ACI WORLDWIDE, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands, except share and per share amounts) March 31, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 142,412 $ 124,981 Receivables, net of allowances of $ 3,179 and $ 3,779 , respectively 342,765 403,781 Settlement assets 413,343 540,667 Prepaid expenses 34,017 28,010 Other current assets 21,499 17,366 Total current assets 954,036 1,114,805 Noncurrent assets Accrued receivables, net 270,332 297,818 Property and equipment, net 48,327 52,499 Operating lease right-of-use assets 38,374 40,031 Software, net 119,801 129,109 Goodwill 1,226,026 1,226,026 Intangible assets, net 220,540 228,698 Deferred income taxes, net 63,345 53,738 Other noncurrent assets 66,020 67,171 TOTAL ASSETS $ 3,006,801 $ 3,209,895 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 47,170 $ 47,997 Settlement liabilities 412,800 539,087 Employee compensation 29,834 45,289 Current portion of long-term debt 70,443 65,521 Deferred revenue 69,999 58,303 Other current liabilities 70,664 102,645 Total current liabilities 700,910 858,842 Noncurrent liabilities Deferred revenue 21,639 23,233 Long-term debt 1,010,938 1,024,351 Deferred income taxes, net 38,679 40,371 Operating lease liabilities 32,026 33,910 Other noncurrent liabilities 34,982 36,001 Total liabilities 1,839,174 2,016,708 Commitments and contingencies Stockholders’ equity Preferred stock; $ 0.01 par value; 5,000,000 shares authorized; no shares issued at March 31, 2023, and December 31, 2022 — — Common stock; $ 0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at March 31, 2023, and December 31, 2022 702 702 Additional paid-in capital 701,040 702,458 Retained earnings 1,241,150 1,273,458 Treasury stock, at cost, 32,202,744 and 32,456,227 shares at March 31, 2023, and December 31, 2022, respectively ( 661,223 ) ( 665,771 ) Accumulated other comprehensive loss ( 114,042 ) ( 117,660 ) Total stockholders’ equity 1,167,627 1,193,187 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,006,801 $ 3,209,895 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share amounts) Three Months Ended March 31, 2023 2022 Revenues Software as a service and platform as a service $ 204,930 $ 194,562 License 18,331 60,285 Maintenance 50,103 51,418 Services 16,312 16,815 Total revenues 289,676 323,080 Operating expenses Cost of revenue (1) 178,554 166,286 Research and development 37,118 37,807 Selling and marketing 35,435 34,608 General and administrative 31,382 25,875 Depreciation and amortization 31,539 30,838 Total operating expenses 314,028 295,414 Operating income (loss) ( 24,352 ) 27,666 Other income (expense) Interest expense ( 18,892 ) ( 10,894 ) Interest income 3,505 3,159 Other, net ( 3,395 ) 2,250 Total other income (expense) ( 18,782 ) ( 5,485 ) Income (loss) before income taxes ( 43,134 ) 22,181 Income tax expense (benefit) ( 10,826 ) 6,691 Net income (loss) $ ( 32,308 ) $ 15,490 Income (loss) per common share Basic $ ( 0.30 ) $ 0.13 Diluted $ ( 0.30 ) $ 0.13 Weighted average common shares outstanding Basic 108,156 115,287 Diluted 108,156 116,098 (1) The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale. The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited and in thousands) Three Months Ended March 31, 2023 2022 Net income (loss) $ ( 32,308 ) $ 15,490 Other comprehensive income (loss): Foreign currency translation adjustments 3,618 ( 2,100 ) Total other comprehensive income (loss) 3,618 ( 2,100 ) Comprehensive income (loss) $ ( 28,690 ) $ 13,390 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited and in thousands, except share amounts) Three Months Ended March 31, 2023 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of December 31, 2022 $ 702 $ 702,458 $ 1,273,458 $ ( 665,771 ) $ ( 117,660 ) $ 1,193,187 Net loss — — ( 32,308 ) — — ( 32,308 ) Other comprehensive income — — — — 3,618 3,618 Stock-based compensation — 5,301 — — — 5,301 Shares issued and forfeited, net, under stock plans — ( 6,719 ) — 7,549 — 830 Repurchase of stock-based compensation awards for tax withholdings — — — ( 3,001 ) — ( 3,001 ) Balance as of March 31, 2023 $ 702 $ 701,040 $ 1,241,150 $ ( 661,223 ) $ ( 114,042 ) $ 1,167,627 Three Months Ended March 31, 2022 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of December 31, 2021 $ 702 $ 688,313 $ 1,131,281 $ ( 475,972 ) $ ( 99,547 ) $ 1,244,777 Net income — — 15,490 — — 15,490 Other comprehensive loss — — — — ( 2,100 ) ( 2,100 ) Stock-based compensation — 7,958 — — — 7,958 Shares issued and forfeited, net, under stock plans — ( 10,917 ) — 12,856 — 1,939 Repurchase of 1,131,248 shares of common stock — — — ( 37,860 ) — ( 37,860 ) Repurchase of stock-based compensation awards for tax withholdings — — — ( 5,537 ) — ( 5,537 ) Balance as of March 31, 2022 $ 702 $ 685,354 $ 1,146,771 $ ( 506,513 ) $ ( 101,647 ) $ 1,224,667 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 32,308 ) $ 15,490 Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation 6,131 4,981 Amortization 25,408 26,508 Amortization of operating lease right-of-use assets 2,767 2,716 Amortization of deferred debt issuance costs 1,115 1,153 Deferred income taxes ( 10,382 ) ( 3,367 ) Stock-based compensation expense 5,301 7,958 Other ( 290 ) 601 Changes in operating assets and liabilities: Receivables 88,960 9,660 Accounts payable ( 1,308 ) ( 2,748 ) Accrued employee compensation ( 15,593 ) ( 19,138 ) Deferred revenue 10,202 9,949 Other current and noncurrent assets and liabilities ( 39,935 ) ( 24,889 ) Net cash flows from operating activities 40,068 28,874 Cash flows from investing activities: Purchases of property and equipment ( 2,258 ) ( 2,280 ) Purchases of software and distribution rights ( 6,481 ) ( 6,207 ) Net cash flows from investing activities ( 8,739 ) ( 8,487 ) Cash flows from financing activities: Proceeds from issuance of common stock 707 906 Proceeds from exercises of stock options 78 1,022 Repurchase of stock-based compensation awards for tax withholdings ( 3,001 ) ( 5,537 ) Repurchases of common stock — ( 37,860 ) Proceeds from revolving credit facility 50,000 40,000 Repayment of revolving credit facility ( 45,000 ) ( 10,000 ) Repayment of term portion of credit agreement ( 14,606 ) ( 9,738 ) Payments on or proceeds from other debt, net ( 5,670 ) ( 4,186 ) Net decrease in settlement assets and liabilities ( 2,834 ) ( 605 ) Net cash flows from financing activities ( 20,326 ) ( 25,998 ) Effect of exchange rate fluctuations on cash 2,557 ( 2,464 ) Net increase (decrease) in cash and cash equivalents 13,560 ( 8,075 ) Cash and cash equivalents, including settlement deposits, beginning of period 214,672 184,142 Cash and cash equivalents, including settlement deposits, end of period $ 228,232 $ 176,067 Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets Cash and cash equivalents $ 142,412 $ 114,754 Settlement deposits 85,820 61,313 Total cash and cash equivalents, including settlement deposits $ 228,232 $ 176,067 Supplemental cash flow information Income taxes paid $ 17,268 $ 8,418 Interest paid $ 23,403 $ 15,492 The accompanying notes are an integral part of the condensed consolidated financial statements. 7 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements include the accounts of ACI Worldwide, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 2022, is derived from the audited financial statements. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 1, 2023. Results for the three months ended March 31, 2023, are not necessarily indicative of results that may be attained in the future. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies, as well as uncertainty in the current economic environment. Actual results could differ from those estimates. Other Current Liabilities The components of other current liabilities are included in the following table (in thousands): March 31, 2023 December 31, 2022 Operating lease liabilities $ 11,049 $ 11,218 Vendor financed licenses 9,418 13,525 Accrued interest 3,370 9,067 Royalties payable 2,696 3,726 Other 44,131 65,109 Total other current liabilities $ 70,664 $ 102,645 Settlement Assets and Liabilities Individuals and businesses settle their obligations to the Company’s various Biller clients using credit or debit cards or via automated clearing house (“ACH”) payments. The Company creates a receivable for the amount due from the credit or debit card processor and an offsetting payable to the client. Upon confirmation that the funds have been received, the Company settles the obligation to the client. Due to timing, in some instances, the Company may (1) receive the funds into bank accounts controlled by and in the Company’s name that are not disbursed to its clients by the end of the day, resulting in a settlement deposit on the Company’s books and (2) disburse funds to its clients in advance of receiving funds from the credit or debit card processor, resulting in a net settlement receivable position. Off Balance Sheet Settlement Accounts The Company also enters into agreements with certain Biller clients to process payment funds on their behalf. When an ACH or automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account, which is a trust account maintained for the benefit of the Company’s clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back” transactions are designed to settle at the same time, usually overnight, such that the Company receives the funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the benefit of the client, which is separate from the Company’s corporate assets. As the Company does not take ownership of the funds, these settlement accounts are not included in the Company’s balance sheet. The Company is entitled to interest earned on the fund balances. The collection of interest on these settlement accounts is 8 Table of contents considered in the Company’s determination of its fee structure for clients and represents a portion of the payment for services performed by the Company. The amount of settlement funds as of March 31, 2023, and December 31, 2022, was $ 300.6 million and $ 328.7 million, respectively. Fair Value The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the fair value hierarchy). The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities. The fair value of the Company’s 5.750 % Senior Notes due 2026 (“2026 Notes”) was $ 399.0 million and $ 390.0 million as of March 31, 2023, and December 31, 2022, respectively. The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy). Goodwill In accordance with the Accounting Standards Codification ("ASC") 350, Intangibles – Goodwill and Other , the Company assesses goodwill for impairment annually during the fourth quarter of its fiscal year using October 1 balances or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company evaluates goodwill at the reporting unit level and has identified its operating segments, Banks, Merchants, and Billers, as the reporting units. As of March 31, 2023, the Company's goodwill balance of $ 1.2 billion was allocated $ 671.7 million to Banks, $ 137.3 million to Merchants, and $ 417.0 million to Billers. Recoverability of goodwill is measured using a discounted cash flow model incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in impairment testing in the absence of available transactional market evidence to determine the fair value. The calculated fair value was substantially in excess of the current carrying value for all reporting units based upon the October 1, 2022, annual impairment test and there have been no indications of impairment in the subsequent periods. Equity Method Investment In July 2019, the Company invested $ 18.3 million for a 30 % non-controlling financial interest in a payment technology and services company in India. The Company accounted for this investment using the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures . The Company records its share of earnings and losses in the investment on a one-quarter lag basis. Accordingly, the Company recorded an investment of $ 18.0 million and $ 17.9 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of March 31, 2023, and December 31, 2022, respectively. 2. Revenue In accordance with ASC 606, Revenue From Contracts With Customers , revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. See Note 10, Segment Information, for additional information, including disaggregation of revenue based on primary solution category. Total receivables represent amounts billed and amounts earned that are to be billed in the future (i.e., accrued receivables). Included in accrued receivables are services, software as a service ("SaaS"), and platform as a service ("PaaS") revenues earned in the current period but billed in the following period, and amounts due under multi-year software license arrangements with extended payment terms for which the Company has an unconditional right to invoice and receive payment subsequent to invoicing. 9 Table of contents Total receivables, net is comprised of the following (in thousands): March 31, 2023 December 31, 2022 Billed receivables $ 153,420 $ 218,611 Allowance for doubtful accounts ( 3,179 ) ( 3,779 ) Billed receivables, net 150,241 214,832 Current accrued receivables, net 192,524 188,949 Long-term accrued receivables, net 270,332 297,818 Total accrued receivables, net 462,856 486,767 Total receivables, net $ 613,097 $ 701,599 One customer accounted for 10.5 % and 10.1 % of the Company's consolidated receivables balance as of March 31, 2023 and December 31, 2022, respectively. Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and PaaS services in advance of recording the related revenue. Changes in deferred revenue were as follows (in thousands): Balance, December 31, 2022 $ 81,536 Deferral of revenue 31,518 Recognition of deferred revenue ( 21,465 ) Foreign currency translation 49 Balance, March 31, 2023 $ 91,638 Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include: • Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty. • SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient or meets the allocation objective. Revenue allocated to remaining performance obligations was $ 651.4 million as of March 31, 2023, of which the Company expects to recognize approximately 50 % over the next 12 months and the remainder thereafter. During the three months ended March 31, 2023 and 2022, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant. 3. Divestiture Corporate Online Banking Solutions On June 7, 2022, the Company announced a definitive agreement to divest its corporate online banking solutions related assets and liabilities to One Equity Partners ("OEP") for $ 100.1 million, including preliminary net working capital adjustment. The sale included employees and customer contracts as well as technology assets and intellectual property and closed on September 1, 2022. The Company recognized a gain of $ 38.5 million on the sale during the year ended December 31, 2022, which 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. 10 Table of contents 4. Debt As of March 31, 2023, the Company had $ 110.0 million, $ 578.1 million, and $ 400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $ 388.4 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $ 1.6 million of unused borrowings under Letter of Credit agreements. The amount of unused borrowings actually available varies in accordance with the terms of the agreement. Credit Agreement On April 5, 2019, the Company and its wholly-owned subsidiaries, ACI Worldwide Corp. and ACI Payments, Inc. entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with the lenders, and Bank of America, N.A., as administrative agent for the lenders, to amend and restate the Company's existing agreement, as amended, dated February 24, 2017. On May 5, 2022, the Company and Bank of America entered into the LIBOR Transition Amendment (the "Amendment") that replaced the LIBOR reference rate with the Secured Overnight Financing Rate ("SOFR") reference rate. No other terms or conditions of the Credit Agreement were changed as a result of the Amendment. On April 28, 2023, the Company and Bank of America entered into the 2023 Extension Amendment to extend the term of the Credit Facility one year to April 5, 2025. All other terms remained the same. The Credit Agreement consists of (a) a five-year $ 500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans, (b) a five-year $ 279.0 million senior secured term loan facility (the "Initial Term Loan") and (c) a five-year $ 500.0 million Delayed Draw Term Loan (together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility, the “Credit Facility”). The Credit Agreement also allows the Company to request optional incremental term loans and increases in the revolving commitment. At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to, either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, or (3) SOFR rate determined by reference to the costs of funds for U.S. dollar deposits for a one-month interest period, adjusted for certain additional costs, plus 1 % or (b) a SOFR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, plus an applicable margin. Based on the calculation of the applicable consolidated total leverage ratio, the applicable margin for borrowings under the Credit Facility is between 0.25 % to 1.25 % with respect to base rate borrowings and between 1.25 % and 2.25 % with respect to SOFR rate borrowings. Interest is due and payable monthly. The interest rate in effect for the Credit Facility as of March 31, 2023, was 6.90 %. The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on SOFR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees. Senior Notes On August 21, 2018, the Company completed a $ 400.0 million offering of the 2026 Notes at an issue price of 100 % of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750 %, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes will mature on August 15, 2026. 11 Table of contents Maturities on debt outstanding as of March 31, 2023, are as follows (in thousands): Fiscal Year Ending December 31, Remainder of 2023 $ 55,300 2024 632,823 2025 — 2026 400,000 2027 — Thereafter — Total $ 1,088,123 As of March 31, 2023, and at all times during the period, the Company was in compliance with its financial debt covenants. Total debt is comprised of the following (in thousands): March 31, 2023 December 31, 2022 Term loans $ 578,123 $ 592,729 Revolving credit facility 110,000 105,000 5.750 % Senior notes, due August 2026 400,000 400,000 Debt issuance costs ( 6,742 ) ( 7,857 ) Total debt 1,081,381 1,089,872 Less: current portion of term loans 74,775 69,906 Less: current portion of debt issuance costs ( 4,332 ) ( 4,385 ) Total long-term debt $ 1,010,938 $ 1,024,351 Overdraft Facility In 2019, the Company and ACI Payments, Inc. entered in to an uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at the federal funds effective rate plus 2.25 % based on the Company’s average outstanding balance and the frequency in which overdrafts occur. 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. Amounts outstanding on the overdraft facility are included in other current liabilities in the condensed consolidated balance sheet. As of March 31, 2023, there was $ 75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2022, there was no amount outstanding on the overdraft facility. Other The Company finances certain multi-year license agreements for internal-use software. Upon execution, these arrangements have been treated as a non-cash investing and financing activity for purposes of the condensed consolidated statements of cash flows. As of March 31, 2023, $ 7.1 million was outstanding on these agreements, of which $ 3.6 million and $ 3.5 million is included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet. As of December 31, 2022, $ 9.3 million was outstanding on these agreements, of which $ 5.8 million and $ 3.5 million is included in other current liabilities and other noncurrent liabilities, respectively . 12 Table of contents 5. Software and Other Intangible Assets The carrying amount and accumulated amortization of the Company's software assets subject to amortization at each balance sheet date are as follows (in thousands): March 31, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance Software for internal use $ 456,647 $ ( 336,846 ) $ 119,801 $ 454,171 $ ( 325,062 ) $ 129,109 Amortization of software for internal use is computed using the straight-line method over an estimated useful life of generally three to eight years . Software for internal use amortization expense recorded during the three months ended March 31, 2023 and 2022, totaled $ 17.0 million and $ 16.7 million, respectively. These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations. Amortization of software for resale was computed using the greater of (a) the ratio of current gross revenues to the total of current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining estimated useful life of generally five to ten years . Software for resale amortization expense recorded during the three months ended March 31, 2022 totaled $ 0.7 million. Software for resale was fully amortized during the year ended December 31, 2022 and, therefore, there was no amortization expense recorded during the three months ended March 31, 2023. The software amortization expense amount was reflected in cost of revenue in the condensed consolidated statements of operations. The carrying amount and accumulated amortization of the Company’s other intangible assets subject to amortization at each balance sheet date are as follows (in thousands): March 31, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance Customer relationships $ 445,631 $ ( 227,551 ) $ 218,080 $ 444,749 $ ( 219,057 ) $ 225,692 Trademarks and trade names 21,782 ( 19,322 ) 2,460 21,678 ( 18,672 ) 3,006 Total other intangible assets $ 467,413 $ ( 246,873 ) $ 220,540 $ 466,427 $ ( 237,729 ) $ 228,698 Other intangible assets amortization expense recorded during the three months ended March 31, 2023 and 2022, totaled $ 8.4 million and $ 9.2 million, respectively. Based on capitalized intangible assets as of March 31, 2023, estimated amortization expense amounts in future fiscal years are as follows (in thousands): Fiscal Year Ending December 31, Software Amortization Other Intangible Assets Amortization Remainder of 2023 $ 42,140 $ 25,345 2024 37,988 29,381 2025 26,088 20,962 2026 10,522 20,962 2027 1,696 20,721 Thereafter 1,367 103,169 Total $ 119,801 $ 220,540 13 Table of contents 6. Stock-Based Compensation Plans Employee Stock Purchase Plan Shares issued under the 2017 Employee Stock Purchase Plan during the three months ended March 31, 2023 and 2022, totaled 31,639 and 31,406 , respectively. Stock Options A summary of stock option activity is as follows: Number of Shares Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value of In-the-Money Options ($) Outstanding as of December 31, 2022 1,221,219 $ 19.00 Exercised ( 4,992 ) 15.88 Expired ( 4,614 ) 19.63 Outstanding as of March 31, 2023 1,211,613 $ 19.01 2.46 $ 9,658,883 Exercisable as of March 31, 2023 1,211,613 $ 19.01 2.46 $ 9,658,883 The total intrinsic value of stock options exercised during the three months ended March 31, 2023 and 2022, was less than $ 0.1 million and $ 0.9 million, respectively. There were no stock options granted during the three months ended March 31, 2023 or 2022. Total Shareholder Return Awards A summary of nonvested total shareholder return awards ("TSRs") is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2022 1,011,881 $ 39.21 Forfeited ( 38,728 ) 43.99 Change in payout rate ( 427,685 ) 30.01 Nonvested as of March 31, 2023 545,468 $ 46.09 At March 31, 2023, the TSRs granted in 2020 were earned by the employees. However, the performance goals were not met and no shares were issued. The fair value of TSRs granted during the three months ended March 31, 2022, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, Compensation - Stock Compensation , using the following weighted average assumptions: Three Months Ended March 31, 2022 Expected life (years) 3.1 Risk-free interest rate 1.5 % Expected volatility 40.0 % Expected dividend yield — There were no TSRs granted during the three months ended March 31, 2023. 14 Table of contents Restricted Share Units A summary of nonvested restricted share unit awards ("RSUs") is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2022 1,184,024 $ 30.73 Vested ( 333,812 ) 31.10 Forfeited ( 103,379 ) 31.75 Nonvested as of March 31, 2023 746,833 $ 30.43 During the three months ended March 31, 2023, a total of 333,812 RSUs vested. The Company withheld 114,492 of those shares to pay the employees’ portion of the minimum payroll withholding taxes. As of March 31, 2023, there were unrecognized compensation costs of $ 18.5 million and $ 10.2 million related to nonvested RSUs and TSRs, respectively, which the Company expects to recognize over weighted average periods of 1.8 years and 1.7 years, respectively. The Company recorded stock-based compensation expense recognized under ASC 718 for the three months ended March 31, 2023 and 2022, of $ 5.3 million and $ 8.0 million, respectively, with corresponding tax benefits of $ 0.9 million and $ 1.1 million, respectively. 7. Common Stock and Treasury Stock In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program. On February 24, 2023, the board approved the repurchase of the Company's common stock of up to $ 200.0 million, in place of the remaining purchase amounts previously authorized. The Company did no t repurchase any shares under the program during the three months ended March 31, 2023. Under the program to date, the Company has repurchased 57,981,733 shares for approximately $ 926.2 million. As of March 31, 2023, the maximum remaining amount authorized for purchase under the stock repurchase program was $ 200.0 million. 8. Earnings (Loss) Per Share Basic earnings (loss) per share is computed in accordance with ASC 260, Earnings Per Share , based on weighted average outstanding common shares. Diluted earnings (loss) per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been achieved. The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings (loss) per share (in thousands): Three Months Ended March 31, 2023 2022 Weighted average shares outstanding: Basic weighted average shares outstanding 108,156 115,287 Add: Dilutive effect of stock options and RSUs — 811 Diluted weighted average shares outstanding 108,156 116,098 The diluted earnings (loss) per share computation excludes 2.5 million and 1.8 million options to purchase shares, RSUs, and contingently issuable shares during the three months ended March 31, 2023 and 2022, respectively, as their effect would be anti-dilutive. Common stock outstanding as of March 31, 2023, and December 31, 2022, was 108,322,311 and 108,068,828 , respectively. 15 Table of contents 9. Other, Net Other, net is primarily comprised of foreign currency transaction gains and losses. Other, net was $ 3.4 million of expense and $ 2.3 million of income for the three months ended March 31, 2023 and 2022, respectively . 10. Segment Information The Company reports financial performance based on its operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as a measure of segment profitability. The Company’s Chief Executive Officer is also the chief operating decision maker ("CODM"). The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from Corporate operations. No operating segments have been aggregated to form the reportable segments. Banks. ACI provides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands. Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who service them. These customers operate in a variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. The Company's solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop. Billers. Within the billers segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue. Revenue is attributed to the reportable segments based upon the customer. Expenses are attributed to the reportable segments in one of three methods: (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual projects, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities. Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’s segments, and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting. Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense). Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to corporate overhead costs that are not allocated to reportable segments. The overhead costs relate to human resources, finance, legal, accounting, and merger and acquisition activity. These costs along with depreciation and amortization and stock-based compensation are not considered when management evaluates segment performance. 16 Table of contents The following is selected financial data for the Company’s reportable segments for the periods indicated (in thousands): Three Months Ended March 31, 2023 2022 Revenue Banks $ 88,040 $ 132,198 Merchants 34,781 41,002 Billers 166,855 149,880 Total revenue $ 289,676 $ 323,080 Segment Adjusted EBITDA Banks $ 24,681 $ 64,714 Merchants 6,544 14,713 Billers 29,641 26,357 Depreciation and amortization ( 31,539 ) ( 31,489 ) Stock-based compensation expense ( 5,301 ) ( 7,958 ) Corporate and unallocated expenses ( 48,378 ) ( 38,671 ) Interest, net ( 15,387 ) ( 7,735 ) Other, net ( 3,395 ) 2,250 Income (loss) before income taxes $ ( 43,134 ) $ 22,181 Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information. The following is revenue by primary solution category for the Company’s reportable segments for the periods indicated (in thousands): Three Months Ended March 31, 2023 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 166,855 $ 166,855 Digital Business Banking 849 — — 849 Merchant Payments — 34,781 — 34,781 Fraud Management 9,355 — — 9,355 Real-Time Payments 19,398 — — 19,398 Issuing and Acquiring 58,438 — — 58,438 Total $ 88,040 $ 34,781 $ 166,855 $ 289,676 Three Months Ended March 31, 2022 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 149,880 $ 149,880 Digital Business Banking 13,488 — — 13,488 Merchant Payments — 41,002 — 41,002 Fraud Management 7,777 — — 7,777 Real-Time Payments 21,927 — — 21,927 Issuing and Acquiring 89,006 — — 89,006 Total $ 132,198 $ 41,002 $ 149,880 $ 323,080 As discussed in Note 3, Divestiture , the Company divested its corporate online banking solution assets, which were included in the Digital Business Banking solution category. 17 Table of contents Three Months Ended March 31, 2023 2022 Banks Software as a service and platform as a service $ 9,249 $ 13,952 License 16,316 54,439 Maintenance 46,342 47,343 Services 16,133 16,464 Total $ 88,040 $ 132,198 Merchants Software as a service and platform as a service $ 28,850 $ 30,767 License 2,015 5,846 Maintenance 3,737 4,038 Services 179 351 Total $ 34,781 $ 41,002 Billers Software as a service and platform as a service $ 166,831 $ 149,843 License — — Maintenance 24 37 Services — — Total $ 166,855 $ 149,880 The following is the Company's revenue by geographic location for the periods indicated (in thousands): Three Months Ended March 31, 2023 2022 Revenue United States $ 201,269 $ 199,315 Other 88,407 123,765 Total $ 289,676 $ 323,080 The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands): March 31, 2023 December 31, 2022 Long-lived Assets United States $ 1,258,485 $ 1,286,505 Other 730,935 754,847 Total $ 1,989,420 $ 2,041,352 No single customer accounted for more than 10% of the Company’s consolidated revenues during the three months ended March 31, 2023 and 2022. No other country outside the United States accounted for more than 10% of the Company's consolidated revenues during the three months ended March 31, 2023 and 2022. 11. Income Taxes For the three months ended March 31, 2023, the Company's effective tax rate was 25 %. The Company’s foreign entities reported losses of $ 7.2 million for the three months ended March 31, 2023. For the three months ended March 31, 2022, the Company's effective tax rate was 30 %. The Company's foreign entities reported profits of $ 30.9 million for the three months ended March 31, 2022. 18 Table of contents The Company’s effective tax rate could fluctuate on a quarterly basis due to the occurrence of significant and unusual or infrequent items, such as vesting of stock-based compensation or foreign currency gains and losses. The Company’s effective tax rate could also fluctuate due to changes in the valuation of its deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, the Company is occasionally subject to examination of its income tax returns by tax authorities in the jurisdictions it operates. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. As of March 31, 2023, and December 31, 2022, the amount of unrecognized tax benefits for uncertain tax positions was $ 26.3 million and $ 26.4 million, respectively, excluding related liabilities for interest and penalties of $ 0.6 million as of March 31, 2023, and December 31, 2022. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $ 4.6 million, due to the settlement of various audits and the expiration of statutes of limitation. 12. Commitments and Contingencies Legal Proceedings In April 2021, ACH files associated with one of the Company's mortgage servicing customers were inadvertently transmitted into the ACH network during a test of the Company's payment processing system. The Company took immediate corrective action and issued reversing ACH files, restoring affected accounts. The Company was named as a defendant in seven class action lawsuits filed in various federal courts purportedly on behalf of consumers whose mortgage accounts were affected by the inadvertent ACH file transmission. The Company entered into an agreement, which is subject to final court approval and other conditions, to settle these lawsuits for the Company's establishment of a $ 5.0 million fund out of which payments would be made to class members and the Company's payment of attorneys’ fees and administrative costs, plus additional funds totaling $ 1.5 million that could be required to be established under certain circumstances. There can be no assurance that the conditions to settlement will be satisfied, in which event the class action litigation could proceed. The inadvertent ACH file transmission also gave rise to investigations by the U.S. Consumer Financial Protection Bureau (the "CFPB") and state attorneys general in 49 states, the District of Columbia, and certain U.S. territories as well as money transmission regulators in 46 states, the District of Columbia, and certain U.S. territories. A lead group of attorneys general and regulatory representatives of nine states have led the state investigations of the matter. The Company has cooperated with the CFPB and state authorities, including furnishing documents and information to them. There can be no assurance that the matters will be resolved without litigation, and the matters could result in the impositions of material penalties and damages as well as burdensome and costly remedies. The Company has asserted claims for insurance coverage with respect to potential losses associated with the inadvertent ACH file transmission. There is no assurance as to the amount of insurance that may be available or its effect on the availability or cost of insurance in the future. The Company is from time to time subject to other claims, litigation and investigations. While we believe that none of the currently pending matters is reasonably likely to have material adverse effect on us, there can be no assurance with respect thereto or future matters.