What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-04 · 155 added, 123 removed, 314 unchanged (47% 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 and six months ended June 30, 2022, are not necessarily indicative of results that may be attained in the future.

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

Global Economy and Inflation

During the nine months ended September 30, 2022, the global economy has experienced high inflation, increased interest rates, and pressures on gross domestic product.

While we believe our business is resilient and can generally weather unusually high levels of inflation, inflationary pressures have had some impact on our expected 2022 financial performance.

Specifically, inflation has impacted our interchange costs associated with the Biller segment.

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

11 unchanged sentences

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.

Accordingly, our business and

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

Our products are marketed under the ACI Worldwide brand.

10 unchanged sentences

This is bolstered by the new data-rich ISO 20022 messaging format, which promises to deliver greater value to banks and their customers.

We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth (further driven by COVID-19) and new payment types.

We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth and new payment types.

Mature markets, including India, the United Kingdom, Australia, Malaysia, Singapore, Thailand, and the Nordics (P27), continue to accelerate innovation, especially in terms of overlay services and cross-border connectivity.

7 unchanged sentences

The rise in digital payment transaction volumes and payment types has subsequently led to an increase in online fraud in many guises and across all channels.

Driven in part by COVID-19, we have seen an increase in phishing and friendly fraud, as well as remote banking fraud and authorized push payment scams.

We have seen an increase in phishing and friendly fraud, as well as remote banking fraud and authorized push payment scams.

Real-time payments bring a new level of urgency, as money cannot easily be retrieved once it has been sent.

23 unchanged sentences

As part of our acquisition strategy, we seek acquisition candidates that are strategic, capable of being integrated into our operating environment, and accretive to our financial performance.

On June 7, 2022, we announced a definitive agreement to divest our corporate online banking solutions related assets and liabilities to One Equity Partners ("OEP") for $100.1 million.

The sale included employees and customer contracts as well as technology assets and intellectual property and closed on September 1, 2022 (the "divestiture").

For the three and nine months ended September 30, 2022, we recognized a gain of $38.5 million on the sale, which is recorded in other, net in the accompanying condensed consolidated statements of operations.

This gain is preliminary subject to finalization of post-closing adjustments pursuant to the definitive transaction agreement.

The Company and OEP have also entered into a Transition Services Agreement ("TSA"), whereby the Company will continue to perform certain functions on OEP's behalf during a migration period not expected to exceed 18 months.

The TSA is meant to reimburse the Company for direct costs in order to provide such functions, which are no longer generating revenue for the Company.

Backlog is comprised of:

17 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 June 30, 2022, and December 31, 2021 (in millions).

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

As a result of the divestiture, 60-month backlog decreased $170.1 million.

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.

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

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

Banks $ 2,038 $ 2,231 $ 2,282 $ 2,272

2 unchanged sentences

Total $ 6,077 $ 6,172 $ 6,182 $ 6,110

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

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

Committed $ 2,051 $ 2,089 $ 2,038 $ 2,095

3 unchanged sentences

These assumptions may turn out to be inaccurate or wrong for reasons outside of management’s control.

For example, our customers may attempt to renegotiate or terminate their contracts for many reasons, including mergers, changes in their financial condition, or general changes in economic conditions (e.g.

economic declines resulting from COVID-19) in the customer’s industry or geographic location.

We may also experience delays in the development or delivery of products or services specified in customer contracts, which may cause the actual renewal rates and amounts to differ from historical experiences.

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

Three Months Ended June 30,

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

Three Months Ended September 30,

Amount % of Total

23 unchanged sentences

Net income $ 23,117 8 % $ 9,353 68 % $ 13,764 5 %

Total revenue for the three months ended June 30, 2022, increased $38.8 million, or 13%, as compared to the same period in 2021.

Total revenue for the three months ended September 30, 2022, decreased $10.3 million, or 3%, as compared to the same period in 2021.

• The divestiture resulted in a $5.6 million decrease in total revenue for the three months ended September 30, 2022.

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

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.

dollar resulted in a $5.6 million decrease in total revenue during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the three months ended September 30, 2022, increased $0.9 million 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 $10.7 million, or 5%, during the three months ended June 30, 2022, as compared to the same period in 2021.

SaaS and PaaS revenue increased $4.1 million, or 2%, during the three months ended September 30, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $3.0 million decrease in SaaS and PaaS revenue for the three months ended September 30, 2022.

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

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.

dollar resulted in a $2.1 million decrease in SaaS and PaaS revenue during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, SaaS and PaaS revenue for the three months ended September 30, 2022, increased $9.2 million, or 5%, as compared to the same period in 2021.

• The increase was primarily driven by new customer go-lives and higher transaction volumes during the three months ended September 30, 2022, 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 increased $29.6 million, or 85%, during the three months ended June 30, 2022, as compared to the same period in 2021.

License revenue decreased $10.8 million, or 20%, during the three months ended September 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.

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

• Adjusted for the impact of foreign currency, license revenue for the three months ended September 30, 2022, decreased $10.3 million, or 19%, as compared to the same period in 2021.

• The decrease was primarily driven by the renewal timing and relative size of license and capacity events during the three months ended September 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 $2.6 million, or 5%, during the three months ended June 30, 2022, as compared to the same period in 2021.

Maintenance revenue decreased $4.4 million, or 8%, during the three months ended September 30, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $1.0 million decrease in maintenance revenue for the three months ended September 30, 2022.

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

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.

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

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the three months ended September 30, 2022, decreased $1.0 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 $1.1 million, or 6%, during the three months ended June 30, 2022, as compared to the same period in 2021.

Services revenue increased $0.7 million, or 4%, during the three months ended September 30, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $1.6 million decrease in services revenue for the three months ended September 30, 2022.

• 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.

dollar resulted in a $0.7 million decrease in services revenue during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the three months ended September 30, 2022, increased $3.0 million, or 17%, as compared to the same period in 2021.

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

Operating Expenses

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.

Total operating expenses for the three months ended September 30, 2022, increased $14.2 million, or 5%, as compared to the same period in 2021.

• During the three months ended September 30, 2022, there was a $2.6 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the three months ended September 30, 2022, included $1.7 million of European data center migration expenses and $1.2 million of divestiture transaction-related expenses during the period compared to $6.0 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 $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.

dollar resulted in a $5.8 million decrease in total operating expenses during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, total operating expenses for the three months ended September 30, 2022, increased $25.5 million, or 9%, 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 $20.7 million, or 13%, during the three months ended June 30, 2022, as compared to the same period in 2021.

Cost of revenue increased $13.0 million, or 8%, during the three months ended September 30, 2022, as compared to the same period in 2021.

• During the three months ended September 30, 2022, there was a $2.4 million reduction in cost of revenue related to the divestiture.

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

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.

dollar resulted in a $2.2 million decrease in cost of revenue during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $17.7 million, or 11%, for the three months ended September 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 $8.6 million and $10.6 million, respectively, partially offset by a decrease in software amortization expense of $1.5 million.

1 unchanged sentence

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 $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.

R&D expense increased $0.7 million, or 2%, during the three months ended September 30, 2022, as compared to the same period in 2021.

• During the three months ended September 30, 2022, there was a $0.2 million reduction in R&D expense related to the divestiture.

• Total R&D expenses for the three months ended September 30, 2021, included $0.9 million of expense related to significant transactions and cost reduction strategies implemented during the period.

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

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.

dollar resulted in a $1.1 million decrease in R&D expense during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, R&D expense increased $2.8 million, or 9%, for the three months ended September 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 $1.0 million and $1.8 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 $6.7 million, or 23%, during the three months ended June 30, 2022, as compared to the same period in 2021.

Selling and marketing expense decreased $0.6 million, or 2%, during the three months ended September 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 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.

dollar resulted in a $1.3 million decrease in selling and marketing expense during the three months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $0.7 million, or 2%, for the three months ended September 30, 2022, as compared to the same period in 2021.

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 $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.

General and administrative expense increased $0.8 million, or 3%, during the three months ended September 30, 2022, as compared to the same period in 2021.

• General and administrative expenses for the three months ended September 30, 2022, included $1.2 million of divestiture transaction-related expenses and $1.7 million of European data center migration expenses compared to $5.0 million of significant transaction-related and cost reduction strategies implemented in the same period in 2021.

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

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.

dollar resulted in a $0.7 million decrease in general and administrative expense during the three months ended September 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 increased $3.6 million, or 15%, for the three months ended September 30, 2022, as compared to the same period in 2021.

• The increase is primarily due to higher personnel and related expenses and professional fees of $2.5 million and $1.1 million, respectively.

Depreciation and Amortization

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.

Depreciation and amortization increased $0.3 million, or 1%, during the three months ended September 30, 2022, as compared to the same period in 2021.

Other Income and Expense

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 expense for the three months ended September 30, 2022, increased $3.1 million, or 28%, 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 June 30, 2022, increased $0.2 million, or 6%, as compared to the same period in 2021.

Interest income for the three months ended September 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 $2.0 million and $1.4 million of income for the three months ended June 30, 2022 and 2021, respectively.

During the three months ended September 30, 2022, other, net also included a $38.5 million gain from the divestiture.

Other, net was $41.5 million of income and $1.1 million of expense for the three months ended September 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.

1 unchanged sentence

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

Six Months Ended June 30,

Nine Month Period Ended September 30, 2022 Compared to the Nine Month Period Ended September 30, 2021

Nine Months Ended September 30,

Amount % of Total

21 unchanged sentences

Income before income taxes 73,604 7 % 52,937 256 % 20,667 1 %

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

Income tax expense 21,655 2 % 19,308 823 % 2,347 — %

Net income $ 51,949 5 % $ 33,629 184 % $ 18,320 1 %

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

Total revenue for the nine months ended September 30, 2022, increased $66.3 million, or 7%, as compared to the same period in 2021.

• The divestiture resulted in a $5.6 million decrease in total revenue for the nine months ended September 30, 2022.

• 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.

dollar resulted in a $11.8 million decrease in total revenue during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the nine months ended September 30, 2022, increased $83.8 million, or 9%, 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.

SaaS and PaaS revenue increased $13.6 million, or 2%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $3.0 million decrease in SaaS and PaaS revenue for the nine months ended September 30, 2022.

• 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.

dollar resulted in $4.7 million decrease in SaaS and PaaS revenue during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, SaaS and PaaS revenue for the nine months ended September 30, 2022, increased $21.2 million, or 4%, as compared to the same period in 2021.

• The increase was primarily due to new customer go-lives and higher transaction volumes during the nine months ended September 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.

License revenue increased $57.9 million, or 52%, during the nine months ended September 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.

dollar resulted in a $1.2 million decrease in license revenue during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, license revenue for the nine months ended September 30, 2022, increased $59.1 million, or 54%, 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 nine months ended September 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.

Maintenance revenue decreased $7.9 million or 5% during the nine months ended September 30, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $1.0 million decrease in maintenance revenue for the nine months ended September 30, 2022.

• 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.

dollar resulted in a $4.8 million decrease in maintenance revenue during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the nine months ended September 30, 2022, decreased $2.2 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.

Services revenue increased $2.8 million, or 5%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $1.6 million decrease in services revenue for the nine months ended September 30, 2022.

• 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.

dollar resulted in a $1.2 million decrease in services revenue during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the nine months ended September 30, 2022, increased $5.6 million, or 11%, as compared to the same period in 2021.

• The increase was primarily driven by the timing and magnitude of project-related work during the nine months ended September 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.

Total operating expenses for the nine months ended September 30, 2022, increased $57.8 million, or 7%, as compared to the same period in 2021.

• During the nine months ended September 30, 2022, there was a $2.6 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the nine months ended September 30, 2022, included $3.4 million of European data center migration expenses and $2.6 million of divestiture transaction-related expenses during the period.

Total operating expenses for the nine months ended September 30, 2021, included $10.5 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.

dollar resulted in a $12.4 million decrease in total operating expenses for the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, total operating expenses for the nine months ended September 30, 2022, increased $77.3 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.

Cost of revenue increased $40.6 million, or 9%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

• During the nine months ended September 30, 2022, there was a $2.4 million reduction in cost of revenue related to the divestiture

• 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.

dollar resulted in a $4.8 million decrease in cost of revenue during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $47.8 million, or 10%, for the nine months ended September 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 $19.2 million and $32.8 million, respectively, partially offset by a decrease in software amortization expense of $4.2 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.

R&D expense increased $9.6 million, or 9%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

• During the nine months ended September 30, 2022, there was a $0.2 million reduction in R&D expense related to the divestiture.

• Total R&D expenses for the nine months ended September 30, 2021 included $1.9 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.

dollar resulted in a $2.5 million decrease in R&D expense during the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture, foreign currency, and significant transaction-related expenses, R&D expense increased $14.1 million, or 14%, for the nine months ended September 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 $7.3 million and $6.8 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.

Selling and marketing expense increased $12.6 million, or 14%, during the nine months ended September 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.

dollar resulted in a $2.5 million decrease in selling and marketing expense for the nine months ended September 30, 2022, as compared to the same period in 2021.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $15.1 million, or 17%, for the nine months ended September 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 $3.0 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.

General and administrative expense decreased $4.7 million, or 5%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

• General and administrative expenses for the nine months ended September 30, 2022 included $3.4 million of European data center migration expenses and $2.6 million of divestiture transaction-related expenses during the period.

General and administrative expense for the nine months ended September 30, 2021, included $8.7 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.

dollar resulted in a $1.7 million decrease in general and administrative expenses during the nine months ended September 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 $0.4 million for the nine months ended September 30, 2022, as compared to the same period in 2021.

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.

Depreciation and amortization decreased $0.2 million during the nine months ended September 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.

Interest expense for the nine months ended September 30, 2022, increased $3.1 million, or 9%, as compared to the same period in 2021, primarily due to higher interest rates.

Interest income for the nine months ended September 30, 2022, increased $0.7 million, or 8%, 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.

During the nine months ended September 30, 2022, other, net also included a $38.5 million gain from the divestiture.

Other, net was $45.8 million of income and $1.0 million of expense for the nine months ended September 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.

2 unchanged sentences

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

13 unchanged sentences

Income (loss) before income taxes $ 33,693 $ 18,517 $ 73,604 $ 20,667

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.

The Banks Segment Adjusted EBITDA decreased $3.1 million due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA decreased $14.8 million for the three months ended September 30, 2022, compared to the same period in 2021, due to a $8.7 million decrease in revenue primarily related to a decrease in license revenues and a $6.1 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $4.4 million for the three months ended September 30, 2022, compared to the same period in 2021, due to a $3.4 million decrease in revenue and a $1.0 million increase in cash operating expense.

Billers Segment Adjusted EBITDA decreased $5.6 million for the three months ended September 30, 2022, compared to the same period in 2021, due to a $13.0 million increase in cash operating expense primarily for payment card interchange and other processing fees, partially offset by a $7.4 million increase in revenue.

The Banks Segment Adjusted EBITDA decreased $3.1 million due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA increased $28.5 million for the nine months ended September 30, 2022, compared to the same period in 2021, due to a $55.5 million increase in revenue primarily related to an increase in license revenues, partially offset by a $27.0 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $9.7 million for the nine months ended September 30, 2022, compared to the same period in 2021, due to a $1.9 million decrease in revenue and a $7.8 million increase in cash operating expense.

Billers Segment Adjusted EBITDA decreased $19.6 million for the nine months ended September 30, 2022, compared to the same period in 2021, due to a $38.0 million increase in cash operating expense, primarily for payment card interchange and other processing fees, partially offset by an $18.4 million increase in revenue.

Liquidity and Capital Resources

5 unchanged sentences

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

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.

As of September 30, 2022, we had $134.8 million of cash and cash equivalents, of which $32.4 million was held by our foreign subsidiaries.

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

state income taxes to repatriate these funds.

As of June 30, 2022, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

As of September 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 June 30, 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 September 30, 2022.

Available Liquidity

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cash and cash equivalents $ 134,799 $ 122,059

1 unchanged sentence

Total liquidity $ 623,299 $ 620,559

The decrease in total liquidity is primarily attributable to $14.4 million of payments to purchase property and equipment and software and distribution rights, $21.2 million of repayments on the Term Loans, and $62.7 million for stock repurchases, partially offset by positive operating cash flows of $67.8 million.

The increase in total liquidity is primarily attributable to net proceeds of $100.1 million from the divestiture, partially offset by $90.9 million paid for stock repurchases.

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

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

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

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

Stock Repurchase Program

1 unchanged sentence

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

We repurchased 3,210,313 shares for $90.9 million under the program during the nine months ended September 30, 2022.

Under the program to date, we have repurchased 52,567,808 shares for approximately $810.6 million.

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

As of September 30, 2022, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $125.4 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):

Six Months Ended June 30,

Nine Months Ended

September 30,

Net cash provided by (used by):

5 unchanged sentences

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

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.

Cash flows provided by operating activities were $42.5 million lower for the nine months ended September 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.

1 unchanged sentence

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 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.

During the first nine months of 2022, we received net proceeds of $100.1 million from the divestiture.

In addition, we used cash of $26.5 million to purchase software, property, and equipment, as compared to $33.0 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 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.

During the first nine months of 2022, we used the proceeds from the divestiture to partially fund repayments of $70.8 million on the Term Loans and $10.1 million of other debt payments.

In addition, we used $90.9 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 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.

We received net proceeds of $10.0 million on the Revolving Credit Facility, proceeds of $4.6 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and $20.1 million from settlement assets and liabilities due to processing timing.

During the first nine months of 2021, we repaid $55.0 million on the Revolving Credit Facility, $29.2 million on the Term Loans, and $10.2 million on other debt.

In addition, we used $39.4 million to repurchase common stock, $14.8 million for the repurchase of stock-based compensation awards for tax withholdings, and $55.5 million for settlement assets and liabilities due to processing timing.

We received proceeds of $9.8 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 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.

For the nine months ended September 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

9 unchanged sentences

• Accounting for Income Taxes

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

During the nine months ended September 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