What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-24 · 99 added, 90 removed, 397 unchanged (32% of the section changed)

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

Our products and solutions are used globally by banks and intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges and a wide range of transaction-generating endpoints, including ATMs, merchant POS terminals, bank branches, mobile phones, tablets,

corporations, and internet commerce sites.

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

Our products are marketed under the ACI Worldwide brand.

Our products and solutions are marketed under the ACI Worldwide brand and used globally by banks and intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges and a wide range of transaction-generating endpoints, including ATMs, merchant POS terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

We derive a majority of our revenues from domestic operations and believe we have large opportunities for growth in international markets, as well as continued expansion domestically in the United States.

Refining our global infrastructure is a critical component of driving our growth.

We also continue to maintain centers of expertise in Timisoara, Romania, and Pune and Bangalore in India, as well as key operational centers such as in Cape Town, South Africa and in multiple locations in the United States.

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.

Key trends that currently impact our strategies and operations include:

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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 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 further accelerated this growth as more people, governments, and businesses 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.

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Expectations from both consumers and businesses are continuing to drive the payments world to more real-time delivery.

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.

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

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

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

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

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, continue to accelerate innovation, especially in terms of overlay services and cross-border connectivity.

The United States is driving real-time payments adoption through Zelle, TCH Real-Time Payments, and the planned FedNow service.

We are seeing success with real-time payments in the Middle East as well, as they have started to renovate their payment systems from legacy payment types to the modern digital and real-time world.

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.

Adoption of cloud technology .

To leverage lower-cost computing technologies, increase time to market, accelerate innovation, and ensure scalability and resiliency, banks and intermediaries, merchants, and billers are seeking to transition their systems to make use of cloud technology.

Our investments and partnerships, as demonstrated by our product enablement and initial optimization onto Microsoft Azure, enable us to leverage the hybrid cloud technology benefits of automation and rapid deployment and delivery, while preserving the ACI fundamentals of resiliency and scalability, to deliver cloud capabilities now and in the future.

Market sizing data from Ovum (now Omdia) indicates that spend on SaaS and PaaS payment systems is growing faster than spend on installed applications.

Digital payments fraud and compliance.

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.

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

Banks and intermediaries, merchants, and billers must find faster, smarter, more accurate and increasingly automated ways to secure customers and meet regulatory pressures.

We continue to see opportunity to offer our fraud detection solutions with advanced machine learning capabilities to help customers manage the growing levels of digital payments fraud and compliance activity.

ACI has recognized the industry's technical inflection point in the transition from traditional on-premise infrastructure to the public cloud, and we are supporting our customers' cloud strategies.

Public and private cloud technology innovations allow the financial services ecosystem to accelerate innovation and ensure scalability and resiliency while improving operating economics over time.

As banks and intermediaries, merchants, and billers seek to transition their systems to make use of cloud technology, our investments and partnerships, as demonstrated by our product enablement and initial optimization onto Microsoft Azure, enable us to leverage those cloud technology benefits today and for the future while preserving ACI's fundamental base of performance, resiliency, and scalability.

Payments intelligence.

fraud, and compliance .

The accelerated adoption of real-time payments increases the urgency for industry-wide collaboration against fraud.

As the threat of scams becomes a greater concern for emitting and receiving institutions, consumers are challenged with increased friction to prevent account take-over and criminals successfully persuading consumers to push transactions themselves, inadvertently, to mule accounts they have full control of, created with

fake or synthetic identity, or simply "borrowed" with or without consent of the legit account holders.

Regulators are beginning to litigate between consumers and financial institutions on the losses, and between emitting and receiving banks on the accountability for reimbursement.

Banks and intermediaries, merchants, and billers are pursuing solutions to mitigate their risks while improving their customer experience, protecting their margins, and securing their revenue streams, especially with their new products and offerings.

We continue to see opportunity for our advanced machine learning and network intelligence capabilities to stop criminals and enable frictionless legitimate business.

Omni-commerce.

Shoppers are increasingly browsing, buying, and returning items across channels, including in-store, online, and mobile.

COVID-19 has accelerated this trend, leading to an increase in contactless payments, click and collect, and curbside collection.

COVID-19 accelerated this trend, leading to an increase in contactless payments, click and collect, and curbside collection.

Merchants from all industries, including grocers, fuel and convenience stores, are being tasked with delivering seamless experiences that include pay-in-aisle, kiosks, mobile app payments, QR code payments, eCommerce, traditional and mobile POS, buy online pickup in-store (BOPIS) and buy online return in-store (BORIS).

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Collect payments in India, Request 2 Pay in Europe, Request To Pay (RTP) in the United Kingdom, or Request for Payment (RfP) in the United States.

RfP offers secure

messaging between consumers and billers or merchants, wherein a biller or merchant can request a payment from a consumer through the use of a trusted app, most likely a banking app.

RfP offers secure messaging between consumers and billers or merchants, wherein a biller or merchant can request a payment from a consumer through the use of a trusted app, most likely a banking app.

RfP is primarily being implemented on top of real-time payments, which are continuing to grow and flourish as countries around the world develop and launch their real-time schemes as noted above.

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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 September 1, 2022, we sold our corporate online banking solutions related assets and liabilities to One Equity Partners ("OEP") for $100.1 million, including a preliminary net working capital adjustment.

The sale included employees and customer contracts as well as technology assets and intellectual property.

For the year ended December 31, 2022, we recognized a gain of $38.5 million on the sale, which is recorded in other, net in the accompanying 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:

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and December 31, 2021 (in millions).

As a result of the divestiture, 60-month backlog decreased $170.1 million during the period ended September 30, 2022.

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

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

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

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.

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Total revenue for the year ended December 31, 2022, increased $51.3 million, or 4%, as compared to the same period in 2021.

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

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

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

• The divestiture resulted in a $17.6 million decrease in total revenue for the year ended December 31, 2022.

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

dollar resulted in a $19.1 million decrease in total revenue during the year ended December 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the year ended December 31, 2022, increased $88.0 million, or 7%, as compared to the same period in 2021.

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

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SaaS and PaaS revenue increased $28.5 million, or 4%, during the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

• The divestiture resulted in a $10.6 million decrease in SaaS and PaaS revenue for the year ended December 31, 2022.

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

dollar resulted in a $6.5 million decrease in SaaS and PaaS revenue during the year ended December 31, 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 year ended December 31, 2022, increased $45.6 million, or 6%, as compared to the same period in 2021.

• The increase was primarily due to new customer go-lives and higher transaction volumes during the year ended December 31, 2022, as compared to the same period in 2021.

License Revenue

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dollar resulted in a $4.1 million decrease in license revenue during the year ended December 31, 2022, as compared to the same period in 2021.

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

• Adjusted for the impact of foreign currency, license revenue for the year ended December 31, 2022, increased $32.5 million, or 10%, as compared to the same period in 2021.

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

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Maintenance revenue decreased $10.5 million, or 5%, during the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

• The divestiture resulted in a $3.5 million decrease in maintenance revenue for the year ended December 31, 2022.

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

dollar resulted in a $6.8 million decrease in maintenance revenue during the year ended December 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the year ended December 31, 2022, decreased $0.2 million as compared to the same period in 2021.

Services Revenue

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

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

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

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

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

Services revenue increased $5.0 million, or 8%, during the year ended December 31, 2022, as compared to the same period in 2021.

• The divestiture resulted in a $3.5 million decrease in services revenue for the year ended December 31, 2022.

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

dollar resulted in a $1.6 million decrease in services revenue during the year ended December 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the year ended December 31, 2022, increased $10.1 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 year ended December 31, 2022, as compared to the same period in 2021.

Operating Expenses

Total operating expenses for the year ended December 31, 2022, increased $57.4 million, or 5%, as compared to the same period in 2021.

• During the year ended December 31, 2022, there was a $8.8 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the year ended December 31, 2022, included $5.8 million of European data center migration expenses, $3.0 million of divestiture transaction-related expenses, and $3.6 million of CEO transition expenses during the period.

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

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

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

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

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

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

dollar resulted in a $17.9 million decrease in total operating expenses for the year ended December 31, 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 year ended December 31, 2022, increased $84.9 million, or 8%, as compared to the same period in 2021.

Cost of Revenue

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Cost of revenue increased $57.2 million, or 9%, during the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

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

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

• During the year ended December 31, 2022, there was a $8.0 million reduction in cost of revenue related to the divestiture.

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

dollar resulted in a $7.0 million decrease in cost of revenue during the year ended December 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $72.2 million, or 12%, for the year ended December 31, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher payment card interchange and processing fees and personnel and related expenses of $53.9 million and $23.8 million, respectively, partially offset by a decrease in software amortization expense of $5.5 million.

Research and Development

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R&D expense increased $2.0 million, or 1%, during the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

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

• During the year ended December 31, 2022, there was a $0.6 million reduction in R&D expense related to the divestiture.

• Total R&D expense for the year ended December 31, 2021 included $2.4 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 $3.5 million decrease in R&D expense during the year ended December 31, 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 $8.4 million, or 6%, during the year ended December 31, 2022, as compared to the same period in 2021.

• The increase was primarily due to higher professional fees and personnel and related expenses of $6.8 million and $1.6 million, respectively.

Selling and Marketing

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Selling and marketing expense increased $8.3 million, or 7%, during the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

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

• During the year ended December 31, 2022, there was a $0.2 million reduction in selling and marketing expense related to the divestiture.

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

dollar resulted in a $3.8 million decrease in selling and marketing expense during the year ended December 31, 2022, as compared to the same period in 2021.

• Adjusted for the impact of the divestiture and foreign currency, selling and marketing expense increased $12.3 million, or 10%, for the year ended December 31, 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 $12.8 million and $2.7 million, respectively, partially offset by lower advertising and professional fees of $3.2 million.

General and Administrative

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General and administrative expense decreased $9.6 million, or 8%, during the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

• General and administrative expenses for the year ended December 31, 2022 included $5.8 million of European data center migration expenses, $3.0 million of divestiture transaction-related expenses, and $3.6 million of CEO transition expenses during the period.

General and administrative expense for the year ended December 31, 2021 included $11.0 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

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

dollar resulted in a $2.3 million decrease in general and administrative expense during the year ended December 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 $8.7 million, or 8%, for the year ended December 31, 2022, as compared to the same period in 2021.

• The decrease was primarily due to lower professional and other legal fees and personnel and other related expenses of $8.2 million and $0.5 million, respectively.

Depreciation and Amortization

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

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

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

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

Depreciation and amortization decreased $0.5 million, during the year ended December 31, 2022, as compared to the same period in 2021.

Other Income and Expense

Interest expense for the year ended December 31, 2021, decreased $11.6 million, or 20%, as compared to the same period in 2020, primarily due to lower comparative debt balances.

Interest expense for the year ended December 31, 2022, increased $8.1 million, or 18%, 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 year ended December 31, 2021, decreased $0.1 million, or 1%, as compared to the same period in 2020.

Interest income for the year ended December 31, 2022, increased $1.0 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 $1.3 million and $1.1 million of expense for the years ended December 31, 2021 and 2020.

During the year ended December 31, 2022, other, net also included a $38.5 million gain from the divestiture.

Other, net was $43.4 million of income and $1.3 million of expense for the years ended December 31, 2022 and 2021, respectively.

The effective tax rates for the years ended December 31, 2022 and 2021, were approximately 31% and 27%, respectively.

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

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

Of the foreign jurisdictions in which we operate, our December 31, 2022, effective rate was most impacted by our operations in Ireland and our December 31, 2021, effective tax rate was most impacted by our operations in Colombia, Ireland and Singapore.

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

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Segment Results

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

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

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

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

Our Chief Executive Officer is also our CODM.

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Income before income taxes $ 206,635 $ 175,065

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

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

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

The Banks Segments Adjusted EBITDA decreased $8.9 million due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA increased $7.0 million for the year ended December 31, 2022, compared to the same period in 2021, primarily due to a $31.1 million increase in revenue, partially offset by a $24.2 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $5.2 million for the year ended December 31, 2022, compared to the same period in 2021, primarily due to a $6.1 million increase in cash operating expenses, partially offset by a $0.9 million increase in revenue.

Billers Segment Adjusted EBITDA decreased $21.7 million for the year ended December 31, 2022, compared to the same period in 2021, primarily due to a $53.9 million increase in interchange and processing fees, partially offset by a $36.9 million increase in revenue.

Prior Year Results

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

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

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, we continue to evaluate our liquidity and financial position in light of further developments, particularly those relating to COVID-19 .

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

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$ 518,481 $ 620,559

The increase in total liquidity is primarily attributable to positive operating cash flows of $220.5 million, partially offset by $45.4 million of payments to purchase property and equipment and software and distribution rights, $39.0 million of repayments on the Term Loans and $107.4 million of payments related to stock repurchases.

We also repaid a net $55.0 million on the Revolving Credit Facility.

The decrease in total liquidity is primarily attributable to $206.5 million of payments related to stock repurchases, partially offset by proceeds of $100.1 million from the divestiture.

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

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As of December 31, 2022, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $9.8 million.

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

On February 24, 2023, the Board of Directors approved $200.0 million for the stock repurchase program in place of the remaining purchase amounts previously authorized.

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

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

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

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

Cash flows provided by operating activities were $77.1 million lower for the year ended December 31, 2022, compared to the same period in 2021, due to the timing of working capital.

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

During the year ended December 31, 2022, we received net proceeds of $100.1 million from the divestiture.

In addition, we used cash of $39.9 million to purchase software, property, and equipment, as compared to $45.4 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 2021, we repaid a net $55.0 million on the Revolving Credit Facility and $39.0 million on the Term Loans.

During 2022, we used the proceeds from the divestiture to partially fund repayments of $85.4 million on the Term Loans and $12.1 million of other debt payments.

In addition, we used $206.5 million to repurchase common stock and $7.0 million for the repurchase of stock-based compensation awards for tax withholdings.

We received net proceeds of $105.0 million on the Revolving Credit Facility, proceeds of $8.2 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and $26.8 million from settlement assets and liabilities due to processing timing.

During 2021, we repaid a net $55.0 million on the Revolving Credit Facility, $39.0 million on the Term Loans and $15.2 million of other debt payments.

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

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

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

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

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

Prior Year Results

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If determined to be significant, the financing component is calculated using a rate that discounts the license fees to the cash selling price.

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

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

These arrangements may include fixed and/or variable consideration.

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Other intangible assets are amortized using the straight-line method over periods ranging from four to 20 years.

As of December 31, 2021 and 2020, our goodwill was $1.3 billion.

As of December 31, 2022 and 2021, our goodwill was $1.2 billion and $1.3 billion, respectively.

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

37 unchanged sentences

We recognize compensation expense for the TSRs over a three-year performance period based on the grant date fair value.

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

Restricted share unit awards (“RSUs”) generally have requisite service periods of three years and may vest 100% upon the three-year anniversary or in equal increments quarterly or annually.

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

19 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis