spending.

The environment surrounding COVID-19 and countermeasures taken to reduce its spread have impacted our business operations and financial results, although some of the effects have lessened over time.

It may continue to impact our business operations and financial operating results, and there is uncertainty in the nature and degree of its continued effects.

ACI Worldwide powers digital payments for more than 6,000 organizations around the world.

15 unchanged sentences

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.

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

We leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems cannot handle increased volume, through the sale of capacity upgrades to existing customers, and through the scalability of our platform-based solutions.

5 unchanged sentences

The United States is driving real-time payments adoption through Zelle, TCH Real-Time Payments, and the planned FedNow service, while Brazil's PIX was launched in November 2020.

ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as a leader in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world.

ACI's broad software portfolio, experience, and strategic partnerships with Mastercard and Microsoft continue to position us as a leader in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world.

Adoption of cloud technology.

6 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 March 31, 2022, and December 31, 2021 (in millions).

The following table sets forth our 60-month backlog estimate, by reportable segment, as of June 30, 2022, and December 31, 2021 (in millions).

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

1 unchanged sentence

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

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022 December 31, 2021

Banks $ 2,231 $ 2,282 $ 2,272

2 unchanged sentences

Total $ 6,172 $ 6,182 $ 6,110

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022 December 31, 2021

Committed $ 2,089 $ 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 March 31, 2022 Compared to the Three Month Period Ended March 31, 2021

Three Months Ended March 31,

Three Month Period Ended June 30, 2022 Compared to the Three Month Period Ended June 30, 2021

Three Months Ended June 30,

Amount % of Total

20 unchanged sentences

Total other income (expense) (6,727) (1) % 234 (3) % (6,961) (3) %

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.

Income before income taxes 17,730 7 % 9,267 110 % 8,463 — %

Income tax expense 4,388 1 % 2,426 124 % 1,962 1 %

Net income $ 13,342 6 % $ 6,841 105 % $ 6,501 (1) %

Total revenue for the three months ended June 30, 2022, increased $38.8 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.

dollar resulted in a $4.2 million decrease in total revenue during the three months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, total revenue for the three months ended June 30, 2022, increased $43.0 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 decreased $1.2 million, or 1%, during the three months ended March 31, 2022, as compared to the same period in 2021.

SaaS and PaaS revenue increased $10.7 million, or 5%, during the three months ended June 30, 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.

dollar resulted in a $1.8 million decrease in SaaS and PaaS revenue during the three months ended June 30, 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 June 30, 2022, increased $12.4 million, or 6%, as compared to the same period in 2021.

• The increase was primarily driven by higher transaction volumes during the three months ended June 30, 2022, as compared to the same period in 2021.

License Revenue

Customers purchase the right to license ACI software under multi-year, time-based software license arrangements that vary in length but are generally five years.

Customers purchase the right to use ACI software under multi-year, time-based software license arrangements that vary in length but are generally five years.

Under these arrangements the software is installed at the customer’s location (i.e.

6 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 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.

License revenue increased $29.6 million, or 85%, during the three months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in a $0.5 million decrease in license revenue during the three months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, license revenue for the three months ended June 30, 2022, increased $30.1 million, or 87%, as compared to the same period in 2021.

• The increase was primarily driven by the renewal timing and relative size of license and capacity events during the three months ended June 30, 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 decreased $0.9 million, or 2%, during the three months ended March 31, 2022, as compared to the same period in 2021.

Maintenance revenue decreased $2.6 million, or 5%, during the three months ended June 30, 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.

dollar resulted in a $1.5 million decrease in maintenance revenue during the three months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, maintenance revenue for the three months ended June 30, 2022, decreased $1.1 million or 2%, as 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 $0.9 million, or 6%, during the three months ended March 31, 2022, as compared to the same period in 2021.

Services revenue increased $1.1 million, or 6%, during the three months ended June 30, 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 services revenue during the three months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, services revenue for the three months ended June 30, 2022, increased $1.5 million or 8%, as compared to the same period in 2021.

Operating Expenses

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.

Total operating expenses for the three months ended June 30, 2022, increased $29.7 million, or 10%, as compared to the same period in 2021.

• Total operating expenses for the three months ended June 30, 2022, included $1.4 million of divestiture transaction-related expenses and $1.3 million of European datacenter migration expenses during the period compared to $3.4 million of significant transaction-related and cost reduction strategies implemented 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.

dollar resulted in a $4.3 million decrease in total operating expenses during the three months ended June 30, 2022, as 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 June 30, 2022, increased $34.7 million, or 12%, as 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 $6.8 million, or 4%, during the three months ended March 31, 2022, compared to the same period in 2021.

Cost of revenue increased $20.7 million, or 13%, during the three months ended June 30, 2022, as 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.

dollar resulted in a $1.7 million decrease in cost of revenue during the three months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, cost of revenue increased $22.4 million, or 14%, for the three months ended June 30, 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 $7.6 million and $16.2 million, respectively, partially offset by a decrease in software amortization expense of $1.4 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 $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.

R&D expense increased $5.6 million, or 16%, during the three months ended June 30, 2022, as compared to the same period in 2021.

• Total R&D expenses for the three months ended June 30, 2021, included $0.5 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.

dollar resulted in a $0.9 million decrease in R&D expense during the three months ended June 30, 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 $7.0 million, or 21%, for the three months ended June 30, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses and professional fees of $4.2 million and $2.8 million, respectively.

4 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 $6.5 million, or 23%, during the three months ended March 31, 2022, as compared to the same period in 2021.

Selling and marketing expense increased $6.7 million, or 23%, during the three months ended June 30, 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.

dollar resulted in a $0.8 million decrease in selling and marketing expense during the three months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $7.5 million, or 27%, for the three months ended June 30, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses and travel and entertainment expenses of $6.0 million and $1.5 million, respectively.

General and Administrative

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

General and administrative expense 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.

General and administrative expense decreased $3.6 million, or 11%, during the three months ended June 30, 2022, as compared to the same period in 2021.

• General and administrative expenses for the three months ended June 30, 2022, included $2.7 million of significant transaction-related expenses compared to $2.9 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.

dollar resulted in a $0.6 million decrease in general and administrative expense during the three months ended June 30, 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 $2.8 million, or 10%, for the three months ended June 30, 2022, as compared to the same period in 2021.

• The decrease is primarily due to lower professional fees.

Depreciation and Amortization

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.

Depreciation and amortization increased $0.2 million, or 1%, during the three months ended June 30, 2022, as compared to the same period in 2021.

Other Income and Expense

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 expense for the three months ended June 30, 2022, increased $0.5 million, or 5%, as compared to the same period in 2021, primarily due to higher interest rates.

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 March 31, 2022, increased $0.3 million, or 11%, as compared to the same period in 2021.

Interest income for the three months ended June 30, 2022, increased $0.2 million, or 6%, as compared to the same period in 2021.

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

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.

Other, net was $2.0 million and $1.4 million of income for the three months ended June 30, 2022 and 2021, respectively.

See Note 11, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

RESULTS OF OPERATIONS

Six Month Period Ended June 30, 2022 Compared to the Six Month Period Ended June 30, 2021

Six Months Ended June 30,

Amount % of Total

Revenue $ Change

vs 2021 % Change

vs 2021 Amount % of Total

Software as a service and platform as a service $ 401,540 61 % $ 9,466 2 % $ 392,074 67 %

License 124,599 19 % 68,670 123 % 55,929 9 %

Maintenance 101,980 15 % (3,538) (3) % 105,518 18 %

Services 35,386 5 % 2,052 6 % 33,334 6 %

Total revenues 663,505 100 % 76,650 13 % 586,855 100 %

Operating expenses:

Cost of revenue 345,619 52 % 27,520 9 % 318,099 54 %

Research and development 78,449 12 % 8,906 13 % 69,543 12 %

Selling and marketing 69,999 11 % 13,201 23 % 56,798 10 %

General and administrative 54,237 8 % (5,475) (9) % 59,712 10 %

Depreciation and amortization 63,078 10 % (511) (1) % 63,589 11 %

Total operating expenses 611,382 93 % 43,641 8 % 567,741 97 %

Operating income 52,123 7 % 33,009 173 % 19,114 3 %

Other income (expense):

Interest expense (22,678) (3) % 57 — % (22,735) (4) %

Interest income 6,210 1 % 491 9 % 5,719 1 %

Other, net 4,256 1 % 4,204 8,085 % 52 — %

Total other income (expense) (12,212) (1) % 4,752 (28) % (16,964) (3) %

Income before income taxes 39,911 6 % 37,761 1,756 % 2,150 — %

Income tax expense (benefit) 11,079 2 % 13,485 (560) % (2,406) — %

Net income $ 28,832 4 % $ 24,276 533 % $ 4,556 — %

Total revenue for the six months ended June 30, 2022, increased $76.7 million, or 13%, as compared to the same period in 2021.

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

dollar resulted in a $6.2 million decrease in total revenue during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, total revenue for the six months ended June 30, 2022, increased $82.9 million, or 14%, as compared to the same period in 2021.

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

SaaS and PaaS revenue increased $9.5 million, or 2%, during the six months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in $2.6 million decrease in SaaS and PaaS revenue during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the six months ended June 30, 2022, increased $12.0 million, or 3%, as compared to the same period in 2021.

• The increase was primarily due to higher transaction volumes during the six months ended June 30, 2022, as compared to the same period in 2021.

License Revenue

License revenue increased $68.7 million, or 123%, during the six months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in a $0.8 million decrease in license revenue during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, license revenue for the six months ended June 30, 2022, increased $69.4 million, or 124%, as compared to the same period in 2021.

• The increase was primarily driven by renewal timing and relative size of license and capacity events during the six months ended June 30, 2022, as compared to the same period in 2021.

Maintenance Revenue

Maintenance revenue decreased $3.5 million or 3% during the six months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in a $2.4 million decrease in maintenance revenue during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, maintenance revenue for the six months ended June 30, 2022, decreased $1.2 million, or 1%, as compared to the same period in 2021.

Services Revenue

Services revenue increased $2.1 million, or 6%, during the six months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in a $0.5 million decrease in services revenue during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, services revenue for the six months ended June 30, 2022, increased $2.6 million, or 8%, as compared to the same period in 2021.

• The increase was primarily driven by the timing and magnitude of project-related work during the six months ended June 30, 2022, as compared to the same period in 2021.

Operating Expenses

Total operating expenses for the six months ended June 30, 2022, increased $43.6 million, or 8%, as compared to the same period in 2021.

• Total operating expenses for the six months ended June 30, 2022, included $1.8 million of European datacenter migration expenses and $1.4 million of divestiture transaction-related expenses during the period.

Total operating expenses for the six months ended June 30, 2021, included $4.6 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

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

dollar resulted in a $6.7 million decrease in total operating expenses for the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the six months ended June 30, 2022, increased $51.7 million, or 9%, as compared to the same period in 2021.

Cost of Revenue

Cost of revenue increased $27.5 million, or 9%, during the six months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in a $2.6 million decrease in cost of revenue during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, cost of revenue increased $30.1 million, or 10%, for the six months ended June 30, 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 $10.7 million and $22.2 million, respectively, partially offset by a decrease in software amortization expense of $2.8 million.

Research and Development

R&D expense increased $8.9 million, or 13%, during the six months ended June 30, 2022, as compared to the same period in 2021.

• Total R&D expenses for the six months ended June 30, 2021 included $0.9 million of significant transaction-related expenses.

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

dollar resulted in a $1.4 million decrease in R&D expense during the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency and significant transaction-related expenses, R&D expense increased $11.2 million, or 17%, for the six months ended June 30, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses and professional fees of $6.2 million and $5.0 million, respectively.

Selling and Marketing

Selling and marketing expense increased $13.2 million, or 23%, during the six months ended June 30, 2022, as compared to the same period in 2021.

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

dollar resulted in a $1.2 million decrease in selling and marketing expense for the six months ended June 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $14.4 million, or 26%, for the six months ended June 30, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher personnel and related expenses and travel and entertainment expenses of $12.1 million and $2.3 million, respectively.

General and Administrative

General and administrative expense decreased $5.5 million, or 9%, during the six months ended June 30, 2022, as compared to the same period in 2021.

• General and administrative expenses for the six months ended June 30, 2022 included $3.2 million of significant transaction-related expenses.

General and administrative expense for the six months ended June 30, 2021, included $3.7 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

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

dollar resulted in a $1.0 million decrease in general and administrative expenses during the six months ended June 30, 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 $4.0 million, or 7%, for the six months ended June 30, 2022, as compared to the same period in 2021.

• The decrease is primarily due to a decrease in professional fees of $6.2 million, partially offset by an increase in personnel and related expenses of $2.2 million.

Depreciation and Amortization

Depreciation and amortization decreased $0.5 million, or 1%, during the six months ended June 30, 2022, as compared to the same period in 2021.

Other Income and Expense

Interest expense for the six months ended June 30, 2022, was flat compared to the same period in 2021.

Interest income for the six months ended June 30, 2022, increased $0.5 million, or 9%, as compared to the same period in 2021.

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

Other, net was $4.3 million and $0.1 million of income for the six months ended June 30, 2022 and 2021, respectively.

See Note 11, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Segment Results

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Banks $ 141,946 $ 114,051 $ 274,144 $ 209,968

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Income (loss) before income taxes $ 17,730 $ 8,463 $ 39,911 $ 2,150

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.

Banks Segment Adjusted EBITDA increased $15.7 million for the three months ended June 30, 2022, compared to the same period in 2021, due to a $28.0 million increase in revenue primarily related to an increase in license revenues, partially offset by a $12.3 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $5.3 million for the three months ended June 30, 2022, compared to the same period in 2021, due to a $1.0 million decrease in revenue and a $4.3 million increase in cash operating expense.

Billers Segment Adjusted EBITDA decreased $6.3 million for the three months ended June 30, 2022, compared to the same period in 2021, due to a $11.8 million increase in revenue, offset by a $18.1 million increase in cash operating expense primarily for payment card interchange and other processing fees.

Banks Segment Adjusted EBITDA increased $43.2 million for the six months ended June 30, 2022, compared to the same period in 2021, due to a $64.2 million increase in revenue primarily related to an increase in license revenues, partially offset by a $21.0 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $5.3 million for the six months ended June 30, 2022, compared to the same period in 2021, due to a $1.4 million increase in revenue, offset by a $6.7 million increase in cash operating expense.

Billers Segment Adjusted EBITDA decreased $13.9 million for the six months ended June 30, 2022, compared to the same period in 2021, due to an $11.0 million increase in revenue, offset by a $24.9 million increase in cash operating expense, primarily for payment card interchange and other processing fees.

Liquidity and Capital Resources

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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.

However, the disruption in the capital markets caused by the COVID-19 pandemic could make any new financing more challenging, and there can be no assurance that such financings will be obtained on commercially reasonable terms, or at all.

We believe our liquidity will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners.

We are compliant with our debt covenants and do not anticipate an inability to service our debt.

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

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.

As of June 30, 2022, we had $119.0 million of cash and cash equivalents, of which $34.2 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.

As of June 30, 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.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of June 30, 2022.

Available Liquidity

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and cash equivalents $ 118,953 $ 122,059

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

As of June 30, 2022, the full $75.0 million was available.

Stock Repurchase Program

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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.

We repurchased 2,055,488 shares for $62.7 million under the program during the six months ended June 30, 2022.

Under the program to date, we have repurchased 51,412,983 shares for approximately $782.4 million.

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

As of June 30, 2022, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $153.6 million.

See Note 7, 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):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used by):

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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.

Cash flows provided by operating activities were $37.2 million lower for the six months ended June 30, 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.

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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.

During the first six months of 2022, we used cash of $14.4 million to purchase software, property, and equipment, as compared to $23.7 million during the same period in 2021.

Cash Flows from Financing Activities

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

During 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.

During the first six months of 2022, we received net proceeds of $40.0 million on the Revolving Credit Facility and repaid $21.2 million on the Term Loans.

In addition, we used $62.7 million to repurchase common stock and $5.8 million for the repurchase of stock-based compensation awards for tax withholdings.

We also received proceeds of $3.4 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 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.

During the first six months of 2021, we repaid $30.0 million on the Revolving Credit Facility and $19.5 million on the Initial Term Loan.

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 and $78.1 million for settlement assets and liabilities due to processing timing.

We also received proceeds of $8.7 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

Contractual Obligations and Commercial Commitments

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.

For the six months ended June 30, 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 three months ended March 31, 2022, there were no significant changes to our critical accounting policies and estimates.

During the six months ended June 30, 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