What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-11-02 · 92 added, 229 removed, 240 unchanged (57% of the section changed)

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The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and with our financial statements and related notes contained in this Form 10-Q.

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

Results for the three months ended March 31, 2024, are not necessarily indicative of results that may be attained in the future.

Global Economy and Inflation

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

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

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

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

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and Asia Pacific.

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

Our products and solutions are used globally by banks and intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges, and a wide range of transaction-generating endpoints, including ATMs, merchant point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

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

Our products are marketed under the ACI Worldwide brand.

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

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

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

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

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

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

Key trends that currently impact our strategies and operations include:

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The adoption of digital payments continues to accelerate, propelled by the digitization of cash, financial inclusion efforts of countries throughout the world, the Internet of Things, rapid growth of eCommerce and the adoption of real-time payments.

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

COVID-19 further accelerated this growth as more people, governments, and businesses embraced digital payments - a change that has continued.

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

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

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

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

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

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

As the threat of scams becomes a greater concern for emitting and receiving institutions, consumers are challenged with increased friction to prevent account take-over and criminals successfully persuading consumers to push transactions themselves, inadvertently, to mule accounts they have full control of, created with fake or synthetic identity, or simply "borrowed" with or without consent of the legit account holders.

As the threat of scams becomes a greater concern for remitting and receiving institutions, consumers are challenged with increased friction to prevent account take-over and criminals successfully persuading consumers to push transactions themselves, inadvertently, to mule accounts they have full control of, created with fake or synthetic identity, or simply "borrowed" with or without consent of the legit account holders.

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

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

On September 1, 2022, we sold our corporate online banking solutions related assets and liabilities to One Equity Partners ("OEP") for $100.0 million, including a net working capital adjustment.

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

The Company recognized a gain of $38.5 million on the sale during the three and nine months ended September 30, 2022.

During the nine months ended September 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.

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

Backlog is comprised of:

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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 September 30, 2023, June 30, 2023, March 31, 2023, and December 31, 2022 (in millions).

The following table sets forth our 60-month backlog estimate, by reportable segment, as of March 31, 2024, and December 31, 2023 (in millions).

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

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

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

March 31, 2024 December 31, 2023

Banks $ 2,235 $ 2,261

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Total $ 6,481 $ 6,520

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

March 31, 2024 December 31, 2023

Committed $ 2,223 $ 2,178

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

Three Months Ended September 30,

Three Month Period Ended March 31, 2024 Compared to the Three Month Period Ended March 31, 2023

Three Months Ended March 31,

Amount % of Total

Revenue $ Change

vs 2022 % Change

vs 2022 Amount % of Total

Revenue $ Change vs 2023 % Change vs 2023 Amount % of Total

Software as a service and platform as a service $ 215,732 68 % $ 10,802 5 % $ 204,930 71 %

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Total operating expenses 306,459 96 % (7,569) (2) % 314,028 109 %

Operating income

61,924 18 % 58,435 1,675 % 3,489 1 %

Operating income (loss) 9,560 4 % 33,912 139 % (24,352) (9) %

Other income (expense):

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Total other income (expense) (17,026) (6) % 1,756 (9) % (18,782) (7) %

Income before income taxes

46,663 14 % 12,970 38 % 33,693 11 %

Income tax expense

Loss before income taxes

(7,466) (2) % 35,668 (83) % (43,134) (16) %

Income tax expense (benefit) 285 — % 11,111 (103) % (10,826) (4) %

$ (7,751) (2) % $ 24,557 (76) % $ (32,308) (12) %

Total revenue for the three months ended September 30, 2023, increased $56.4 million, or 18%, as compared to the same period in 2022.

• The divestiture resulted in a $8.5 million decrease in total revenue for the three months ended September 30, 2023.

Total revenue for the three months ended March 31, 2024, increased $26.3 million, or 9%, as compared to the same period in 2023.

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

dollar resulted in a $1.3 million increase in total revenue during the three months ended September 30, 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 September 30, 2023, increased $63.6 million, or 21%, as compared to the same period in 2022.

dollar resulted in a $0.2 million increase in total revenue during the three months ended March 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, total revenue for the three months ended March 31, 2024, increased $26.1 million, or 9%, as compared to the same period in 2023.

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

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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 $15.8 million, or 8%, during the three months ended September 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $4.5 million decrease in SaaS and PaaS revenue for the three months ended September 30, 2023.

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

dollar resulted in a $0.9 million increase in SaaS and PaaS revenue during the three months ended September 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 three months ended September 30, 2023, increased $19.4 million, or 10%, as compared to the same period in 2022.

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

SaaS and PaaS revenue increased $10.8 million, or 5%, during the three months ended March 31, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.3 million increase in SaaS and PaaS revenue during the three months ended March 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended March 31, 2024, increased $10.5 million, or 5%, as compared to the same period in 2023.

• The increase was primarily driven by new customer go-lives since March 31, 2023, and higher transaction volumes during the three months ended March 31, 2024, as compared to the same period in 2023.

License Revenue

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.

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.

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

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

License revenue increased $36.0 million, or 82%, during the three months ended September 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 $0.3 million increase in license revenue during the three months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, license revenue for the three months ended September 30, 2023, increased $35.7 million, or 81%, as compared to the same period in 2022.

• The increase was driven by license renewal timing as well as the relative size of new license and capacity events during the three months ended September 30, 2023, as compared to the same period in 2022.

License revenue increased $11.6 million, or 64%, during the three months ended March 31, 2024, as compared to the same period in 2023.

• The increase 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, 2024, as compared to the same period in 2023.

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 increased $2.8 million, or 6%, during the three months ended September 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $1.6 million decrease in maintenance revenue for the three months ended September 30, 2023.

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

dollar resulted in a $0.2 million increase in maintenance revenue during the three months ended September 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 September 30, 2023, increased $4.2 million or 9%, as compared to the same period in 2022.

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

Maintenance revenue includes standard, enhanced, and premium customer support and any post contract support fees received from customers for the provision of product support services.

Maintenance revenue decreased $2.3 million, or 5%, during the three months ended March 31, 2024, as compared to the same period in 2023.

• The decrease was primarily driven by customers reducing premium customer support and maintenance on non-strategic products during the three months ended March 31, 2024, as compared to the same period in 2023.

Services Revenue

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Implementation services include product installations, product configurations, and custom software modifications (“CSMs”).

Other professional services include business consultancy, technical consultancy, on-site support services, CSMs, product education, and testing services.

Other professional services include business consultancy, technical consultancy, on-site support services, product education, and testing services.

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

Services revenue increased $1.8 million, or 10%, during the three months ended September 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $2.4 million decrease in services revenue for the three months ended September 30, 2023.

• Adjusted for the impact of the divestiture, services revenue for the three months ended September 30, 2023, increased $4.2 million or 27%, 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 September 30, 2023, as compared to the same period in 2022.

Services revenue increased $6.2 million, or 38%, during the three months ended March 31, 2024, as compared to the same period in 2023.

• The increase was primarily driven by the timing and magnitude of project-related work during the three months ended March 31, 2024, as compared to the same period in 2023.

Operating Expenses

Total operating expenses for the three months ended September 30, 2023, decreased $2.0 million, or 1%, as compared to the same period in 2022.

• During the three months ended September 30, 2023, there was a $4.4 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the three months ended September 30, 2023, included $3.8 million for cost reduction strategies and $0.4 million of European data center migration expenses during the period, compared to $1.2 million of divestiture transaction-related expenses and $1.7 million of European data center migration expenses for the same period in 2022.

Total operating expenses for the three months ended March 31, 2024, decreased $7.6 million, or 2%, as compared to the same period in 2023.

• Total operating expenses for the three months ended March 31, 2024, included $2.6 million for cost reduction strategies and $0.3 million of other significant transaction-related expenses during the period, compared to $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 for the same period in 2023.

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

dollar resulted in a $1.1 million increase in total operating expenses during the three months ended September 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 September 30, 2023, decreased $0.1 million, as compared to the same period in 2022.

dollar resulted in a $0.4 million increase in total operating expenses during the three months ended March 31, 2024, compared to the same period in 2023.

• Adjusted for significant transaction-related expenses and foreign currency, total operating expenses for the three months ended March 31, 2024, increased $1.5 million, or 1%, compared to the same period in 2023.

Cost of Revenue

Cost of revenue includes costs to provide SaaS and PaaS services, third-party royalties, amortization of purchased and developed software for resale, the costs of maintaining our software products, as well as the costs required to deliver, install, and support software at customer sites.

Cost of revenue includes costs to provide SaaS and PaaS, third-party royalties, amortization of purchased and developed software for resale, the costs of maintaining our software products, as well as the costs required to deliver, install, and support software at customer sites.

SaaS and PaaS service costs include payment card interchange fees, amounts payable to banks, and payment card processing fees.

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Such efforts include project management, delivery, product customization and implementation, installation support, consulting, configuration, and on-site support.

Cost of revenue increased $5.9 million, or 3%, during the three months ended September 30, 2023, as compared to the same period in 2022.

• During the three months ended September 30, 2023, there was a $4.1 million reduction in cost of revenue related to the divestiture.

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

dollar resulted in a $0.2 million increase in cost of revenue during the three months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $9.8 million, or 6%, for the three months ended September 30, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher payment card interchange and processing fees, cloud computing fees, and personnel and related expenses of $4.3 million, $3.8 million, and $1.7 million, respectively.

Cost of revenue increased $12.6 million, or 7%, during the three months ended March 31, 2024, compared to the same period in 2023.

• The increase was primarily due to higher payment card interchange and processing fees and cloud computing fees of $6.2 million and $4.0 million, respectively.

The remaining increase was due to higher personnel and related expenses of $2.4 million, including a $0.9 million increase in stock-based compensation expense.

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 $2.2 million, or 6%, during the three months ended September 30, 2023, as compared to the same period in 2022.

• During the three months ended September 30, 2023, there was a $0.3 million reduction in R&D expense related to the divestiture.

• Adjusted for the impact of the divestiture, R&D expense decreased $1.9 million, or 5%, for the three months ended September 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower professional fees.

R&D expense decreased $2.1 million, or 6%, during the three months ended March 31, 2024, as compared to the same period in 2023.

• The decrease was primarily due to lower professional fees and personnel and related expenses of $1.3 million and $0.8 million, respectively.

Selling and Marketing

Selling and marketing includes both the costs related to selling our products to current and prospective customers as well as the costs related to promoting the Company, its products and the research efforts required to measure customers’ future needs and satisfaction levels.

Selling costs are primarily the human resource and travel costs related to the effort expended to license our products and services to current and potential clients within defined territories and/or industries as well as the management of the overall relationship with customer accounts.

Selling costs are primarily the human resource and travel costs related to the effort expended to license our

products and services to current and potential clients within defined territories and/or industries as well as the management of the overall relationship with customer accounts.

Selling costs also include the costs associated with assisting distributors in their efforts to sell our products and services in their respective local markets.

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 decreased $3.4 million, or 10%, during the three months ended September 30, 2023, as compared to the same period in 2022.

Selling and marketing expense decreased $8.7 million, or 25%, during the three months ended March 31, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.4 million increase in selling and marketing expense during the three months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, selling and marketing expense decreased $3.8 million, or 11%, for the three months ended September 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower personnel and related expenses, advertising and professional fees, and travel and entertainment expenses of $2.4 million, $1.0 million, and $0.5 million, respectively.

dollar resulted in a $0.2 million increase in selling and marketing expense during the three months ended March 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, selling and marketing expense decreased $8.9 million, or 25%, for the three months ended March 31, 2024, as compared to the same period in 2023.

• The decrease was primarily due to lower personnel and related expenses and advertising and professional fees of $7.4 million and $1.5 million, respectively.

General and Administrative

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

General and administrative expense decreased $0.7 million, or 2%, during the three months ended September 30, 2023, as compared to the same period in 2022.

• General and administrative expenses for the three months ended September 30, 2023, included $3.8 million for cost reduction strategies and $0.4 million of European data center migration expenses during the period, compared to $1.2 million of divestiture transaction-related expenses and $1.7 million of European data center migration expenses in the same period in 2022.

General and administrative expense decreased $5.4 million, or 17%, during the three months ended March 31, 2024, as compared to the same period in 2023.

• General and administrative expenses for the three months ended March 31, 2024, included $2.6 million for cost reduction strategies and $0.3 million of other expenses, compared to $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 for the same period in 2023.

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

dollar resulted in a $0.2 million increase in general and administrative expense during the three months ended September 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 $2.3 million, or 8%, for the three months ended September 30, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower professional and other legal fees.

dollar resulted in a $0.2 million increase in general and administrative expense during the three months ended March 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense increased $4.0 million, or 21%, for the three months ended March 31, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses, including a $1.1 million increase in stock-based compensation expense.

Depreciation and Amortization

Depreciation and amortization decreased $1.7 million, or 5%, during the three months ended September 30, 2023, as compared to the same period in 2022.

Depreciation and amortization decreased $3.9 million, or 12%, during the three months ended March 31, 2024, as compared to the same period in 2023.

• The decrease was primarily due to a $2.5 million decrease in depreciation due to prior facilities cost reduction activities and $1.4 million decrease in amortization for fully amortized software acquired through acquisitions.

Other Income and Expense

Interest expense for the three months ended September 30, 2023, increased $5.5 million, or 38%, as compared to the same period in 2022, primarily due to higher interest rates.

Interest expense for the three months ended March 31, 2024, was flat compared to the same period in 2023.

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 September 30, 2023, increased $0.5 million, or 17%, as compared to the same period in 2022.

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

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

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

Nine Month Period Ended September 30, 2023 Compared to the Nine Month Period Ended September 30, 2022

Nine Months Ended September 30,

Amount % of Total

Revenue $ Change

vs 2022 % Change

vs 2022 Amount % of Total

Software as a service and platform as a service $ 625,975 64 % $ 28,895 5 % $ 597,080 62 %

License 142,681 14 % (25,579) (15) % 168,260 16 %

Maintenance 153,436 16 % 2,293 2 % 151,143 16 %

Services 53,924 6 % 311 1 % 53,613 6 %

Total revenues 976,016 100 % 5,920 1 % 970,096 100 %

Operating expenses:

Cost of revenue 537,522 55 % 20,150 4 % 517,372 53 %

Research and development 106,122 11 % (8,226) (7) % 114,348 12 %

Selling and marketing 98,166 10 % (4,627) (5) % 102,793 11 %

General and administrative 92,675 9 % 7,922 9 % 84,753 9 %

Depreciation and amortization 93,439 10 % (1,779) (2) % 95,218 10 %

Total operating expenses 927,924 95 % 13,440 1 % 914,484 95 %

Operating income

48,092 5 % (7,520) (14) % 55,612 5 %

Other income (expense):

Interest expense (58,641) (6) % (21,627) 58 % (37,014) (4) %

Interest income 10,458 1 % 1,253 14 % 9,205 1 %

Other, net (6,403) (1) % (52,204) (114) % 45,801 5 %

Total other income (expense) (54,586) (6) % (72,578) (403) % 17,992 2 %

Income (loss) before income taxes (6,494) (1) % (80,098) (109) % 73,604 7 %

Income tax expense (benefit) (5,387) (1) % (27,042) (125) % 21,655 2 %

Net income (loss) $ (1,107) — % $ (53,056) (102) % $ 51,949 5 %

Total revenue for the nine months ended September 30, 2023, increased $5.9 million, or 1%, as compared to the same period in 2022.

• The divestiture resulted in a $32.0 million decrease in total revenue for the nine months ended September 30, 2023.

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

dollar resulted in a $4.1 million decrease in total revenue during the nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the nine months ended September 30, 2023, increased $42.0 million, or 4%, 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 $28.9 million, or 5%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $18.1 million decrease in SaaS and PaaS revenue for the nine months ended September 30, 2023.

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

dollar resulted in $0.2 million decrease in SaaS and PaaS revenue during the nine months ended September 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 nine months ended September 30, 2023, increased $47.2 million, or 8%, as compared to the same period in 2022.

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

License Revenue

License revenue decreased $25.6 million, or 15%, during the nine months ended September 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 $1.2 million decrease in license revenue during the nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, license revenue for the nine months ended September 30, 2023, decreased $24.4 million, or 15%, 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 nine months ended September 30, 2023, as compared to the same period in 2022.

Maintenance Revenue

Maintenance revenue increased $2.3 million, or 2% during the nine months ended September 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $7.4 million decrease in maintenance revenue for the nine months ended September 30, 2023.

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

dollar resulted in a $2.0 million decrease in maintenance revenue during the nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the nine months ended September 30, 2023, increased $11.7 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 September 30, 2022.

Services Revenue

Services revenue increased $0.3 million, or 1%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $6.4 million decrease in services revenue for the nine months ended September 30, 2023

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

dollar resulted in a $0.8 million decrease in services revenue during the nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the nine months ended September 30, 2023, increased $7.5 million, or 16%, as compared to the same period in 2022.

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

Operating Expenses

Total operating expenses for the nine months ended September 30, 2023, increased $13.4 million, or 1%, as compared to the same period in 2022.

• During the nine months ended September 30, 2023, there was a $18.2 million reduction in operating expenses related to the divestiture.

• Total operating expenses for the nine months ended September 30, 2023, included $19.7 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.6 million of European data center migration expenses during the period, compared to $3.4 million of European data center migration expenses and $2.6 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 $4.3 million decrease in total operating expenses for the nine months ended September 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 nine months ended September 30, 2023, increased $15.2 million, or 2%, as compared to the same period in 2022.

Cost of Revenue

Cost of revenue increased $20.2 million, or 4%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

• During the nine months ended September 30, 2023, there was a $16.8 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 $2.3 million decrease in cost of revenue during the nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $39.3 million, or 8%, for the nine months ended September 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 $19.6 million, $11.6 million, and $8.7 million, respectively.

Research and Development

R&D expense decreased $8.2 million, or 7%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

• During the nine months ended September 30, 2023, there was a $1.3 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 nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of the divestiture and foreign currency, R&D expense decreased $5.9 million, or 5%, for the nine months ended September 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 $4.9 million and $1.0 million, respectively.

Selling and Marketing

Selling and marketing expense decreased $4.6 million, or 5%, during the nine months ended September 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 $0.4 million decrease in selling and marketing expense for the nine months ended September 30, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, selling and marketing expense decreased $4.2 million, or 4%, for the nine months ended September 30, 2023, as compared to the same period in 2022.

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

General and Administrative

General and administrative expense increased $7.9 million, or 9%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

• General and administrative expenses for the nine months ended September 30, 2023, included $19.7 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.6 million of European data center migration expenses during the period, compared to $3.4 million of European data center migration expenses and $2.6 million of divestiture transaction-related expenses during the same period in 2022.

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

dollar resulted in a $0.5 million decrease in general and administrative expenses during the nine months ended September 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 $12.3 million, or 16%, for the nine months ended September 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 $9.2 million and $3.1 million, respectively.

Depreciation and Amortization

Depreciation and amortization decreased $1.8 million, or 2%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

Other Income and Expense

Interest expense for the nine months ended September 30, 2023, increased $21.6 million, or 58%, as compared to the same period in 2022, primarily due to higher interest rates.

Interest income for the nine months ended September 30, 2023, increased $1.3 million, or 14%, as compared to the same period in 2022.

Interest income for the three months ended March 31, 2024, increased $0.5 million, or 14%, as compared to the same period in 2023.

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

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

Other, net was $6.4 million of expense and $45.8 million of income for the nine months ended September 30, 2023 and 2022, respectively.

Other, net was $2.0 million and $3.4 million of expense for the three months ended March 31, 2024 and 2023, respectively.

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Banks $ 105,429 $ 88,040

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Other, net (2,025) (3,395)

Income (loss) before income taxes $ 46,663 $ 33,693 $ (6,494) $ 73,604

Banks Segment Adjusted EBITDA decreased $4.1 million for the three months ended September 30, 2023 due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA increased $45.3 million for the three months ended September 30, 2023, compared to the same period in 2022, due to a $46.7 million increase in revenue primarily related to a increase in license revenues, partially offset by a $1.4 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $0.5 million for the three months ended September 30, 2023, compared to the same period in 2022, due to a $0.7 million increase in revenue, partially offset by a $0.2 million increase in cash operating expense.

Billers Segment Adjusted EBITDA increased $12.8 million for the three months ended September 30, 2023, compared to the same period in 2022, due to a $17.5 million increase in revenue, partially offset by a $4.7 million increase in cash operating expense, primarily for payment card interchange and other processing fees.

Banks Segment Adjusted EBITDA decreased $14.0 million for the nine months ended September 30, 2023 due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA decreased $3.4 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to a $5.1 million increase in cash operating expense, partially offset by a $1.7 million increase in revenue.

Merchants Segment Adjusted EBITDA decreased $5.5 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to a $5.6 million decrease in revenue.

Billers Segment Adjusted EBITDA increased $19.0 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to a $41.9 million increase in revenue, partially offset by a $22.9 million increase in cash operating expense, primarily for payment card interchange and other processing fees.

Loss before income taxes

$ (7,466) $ (43,134)

Banks Segment Adjusted EBITDA increased $17.0 million for the three months ended March 31, 2024, compared to the same period in 2023, due to a $17.4 million increase in revenue primarily due to an increase in license and services revenues, partially offset by a $0.4 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $4.1 million for the three months ended March 31, 2024, compared to the same period in 2023, due to a $0.9 million increase in revenue, and a $3.2 million decrease in cash operating expense.

Billers Segment Adjusted EBITDA increased $1.1 million for the three months ended March 31, 2024, compared to the same period in 2023, due to a $8.0 million increase in revenue, partially offset by a $6.9 million increase in cash operating expense, primarily payment card interchange and 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 September 30, 2023, we had $139.5 million of cash and cash equivalents, of which $40.1 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.

As of March 31, 2024, we had $183.4 million of cash and cash equivalents, of which $69.2 million was held by our foreign subsidiaries.

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

state income taxes to repatriate these funds.

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

As of March 31, 2024, 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 September 30, 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 March 31, 2024.

Available Liquidity

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 183,393 $ 164,239

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Total liquidity $ 645,293 $ 538,139

The increase in total liquidity is primarily attributable to the $100.0 million increase in the maximum amount available under the revolving credit facility.

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 September 30, 2023, the full $75.0 million was available.

As of March 31, 2024, the full $75.0 million was available.

On February 26, 2024, we entered into a Refinance Amendment (the “Amendment”) to the Second Amended and Restated Credit Agreement, dated as of April 5, 2019 (as amended, restated, supplemented or otherwise modified from time to time, including by the Amendment, the “Credit Agreement”) with ACI Worldwide Corp and ACI Payments, Inc.

as co-borrowers, the lenders, and Bank of America N.A, as administrative agent and lender.

The Amendment, among other things, (i) provides a senior secured term loan facility in an aggregate principal amount of $500 million, (ii) provides a senior secured revolving credit facility in an aggregate principal amount of $600 million, and (iii) extends the maturity date of the Facilities to February 26, 2029.

The proceeds of the borrowings under the Amendment, together with cash on hand, were used to refinance all outstanding borrowings and replace all existing revolving commitments under the Credit Agreement immediately prior to the date of the Amendment and will be used to provide ongoing working capital and for other general corporate purposes.

Stock Repurchase Program

Our board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorizes 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.

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

Under the program to date, we have repurchased 57,981,733 shares for approximately $926.2 million.

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

In February 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 repurchased 2,060,433 shares for $63.1 million under the program during the three months ended March 31, 2024.

Under the program to date, we have repurchased 60,981,733 shares for approximately $1.0 billion.

As of March 31, 2024, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $109.3 million.

See Note 6, 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):

Nine Months Ended

September 30,

Three Months Ended March 31,

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

Cash flows provided by operating activities were $19.2 million lower for the nine months ended September 30, 2023, compared to the same period in 2022.

Our operating cash flows for the current year decreased primarily due to $18.9 million more in income tax payments, which are based upon higher pre-tax income in the previous year, $21.4 million more in interest payments due to increase in interest rates, and the net loss for the nine months ended September 30, 2023, compared to net income for the same period in 2022, partially offset by $36.2 million more in customer receipt collections on higher prior year-end receivable balances.

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

Cash flows provided by operating activities of $123.2 million were $83.2 million higher for the three months ended March 31, 2024, compared to $40.1 million for the same period in 2023.

Our operating cash flows for the current quarter increased primarily due to $38.3 million more in customer receipt collections on higher prior year-end receivable balances, $14.7 million less in income tax payments, as well as a $24.6 million lower net loss for the three months ended March 31, 2024, compared to the same period in 2023.

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 nine months of 2023, we used cash of $30.5 million to purchase software, property, and equipment, as compared to $26.5 million during the same period in 2022.

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

During the first three months of 2024, we used cash of $17.8 million to purchase software, property, and equipment, as compared to $8.7 million during the same period in 2023.

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 nine months of 2023, we repaid $53.6 million on the Term Loans, $12.5 million of other debt payments, and $2.2 million of debt issuance costs.

During the first three months of 2024, we repaid a net $29.1 million on the Term Loan under the Amendment, $2.7 million of other debt payments, and $5.1 million of debt issuance costs.

In addition, we used $62.5 million to repurchase common stock, $3.3 million for the repurchase of stock-based compensation awards for tax withholdings, and $18.9 million for settlement assets and liabilities due to processing timing.

We received net proceeds of $12.0 million on the Revolving Credit Facility, and proceeds of $1.2 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 2023, we repaid $14.6 million on the Term Loans and $5.7 million of other debt payments.

In addition, we used $3.0 million for the repurchase of stock-based compensation awards for tax withholdings and $2.8 million for settlement assets and liabilities due to processing timing.

We received net proceeds of $5.0 million on the Revolving Credit Facility, and proceeds of $0.8 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 nine months of 2022, we used the proceeds from the divestiture to partially fund repayments of $70.8 million on the Term Loans and $10.1 million of other debt payments.

In addition, we used $90.9 million to repurchase common stock and $5.8 million for the repurchase of stock-based compensation awards for tax withholdings.

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

Contractual Obligations and Commercial Commitments

For the nine months ended September 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.

For the three months ended March 31, 2024, 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, 2023.

Critical Accounting Estimates

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• Accounting for Income Taxes

During the nine months ended September 30, 2023, there were no significant changes to our critical accounting policies and estimates.

During the three months ended March 31, 2024, 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, 2023, 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