What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 190 added, 86 removed, 271 unchanged (50% 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, 2022, and with our financial statements and related notes contained in this Form 10-Q.

Results for the three months ended March 31, 2023, are not necessarily indicative of results that may be attained in the future.

Results for the three and six months ended June 30, 2023, are not necessarily indicative of results that may be attained in the future.

Global Economy and Inflation

62 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 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.

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 net working capital adjustment.

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

During the year ended December 31, 2022, we recognized a gain of $38.5 million on the sale, which is preliminary subject to finalization of post-closing adjustments pursuant to the definitive transaction agreement.

The Company recognized a gain of $38.5 million on the sale during the year ended December 31, 2022.

During the three months ended June 30, 2023, the Company recognized a loss for the final post-closing adjustment pursuant to the definitive agreement of $0.5 million.

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.

19 unchanged sentences

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

The following table sets forth our 60-month backlog estimate, by reportable segment, as of March 31, 2023, and December 31, 2022 (in millions).

The following table sets forth our 60-month backlog estimate, by reportable segment, as of June 30, 2023, March 31, 2023, and December 31, 2022 (in millions).

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

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 March 31, 2023 December 31, 2022

Banks $ 2,207 $ 2,154 $ 2,095

2 unchanged sentences

Total $ 6,413 $ 6,370 $ 6,295

March 31, 2023 December 31, 2022

June 30, 2023 March 31, 2023 December 31, 2022

Committed $ 2,192 $ 2,266 $ 2,338

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 March 31, 2023 Compared to the Three Month Period Ended March 31, 2022

Three Months Ended March 31,

Three Month Period Ended June 30, 2023 Compared to the Three Month Period Ended June 30, 2022

Three Months Ended June 30,

Amount % of Total

23 unchanged sentences

Net income (loss) $ (6,710) (2) % $ (20,052) (150) % $ 13,342 6 %

Total revenue for the three months ended March 31, 2023, decreased $33.4 million, or 10%, as compared to the same period in 2022.

• The divestiture resulted in a $12.4 million decrease in total revenue for the three months ended March 31, 2023.

Total revenue for the three months ended June 30, 2023, decreased $17.1 million, or 5%, as compared to the same period in 2022.

• The divestiture resulted in a $11.3 million decrease in total revenue for the three months ended June 30, 2023.

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

dollar resulted in a $4.9 million decrease in total revenue during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the three months ended March 31, 2023, decreased $16.2 million, or 5%, as compared to the same period in 2022.

dollar resulted in a $0.4 million decrease in total revenue during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestitures and foreign currency, total revenue for the three months ended June 30, 2023, decreased $5.4 million, or 2%, as compared to the same period in 2022.

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 $10.4 million, or 5%, during the three months ended March 31, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $7.3 million decrease in SaaS and PaaS revenue for the three months ended March 31, 2023.

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

dollar resulted in a $1.1 million decrease in SaaS and PaaS revenue during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, SaaS and PaaS revenue for the three months ended March 31, 2023, increased $18.8 million, or 10%, as compared to the same period in 2022.

• The increase was primarily driven by new customer go-lives and higher transaction volumes during the three months ended March 31, 2023, as compared to 2022.

SaaS and PaaS revenue increased $2.7 million, or 1%, during the three months ended June 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $6.3 million decrease in SaaS and PaaS revenue for the three months ended June 30, 2023.

• Adjusted for the impact of the divestiture, SaaS and PaaS revenue for the three months ended June 30, 2023, increased $9.0 million, or 4%, as compared to the same period in 2022.

• The increase was primarily driven by higher transaction volumes during the three months ended June 30, 2023, as compared to the same period in 2022, as well as new customer go-lives since June 30, 2022.

License Revenue

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

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

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

6 unchanged sentences

The Company recognizes revenue in advance of billings for software license arrangements with extended payment terms and adjusts for the effects of the financing component, if significant.

License revenue decreased $42.0 million, or 70%, during the three months ended March 31, 2023, as compared to the same period in 2022.

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

dollar resulted in a $2.0 million decrease in license revenue during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, license revenue for the three months ended March 31, 2023, decreased $39.9 million, or 68%, as compared to the same period in 2022.

• The decrease was driven by license renewal timing as well as the relative size of new license and capacity events during the three months ended March 31, 2023, as compared to the same period in 2022.

License revenue decreased $19.6 million, or 31%, during the three months ended June 30, 2023, as compared to the same period in 2022.

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

dollar resulted in a $0.7 million increase in license revenue during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, license revenue for the three months ended June 30, 2023, decreased $20.3 million, or 31%, as compared to the same period in 2022.

• The decrease was driven by license renewal timing as well as the relative size of new license agreements during the three months ended June 30, 2023, as compared to the same period in 2022.

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 $1.3 million, or 3%, during the three months ended March 31, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $2.9 million decrease in maintenance revenue for the three months ended March 31, 2023.

Maintenance revenue increased $0.8 million, or 2%, during the three months ended June 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $2.9 million decrease in maintenance revenue for the three months ended June 30, 2023.

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

dollar resulted in a $1.3 million decrease in maintenance revenue during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the three months ended March 31, 2023, increased $3.0 million, or 6%, as compared to the same period in 2022.

• The increase was primarily driven by annual inflationary increases in product support fees during the three months ended March 31, 2023, as compared to the same period in 2022.

dollar resulted in a $0.8 million decrease in maintenance revenue during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the three months ended June 30, 2023, increased $4.5 million or 10%, as compared to the same period in 2022.

• The increase was primarily driven by annual inflationary increases in product support fees subsequent to June 30, 2022.

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 decreased $0.5 million, or 3%, during the three months ended March 31, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $2.0 million decrease in services revenue for the three months ended March 31, 2023.

Services revenue decreased $1.0 million, or 5%, during the three months ended June 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $2.1 million decrease in services revenue for the three months ended June 30, 2023.

• 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 March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the three months ended March 31, 2023, increased $1.9 million, or 13%, as compared to the same period in 2022.

• The increase was primarily driven by the timing and magnitude of project-related work during the three months ended March 31, 2023, as compared to the same period in 2022.

dollar resulted in a $0.3 million decrease in services revenue during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the three months ended June 30, 2023, increased $1.4 million or 9%, as compared to the same period in 2022.

• The increase was primarily driven by the timing and magnitude of project-related work during the three months ended June 30, 2023, as compared to the same period in 2022.

Operating Expenses

Total operating expenses for the three months ended March 31, 2023, increased $18.6 million, or 6%, as compared to the same period in 2022.

• During the three months ended March 31, 2023, there was a $7.2 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the three months ended March 31, 2023, included $8.3 million for cost reduction strategies, $2.0 million of significant transaction-related expenses, $1.1 million for CEO transition, and $1.0 million of European data center migration expenses, expenses during the period compared to $0.5 million of significant transaction-related expenses for the same period in 2022.

Total operating expenses for the three months ended June 30, 2023, decreased $3.2 million, or 1%, as compared to the same period in 2022.

• During the three months ended June 30, 2023, there was a $6.5 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the three months ended June 30, 2023, included $7.6 million for cost reduction strategies, $0.5 million of significant transaction-related expenses, $0.7 million for CEO transition, and $1.2 million of European data center migration expenses during the period, compared to $1.4 million of divestiture transaction-related expenses and $1.3 million of European data center migration expenses for the same period in 2022.

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

dollar resulted in a $3.8 million decrease in total operating expenses during the three months ended March 31, 2023, compared to the same period in 2022.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, total operating expenses for the three months ended March 31, 2023, increased $17.7 million, or 6%, compared to the same period in 2022.

dollar resulted in a $1.6 million decrease in total operating expenses during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, total operating expenses for the three months ended June 30, 2023, decreased $2.4 million, or 1%, as compared to the same period in 2022.

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 $12.3 million, or 7%, during the three months ended March 31, 2023, compared to the same period in 2022.

• During the three months ended March 31, 2023, there was a $6.7 million reduction in cost of revenue related to the divestiture.

Cost of revenue increased $2.0 million, or 1%, during the three months ended June 30, 2023, as compared to the same period in 2022.

• During the three months ended June 30, 2023, there was a $6.0 million reduction in cost of revenue related to the divestiture.

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

dollar resulted in a $1.6 million decrease in cost of revenue during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $20.7 million, or 13%, for the three months ended March 31, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher payment card interchange and processing fees, personnel and related expenses, and cloud computing fees of $13.0 million, $5.4 million, and $2.9 million, respectively.

dollar resulted in a $0.8 million decrease in cost of revenue during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $8.8 million, or 5%, for the three months ended June 30, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher personnel and related expenses, payment card interchange and processing fees, and cloud computing fees of $4.5 million, $2.3 million, and $2.0 million, respectively.

Research and Development

Research and development (“R&D”) expenses are primarily human resource costs related to the creation of new products, improvements made to existing products as well as compatibility with new operating system releases and generations of hardware.

R&D expense decreased $0.7 million, or 2%, during the three months ended March 31, 2023, as compared to the same period in 2022.

• During the three months ended March 31, 2023, there was a $0.5 million reduction in R&D expense related to the divestiture.

R&D expense decreased $5.4 million, or 13%, during the three months ended June 30, 2023, as compared to the same period in 2022.

• During the three months ended June 30, 2023, there was a $0.5 million reduction in R&D expense related to the divestiture.

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

dollar resulted in a $0.7 million decrease in R&D expense during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, R&D expense increased $0.5 million, or 1%, for the three months ended March 31, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher personnel and related expenses of $1.9 million, partially offset by a decrease in professional fees of $1.4 million.

dollar resulted in a $0.3 million decrease in R&D expense during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, R&D expense decreased $4.6 million, or 11%, for the three months ended June 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower personnel and related expenses and professional fees of $2.9 million and $1.7 million, respectively.

Selling and Marketing

3 unchanged sentences

Marketing costs include costs incurred to promote the Company and its products, perform or acquire market research to help the Company better understand impending changes in customer demand for and of our products, and the costs associated with measuring customers’ opinions toward the Company, our products and personnel.

Selling and marketing expense increased $0.8 million, or 2%, during the three months ended March 31, 2023, as compared to the same period in 2022.

Selling and marketing expense decreased $2.1 million, or 6%, during the three months ended June 30, 2023, as compared to the same period in 2022.

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

dollar resulted in a $0.7 million decrease in selling and marketing expense during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $1.5 million, or 5%, for the three months ended March 31, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher advertising and professional fees and travel and entertainment expenses of $2.4 million and $0.7 million, respectively, partially offset by lower personnel and related expenses of $1.6 million.

dollar resulted in a $0.2 million decrease in selling and marketing expense during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, selling and marketing expense decreased $1.9 million, or 5%, for the three months ended June 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower advertising and professional fees, travel and entertainment expenses, and personnel and related expenses.

General and Administrative

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

General and administrative expense increased $5.5 million, or 21%, during the three months ended March 31, 2023, as compared to the same period in 2022.

• General and administrative expenses for the three months ended March 31, 2023, included $8.3 million for cost reduction strategies, $2.0 million of significant transaction-related expenses, $1.1 million for CEO transitions, and $1.0 million of European data center migration expenses, compared to $0.5 million of significant transaction-related expenses in the same period in 2022.

General and administrative expense increased $3.1 million, or 11%, during the three months ended June 30, 2023, as compared to the same period in 2022.

• General and administrative expenses for the three months ended June 30, 2023, included $7.6 million for cost reduction strategies, $0.5 million of significant transaction-related expenses, $0.7 million for CEO transition, and $1.2 million of European data center migration expenses during the period, compared to $2.7 million of significant transaction-related expenses in the same period in 2022.

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

dollar resulted in a $0.5 million decrease in general and administrative expense during the three months ended March 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $5.9 million, or 24%, for the three months ended March 31, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower personnel and related expenses and professional and other legal fees of $5.2 million and $0.7 million, respectively.

dollar resulted in a $0.2 million decrease in general and administrative expense during the three months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $4.0 million, or 16%, for the three months ended June 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower personnel and related expenses.

Depreciation and Amortization

Depreciation and amortization increased $0.7 million, or 2%, during the three months ended March 31, 2023, as compared to the same period in 2022.

Depreciation and amortization decreased $0.8 million, or 2%, during the three months ended June 30, 2023, as compared to the same period in 2022.

Other Income and Expense

Interest expense for the three months ended March 31, 2023, increased $8.0 million, or 73%, as compared to the same period in 2022, primarily due to higher interest rates.

Interest expense for the three months ended June 30, 2023, increased $8.1 million, or 69%, as compared to the same period in 2022, primarily due to higher interest rates.

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

Interest income for the three months ended March 31, 2023, increased $0.3 million, or 11%, as compared to the same period in 2022.

Interest income for the three months ended June 30, 2023, increased $0.4 million, or 13%, as compared to the same period in 2022.

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.

Other, net was $4.1 million of expense and $2.0 million of income for the three months ended June 30, 2023 and 2022, respectively.

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

RESULTS OF OPERATIONS

Six Month Period Ended June 30, 2023 Compared to the Six Month Period Ended June 30, 2022

Six Months Ended June 30,

Amount % of Total

Revenue $ Change

vs 2022 % Change

vs 2022 Amount % of Total

Software as a service and platform as a service $ 414,606 67 % $ 13,066 3 % $ 401,540 61 %

License 63,002 10 % (61,597) (49) % 124,599 19 %

Maintenance 101,494 17 % (486) — % 101,980 15 %

Services 33,899 6 % (1,487) (4) % 35,386 5 %

Total revenues 613,001 100 % (50,504) (8) % 663,505 100 %

Operating expenses:

Cost of revenue 359,897 59 % 14,278 4 % 345,619 52 %

Research and development 72,383 12 % (6,066) (8) % 78,449 12 %

Selling and marketing 68,724 11 % (1,275) (2) % 69,999 11 %

General and administrative 62,854 10 % 8,617 16 % 54,237 8 %

Depreciation and amortization 62,975 10 % (103) — % 63,078 10 %

Total operating expenses 626,833 102 % 15,451 3 % 611,382 93 %

Operating income (loss) (13,832) (2) % (65,955) (127) % 52,123 7 %

Other income (expense):

Interest expense (38,801) (6) % (16,123) 71 % (22,678) (3) %

Interest income 6,963 1 % 753 12 % 6,210 1 %

Other, net (7,487) (1) % (11,743) (276) % 4,256 1 %

Total other income (expense) (39,325) (6) % (27,113) 222 % (12,212) (1) %

Income (loss) before income taxes (53,157) (8) % (93,068) (233) % 39,911 6 %

Income tax expense (benefit) (14,139) (2) % (25,218) (228) % 11,079 2 %

Net income (loss) $ (39,018) (6) % $ (67,850) (235) % $ 28,832 4 %

Total revenue for the six months ended June 30, 2023, decreased $50.5 million, or 8%, as compared to the same period in 2022.

• The divestiture resulted in a $23.5 million decrease in total revenue for the six months ended June 30, 2023.

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

dollar resulted in a $5.5 million decrease in total revenue during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the six months ended June 30, 2023, decreased $21.5 million, or 3%, as compared to the same period in 2022.

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

SaaS and PaaS revenue increased $13.1 million, or 3%, during the six months ended June 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $13.6 million decrease in SaaS and PaaS revenue for the six months ended June 30, 2023.

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

dollar resulted in $1.1 million decrease in SaaS and PaaS revenue during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, SaaS and PaaS revenue for the six months ended June 30, 2023, increased $27.8 million, or 7%, as compared to the same period in 2022.

• The increase was primarily driven by higher transaction volumes during the six months ended June 30, 2023, as compared to the same period in 2022, as well as new customer go-lives since June 30, 2022.

License Revenue

License revenue decreased $61.6 million, or 49%, during the six months ended June 30, 2023, as compared to the same period in 2022.

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

dollar resulted in a $1.5 million decrease in license revenue during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, license revenue for the six months ended June 30, 2023, decreased $60.1 million, or 49%, as compared to the same period in 2022.

• The decrease was driven by license renewal timing as well as the relative size of new license agreements during the six months ended June 30, 2023, as compared to the same period in 2022.

Maintenance Revenue

Maintenance revenue decreased $0.5 million during the six months ended June 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $5.8 million decrease in maintenance revenue for the six months ended June 30, 2023.

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

dollar resulted in a $2.2 million decrease in maintenance revenue during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the six months ended June 30, 2023, increased $7.5 million, or 8%, as compared to the same period in 2022.

• The increase was primarily driven by annual inflationary increases in product support fees subsequent to June 30, 2022.

Services Revenue

Services revenue decreased $1.5 million, or 4%, during the six months ended June 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $4.0 million decrease in services revenue for the six months ended June 30, 2023

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

dollar resulted in a $0.7 million decrease in services revenue during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the six months ended June 30, 2023, increased $3.2 million, or 11%, as compared to the same period in 2022.

• The increase was primarily driven by the timing and magnitude of project-related work during the six months ended June 30, 2023, as compared to the same period in 2022.

Operating Expenses

Total operating expenses for the six months ended June 30, 2023, increased $15.5 million, or 3%, as compared to the same period in 2022.

• During the six months ended June 30, 2023, there was a $13.7 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the six months ended June 30, 2023, included $15.9 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.2 million of European data center migration expenses during the period, compared to $1.8 million of European datacenter migration expenses and $1.4 million of divestiture transaction-related expenses for the same period in 2022.

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

dollar resulted in a $5.4 million decrease in total operating expenses for the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, total operating expenses for the six months ended June 30, 2023, increased $15.3 million, or 3%, as compared to the same period in 2022.

Cost of Revenue

Cost of revenue increased $14.3 million, or 4%, during the six months ended June 30, 2023, as compared to the same period in 2022.

• During the six months ended June 30, 2023, there was a $12.7 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 $2.4 million decrease in cost of revenue during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $29.4 million, or 9%, for the six months ended June 30, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher payment card interchange and processing fees, personnel and related expenses, and cloud computing fees of $15.3 million, $9.8 million, and $4.9 million, respectively.

Research and Development

R&D expense decreased $6.1 million, or 8%, during the six months ended June 30, 2023, as compared to the same period in 2022.

• During the six months ended June 30, 2023, there was a $1.0 million reduction in R&D expenses related to the divestiture.

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

dollar resulted in a $1.0 million decrease in R&D expense during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, R&D expense decreased $4.1 million, or 5%, for the six months ended June 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower professional fees and personnel and related expenses of $2.8 million and $1.3 million, respectively.

Selling and Marketing

Selling and marketing expense decreased $1.3 million, or 2%, during the six months ended June 30, 2023, as compared to the same period in 2022.

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

dollar resulted in a $0.9 million decrease in selling and marketing expense for the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, selling and marketing expense decreased $0.4 million, for the six months ended June 30, 2023, as compared to the same period in 2022.

General and Administrative

General and administrative expense increased $8.6 million, or 16%, during the six months ended June 30, 2023, as compared to the same period in 2022.

• General and administrative expenses for the six months ended June 30, 2023, included $15.9 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.2 million of European data center migration expenses during the period, compared to $3.2 million of significant transaction-related expenses associated with cost reduction strategies implemented during the same period in 2022.

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

dollar resulted in a $0.8 million decrease in general and administrative expenses during the six months ended June 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $9.9 million, or 20%, for the six months ended June 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower personnel and related expenses and professional and other legal fees of $8.9 million and $1.0 million, respectively.

Depreciation and Amortization

Depreciation and amortization decreased $0.1 million, during the six months ended June 30, 2023, as compared to the same period in 2022.

Other Income and Expense

Interest expense for the six months ended June 30, 2023, increased $16.1 million, or 71%, as compared to the same period in 2022, primarily due to higher interest rates.

Interest income for the six months ended June 30, 2023, increased $0.8 million, or 12%, as compared to the same period in 2022.

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

Other, net was $7.5 million of expense and $4.3 million of income for the six months ended June 30, 2023 and 2022, respectively.

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

Segment Results

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Banks $ 117,507 $ 141,946 $ 205,547 $ 274,144

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Income (loss) before income taxes $ (10,023) $ 17,730 $ (53,157) $ 39,911

Banks Segment Adjusted EBITDA decreased $5.1 million due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA decreased $34.9 million for the three months ended March 31, 2023, compared to the same period in 2022, due to a $31.8 million decrease in revenue primarily related to a decrease in license revenues, and a $3.1 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $8.2 million for the three months ended March 31, 2023, compared to the same period in 2022, due to a $6.2 million decrease in revenue, and a $2.0 million increase in cash operating expense.

Billers Segment Adjusted EBITDA increased $3.3 million for the three months ended March 31, 2023, compared to the same period in 2022, due to a $17.0 million increase in revenue partially offset by a $13.7 million increase in cash operating expense, primarily payment card interchange and processing fees.

Banks Segment Adjusted EBITDA decreased $4.7 million for the three months ended June 30, 2023 due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA decreased $13.8 million for the three months ended June 30, 2023, compared to the same period in 2022, due to a $13.1 million decrease in revenue primarily related to a decrease in license revenues, and a $0.7 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $2.2 million for the three months ended June 30, 2023, compared to the same period in 2022, due to a $2.2 million decrease in cash operating expense.

Billers Segment Adjusted EBITDA increased $2.9 million for the three months ended June 30, 2023, compared to the same period in 2022, due to a $7.4 million increase in revenue, offset by a $4.5 million increase in cash operating expense primarily for payment card interchange and other processing fees.

Banks Segment Adjusted EBITDA decreased $9.8 million for the six months ended June 30, 2023 due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA decreased $48.8 million for the six months ended June 30, 2023, compared to the same period in 2022, due to a $45.0 million decrease in revenue primarily related to a decrease in license revenues, and a $3.8 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA decreased $6.0 million for the six months ended June 30, 2023, compared to the same period in 2022, due to a $6.2 million decrease in revenue, offset by a $0.2 million decrease in cash operating expense.

Billers Segment Adjusted EBITDA increased $6.2 million for the six months ended June 30, 2023, compared to the same period in 2022, due to a $24.3 million increase in revenue, offset by a $18.1 million increase in cash operating expense, primarily for payment card interchange and other processing fees.

Liquidity and Capital Resources

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

As of March 31, 2023, we had $142.4 million of cash and cash equivalents, of which $43.9 million was held by our foreign subsidiaries.

As of June 30, 2023, we had $132.4 million of cash and cash equivalents, of which $37.8 million was held by our foreign subsidiaries.

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

state income taxes to repatriate these funds.

As of March 31, 2023, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

As of June 30, 2023, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

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

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

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of March 31, 2023.

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, 2023.

Available Liquidity

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 132,391 $ 124,981

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Total liquidity $ 515,891 $ 518,481

The increase in total liquidity is primarily attributable to positive operating cash flows of $40.1 million, partially offset by $8.7 million of payments to purchase property and equipment and software and distribution rights and $14.6 million of repayments on the Term Loans.

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 March 31, 2023, the full $75.0 million was available.

As of June 30, 2023, the full $75.0 million was available.

Stock Repurchase Program

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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.

We did not repurchase any shares under the program during the three months ended March 31, 2023.

We did not repurchase any shares under the program during the six months ended June 30, 2023.

Under the program to date, we have 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 approximately $200.0 million.

As of June 30, 2023, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $200.0 million.

See Note 7, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

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

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used by):

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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 include employee expenditures, taxes, interest payments, and leased facilities.

Cash flows provided by operating activities of $40.1 million were $11.2 million higher for the three months ended March 31, 2023, compared to $28.9 million for the same period in 2022.

Our operating cash flows for the current quarter increased primarily due to $79.3 million more in customer receipt collections on higher prior year-end receivable balances, partially offset by $8.9 million more in income tax payments due to higher pre-tax income in the previous year, $7.9 million more in interest payments due to increase in interest rates, and the net loss for the three months ended March 31, 2023, compared to net income for the same period in 2022.

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

Cash flows provided by operating activities were $10.3 million lower for the six months ended June 30, 2023, compared to the same period in 2022.

Our operating cash flows for the current year decreased primarily due to $15.4 million more in income tax payments, which are based upon higher pre-tax income in the previous year, $15.8 million more in interest payments due to increase in interest rates, and the net loss for the six months ended June 30, 2023, compared to net income for the same period in 2022, partially offset by $95.9 million more in customer receipt collections on higher prior year-end receivable balances.

Our cash flow from operating activities can fluctuate from period to period due to several factors, including:

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The changes in cash flows from investing activities primarily relate to the timing of our purchases and investments in capital and other assets, including strategic acquisitions, that support our growth.

During the first three months of 2023, we used cash of $8.7 million to purchase software, property, and equipment, as compared to $8.5 million during the same period in 2022.

During the first six months of 2023, we used cash of $19.6 million to purchase software, property, and equipment, as compared to $14.4 million during the same period in 2022.

Cash Flows from Financing Activities

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

During the first three months of 2023, we repaid $14.6 million on the Term Loans and $5.7 million of other debt payments.

During the first six months of 2023, we repaid $34.1 million on the Term Loans, $11.8 million of other debt payments, and $2.2 million of debt issuance costs.

In addition, we used $3.3 million for the repurchase of stock-based compensation awards for tax withholdings, and $24.1 million for settlement assets and liabilities due to processing timing.

We received net proceeds of $10.0 million on the Revolving Credit Facility, and proceeds of $4.3 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

During the first three months of 2022, we repaid $9.7 million on the Term Loans and $4.2 million of other debt payments.

During the first six months of 2022, we repaid $21.2 million on the Term Loans and $9.4 million of other debt payments.

In addition, we used $62.7 million to repurchase common stock, $5.8 million for the repurchase of stock-based compensation awards for tax withholdings and $4.6 million for settlement assets and liabilities due to processing timing.

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Contractual Obligations and Commercial Commitments

For the three months ended March 31, 2023, 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, 2022.

For the six months ended June 30, 2023, 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, 2022.

Critical Accounting Estimates

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• Accounting for Income Taxes

During the three months ended March 31, 2023, there were no significant changes to our critical accounting policies and estimates.

During the six months ended June 30, 2023, 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, 2022, 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