ACI WORLDWIDE, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands, except share and per share amounts) September 30, 2024 December 31, 2023 ASSETS Current assets Cash and cash equivalents $ 177,860 $ 164,239 Receivables, net of allowances of $ 1,936 and $ 4,295 , respectively 424,518 452,337 Settlement assets 428,479 723,039 Prepaid expenses 31,878 31,479 Other current assets 22,865 35,551 Total current assets 1,085,600 1,406,645 Noncurrent assets Accrued receivables, net 338,977 313,983 Property and equipment, net 31,441 37,856 Operating lease right-of-use assets 29,181 34,338 Software, net 90,313 108,418 Goodwill 1,226,026 1,226,026 Intangible assets, net 172,310 195,646 Deferred income taxes, net 64,674 58,499 Other noncurrent assets 54,463 63,328 TOTAL ASSETS $ 3,092,985 $ 3,444,739 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 47,912 $ 45,964 Settlement liabilities 428,080 721,164 Employee compensation 42,806 53,892 Current portion of long-term debt 34,910 74,405 Deferred revenue 68,550 59,580 Other current liabilities 75,036 82,244 Total current liabilities 697,294 1,037,249 Noncurrent liabilities Deferred revenue 19,315 24,780 Long-term debt 959,387 963,599 Deferred income taxes, net 38,439 40,735 Operating lease liabilities 23,601 29,074 Other noncurrent liabilities 25,319 25,005 Total liabilities 1,763,355 2,120,442 Commitments and contingencies Stockholders’ equity Preferred stock; $ 0.01 par value; 5,000,000 shares authorized; no shares issued at September 30, 2024, and December 31, 2023 — — Common stock; $ 0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at September 30, 2024, and December 31, 2023 702 702 Additional paid-in capital 725,724 712,994 Retained earnings 1,499,530 1,394,967 Treasury stock, at cost, 35,654,240 and 32,447,317 shares at September 30, 2024, and December 31, 2023, respectively ( 791,353 ) ( 674,896 ) Accumulated other comprehensive loss ( 104,973 ) ( 109,470 ) Total stockholders’ equity 1,329,630 1,324,297 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,092,985 $ 3,444,739 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues Software as a service and platform as a service $ 223,367 $ 211,369 $ 674,498 $ 625,975 License 157,429 79,679 252,984 142,681 Maintenance 47,559 51,942 144,046 153,436 Services 23,397 20,025 69,722 53,924 Total revenues 451,752 363,015 1,141,250 976,016 Operating expenses Cost of revenue (1) 197,351 177,625 591,696 537,522 Research and development 37,660 33,739 108,063 106,122 Selling and marketing 28,691 29,442 83,992 98,166 General and administrative 33,949 29,821 84,942 92,675 Depreciation and amortization 31,515 30,464 86,710 93,439 Total operating expenses 329,166 301,091 955,403 927,924 Operating income 122,586 61,924 185,847 48,092 Other income (expense) Interest expense ( 18,356 ) ( 19,840 ) ( 55,837 ) ( 58,641 ) Interest income 3,871 3,495 11,833 10,458 Other, net ( 823 ) 1,084 ( 1,692 ) ( 6,403 ) Total other income (expense) ( 15,308 ) ( 15,261 ) ( 45,696 ) ( 54,586 ) Income (loss) before income taxes 107,278 46,663 140,151 ( 6,494 ) Income tax expense (benefit) 25,851 8,752 35,588 ( 5,387 ) Net income (loss) $ 81,427 $ 37,911 $ 104,563 $ ( 1,107 ) Income (loss) per common share Basic $ 0.78 $ 0.35 $ 0.99 $ ( 0.01 ) Diluted $ 0.77 $ 0.35 $ 0.98 $ ( 0.01 ) Weighted average common shares outstanding Basic 104,770 108,667 105,651 108,428 Diluted 106,018 108,933 106,552 108,428 (1) The cost of revenue excludes charges for depreciation and amortization. The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited and in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income (loss) $ 81,427 $ 37,911 $ 104,563 $ ( 1,107 ) Other comprehensive income (loss): Foreign currency translation adjustments 9,109 ( 6,310 ) 4,497 298 Total other comprehensive income (loss) 9,109 ( 6,310 ) 4,497 298 Comprehensive income (loss) $ 90,536 $ 31,601 $ 109,060 $ ( 809 ) The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited and in thousands, except share amounts) Three Months Ended September 30, 2024 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of June 30, 2024 $ 702 $ 718,559 $ 1,418,103 $ ( 786,526 ) $ ( 114,082 ) $ 1,236,756 Net income — — 81,427 — — 81,427 Other comprehensive income — — — — 9,109 9,109 Stock-based compensation — 11,346 — — — 11,346 Shares issued and forfeited, net, under stock plans — ( 4,181 ) — 6,109 — 1,928 Repurchase of 203,317 shares of common stock — — — ( 7,976 ) — ( 7,976 ) Repurchase of stock-based compensation awards for tax withholdings — — — ( 2,960 ) — ( 2,960 ) Balance as of September 30, 2024 $ 702 $ 725,724 $ 1,499,530 $ ( 791,353 ) $ ( 104,973 ) $ 1,329,630 Three Months Ended September 30, 2023 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of June 30, 2023 $ 702 $ 704,096 $ 1,234,440 $ ( 655,660 ) $ ( 111,052 ) $ 1,172,526 Net income — — 37,911 — — 37,911 Other comprehensive loss — — — — ( 6,310 ) ( 6,310 ) Stock-based compensation — 6,822 — — — 6,822 Shares issued and forfeited, net, under stock plans — ( 2,412 ) — 3,381 — 969 Repurchase of stock-based compensation awards for tax withholdings — — — ( 883 ) — ( 883 ) Balance as of September 30, 2023 $ 702 $ 708,506 $ 1,272,351 $ ( 653,162 ) $ ( 117,362 ) $ 1,211,035 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited and in thousands, except share amounts) Nine Months Ended September 30, 2024 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of December 31, 2023 $ 702 $ 712,994 $ 1,394,967 $ ( 674,896 ) $ ( 109,470 ) $ 1,324,297 Net income — — 104,563 — 104,563 Other comprehensive income — — — — 4,497 4,497 Stock-based compensation — 30,165 — — — 30,165 Shares issued and forfeited, net, under stock plans — ( 17,435 ) — 21,511 — 4,076 Repurchase of 3,946,537 shares of common stock — — — ( 128,669 ) — ( 128,669 ) Repurchase of stock-based compensation awards for tax withholdings — — — ( 9,299 ) — ( 9,299 ) Balance as of September 30, 2024 $ 702 $ 725,724 $ 1,499,530 $ ( 791,353 ) $ ( 104,973 ) $ 1,329,630 Nine Months Ended September 30, 2023 Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of December 31, 2022 $ 702 $ 702,458 $ 1,273,458 $ ( 665,771 ) $ ( 117,660 ) $ 1,193,187 Net loss — — ( 1,107 ) — — ( 1,107 ) Other comprehensive income — — — — 298 298 Stock-based compensation — 17,537 — — — 17,537 Shares issued and forfeited, net, under stock plans — ( 11,489 ) — 16,812 — 5,323 Repurchase of stock-based compensation awards for tax withholdings — — — ( 4,203 ) — ( 4,203 ) Balance as of September 30, 2023 $ 702 $ 708,506 $ 1,272,351 $ ( 653,162 ) $ ( 117,362 ) $ 1,211,035 The accompanying notes are an integral part of the condensed consolidated financial statements. 7 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net income (loss) $ 104,563 $ ( 1,107 ) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation 14,999 18,722 Amortization 71,711 74,716 Amortization of operating lease right-of-use assets 7,337 9,190 Amortization of deferred debt issuance costs 2,257 3,415 Deferred income taxes ( 2,229 ) ( 25,207 ) Stock-based compensation expense 30,165 17,537 Other 180 2,168 Changes in operating assets and liabilities: Receivables 3,699 42,012 Accounts payable 758 ( 7,198 ) Accrued employee compensation ( 11,125 ) ( 2,879 ) Deferred revenue 1,884 4,404 Other current and noncurrent assets and liabilities 8,067 ( 52,999 ) Net cash flows from operating activities 232,266 82,774 Cash flows from investing activities: Purchases of property and equipment ( 8,463 ) ( 7,956 ) Purchases of software and distribution rights ( 23,178 ) ( 22,571 ) Net cash flows from investing activities ( 31,641 ) ( 30,527 ) Cash flows from financing activities: Proceeds from issuance of common stock 2,129 2,122 Proceeds from exercises of stock options 1,954 3,132 Repurchase of stock-based compensation awards for tax withholdings ( 9,299 ) ( 4,203 ) Repurchases of common stock ( 127,670 ) — Proceeds from revolving credit facility 184,000 75,000 Repayment of revolving credit facility ( 177,000 ) ( 51,000 ) Proceeds from term portion of credit agreement 500,000 — Repayment of term portion of credit agreement ( 547,823 ) ( 53,556 ) Payments on or proceeds from other debt, net ( 9,299 ) ( 12,473 ) Payments for debt issuance costs ( 5,141 ) ( 2,160 ) Net increase (decrease) in settlement assets and liabilities 17,704 ( 4,635 ) Net cash flows from financing activities ( 170,445 ) ( 47,773 ) Effect of exchange rate fluctuations on cash ( 331 ) 4,388 Net increase in cash and cash equivalents 29,849 8,862 Cash and cash equivalents, including settlement deposits, beginning of period 238,821 214,672 Cash and cash equivalents, including settlement deposits, end of period $ 268,670 $ 223,534 Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets Cash and cash equivalents $ 177,860 $ 139,520 Settlement deposits 90,810 84,014 Total cash and cash equivalents, including settlement deposits $ 268,670 $ 223,534 Supplemental cash flow information Income taxes paid $ 23,143 $ 43,915 Interest paid $ 59,924 $ 60,597 The accompanying notes are an integral part of the condensed consolidated financial statements. 8 Table of contents ACI WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements include the accounts of ACI Worldwide, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 2023, is derived from the audited financial statements. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023, filed on February 29, 2024. Results for the three and nine months ended September 30, 2024, are not necessarily indicative of results that may be attained in the future. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies, as well as uncertainty in the current economic environment. Actual results could differ from those estimates. Other Current Liabilities The components of other current liabilities are included in the following table (in thousands): September 30, 2024 December 31, 2023 Operating lease liabilities $ 8,960 $ 9,348 Vendor financed licenses 8,076 12,702 Accrued interest 3,124 9,172 Other 54,876 51,022 Total other current liabilities $ 75,036 $ 82,244 Settlement Assets and Liabilities Individuals and businesses settle their obligations to the Company’s various Biller clients using credit or debit cards or via automated clearing house (“ACH”) payments. The Company creates a receivable for the amount due from the credit or debit card processor and an offsetting payable to the client. Upon confirmation that the funds have been received, the Company settles the obligation to the client. Due to timing, in some instances, the Company may (1) receive the funds into bank accounts controlled by and in the Company’s name that are not disbursed to its clients by the end of the day, resulting in a settlement deposit on the Company’s books and (2) disburse funds to its clients in advance of receiving funds from the credit or debit card processor, resulting in a net settlement receivable position. 9 Table of contents Off Balance Sheet Settlement Accounts The Company also enters into agreements with certain Biller clients to process payment funds on their behalf. When an ACH or automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account, which is a trust account maintained for the benefit of the Company’s clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back” transactions are designed to settle at the same time, usually overnight, such that the Company receives the funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the benefit of the client which is separate from the Company’s corporate assets. As the Company does not take ownership of the funds, these settlement accounts are not included in the Company’s balance sheet. The Company is entitled to interest earned on the fund balances. The collection of interest on these settlement accounts is considered in the Company’s determination of its fee structure for clients and represents a portion of the payment for services performed by the Company. The amount of settlement funds as of September 30, 2024, and December 31, 2023, was $ 315.5 million and $ 273.2 million, respectively. Fair Value The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the fair value hierarchy). The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities. The fair value of the Company’s 5.750 % Senior Notes due 2026 (“2026 Notes”) was $ 399.6 million and $ 398.5 million as of September 30, 2024, and December 31, 2023, respectively. The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy). Goodwill In accordance with the Accounting Standards Codification ("ASC") 350, Intangibles – Goodwill and Other , the Company assesses goodwill for impairment annually during the fourth quarter of its fiscal year using October 1 balances or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company evaluates goodwill at the reporting unit level and has identified its operating segments, Banks, Merchants, and Billers, as the reporting units. As of September 30, 2024, the Company's goodwill balance of $ 1.2 billion was allocated $ 671.7 million to Banks, $ 137.3 million to Merchants, and $ 417.0 million to Billers. Recoverability of goodwill is measured using a discounted cash flow model incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in impairment testing in the absence of available transactional market evidence to determine the fair value. The calculated fair value was substantially in excess of the current carrying value for all reporting units based upon the October 1, 2023, annual impairment test and there have been no indications of impairment in the subsequent periods. Equity Method Investment In July 2019, the Company invested $ 18.3 million for a 30 % non-controlling financial interest in a payment technology and services company in India. The Company accounted for this investment using the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures . The Company records its share of earnings and losses in the investment on a one-quarter lag basis. Accordingly, the Company recorded an investment of $ 19.6 million and $ 18.5 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of September 30, 2024, and December 31, 2023, respectively. Recently Issued Accounting Standards Not Yet Effective In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, and early application is permitted. The Company is currently assessing the impact the adoption of ASU 2023-07 will have on its segment reporting disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this update will require disclosure of more disaggregated information about a reporting entity's effective tax rate reconciliation and income taxes paid. 10 Table of contents ASU 2023-09 is effective for annual periods beginning after December 15, 2024, and early application is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently assessing the impact the adoption of ASU 2023-09 will have on its income tax disclosures. 2. Revenue In accordance with ASC 606, Revenue From Contracts With Customers , revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. See Note 9, Segment Information, for additional information, including disaggregation of revenue based on primary solution category. Total receivables represent amounts billed and amounts earned that are to be billed in the future (i.e., accrued receivables). Included in accrued receivables are services, software as a service ("SaaS"), and platform as a service ("PaaS") revenues earned in the current period but billed in the following period, and amounts due under multi-year software license arrangements with extended payment terms for which the Company has an unconditional right to invoice and receive payment subsequent to invoicing. Total receivables, net is comprised of the following (in thousands): September 30, 2024 December 31, 2023 Billed receivables $ 201,577 $ 250,423 Allowance for credit losses ( 1,936 ) ( 4,295 ) Billed receivables, net 199,641 246,128 Current accrued receivables, net 224,877 206,209 Long-term accrued receivables, net 338,977 313,983 Total accrued receivables, net 563,854 520,192 Total receivables, net $ 763,495 $ 766,320 No customer accounted for more than 10% of the Company’s consolidated receivables balance as of September 30, 2024 and December 31, 2023. Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and PaaS services in advance of recording the related revenue. Changes in deferred revenue were as follows (in thousands): Balance, December 31, 2023 $ 84,360 Deferral of revenue 95,861 Recognition of deferred revenue ( 93,900 ) Foreign currency translation 1,544 Balance, September 30, 2024 $ 87,865 Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include: • Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty. • SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient or meets the allocation objective. 11 Table of contents Revenue allocated to remaining performance obligations was $ 659.2 million as of September 30, 2024, of which the Company expects to recognize approximately 51 % over the next 12 months and the remainder thereafter. During the three and nine months ended September 30, 2024, revenue recognized by the Company from performance obligations satisfied in previous periods was no t significant. During the three and nine months ended September 30, 2023, revenue recognized by the Company from performance obligations satisfied in previous periods was $ 23.3 million and $ 43.7 million, respectively. 3. Debt As of September 30, 2024, the Company had $ 131.0 million, $ 471.9 million, and $ 400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $ 467.1 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $ 1.9 million of unused borrowings under Letter of Credit agreements. The amount of unused borrowings actually available varies in accordance with the terms of the agreement. Credit Agreement On February 26, 2024, ACI Worldwide, Inc. (the “Company”) 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”) among the Company, the subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent and a lender, BofA Securities, Inc., PNC Capital Markets LLC, Wells Fargo Securities, LLC, and TD Securities (USA) LLC, as Joint Lead Arrangers and Joint Bookrunners, and the other financial institutions party thereto. The Amendment (i) provides a senior secured term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $ 500 million, (ii) provides a senior secured revolving credit facility (the “Revolving Loan Facility” and together with the Term Loan Facility, the “Credit Facilities”) of up to $ 600 million, and (iii) extends the maturity date of the Facilities to February 26, 2029 (the “Maturity Date”), provided that if any of the Company’s 5.750 % Senior Notes due 2026 are outstanding on the date that is 91 days before the maturity thereof (the “Springing Maturity Date”), and the Company does not have sufficient liquidity as of such date, the Maturity Date will be the Springing Maturity Date. The Revolving Loan Facility includes a $ 35 million sublimit for the issuance of standby letters of credit and a $ 20 million sublimit for swingline loans. Amounts repaid under the Revolving Facility may be reborrowed. Borrowings under the Credit Facilities bear interest at a rate equal to, at borrower's option, either (A) a base rate determined by reference to the highest of (1) the rate of interest per annum publicly announced by Bank of America as its prime rate, (2) the federal funds effective rate plus 0.5 %, (3) term Secured Overnight Financing Rate ("SOFR") plus 1 %, and (4) 1 % or (B) term SOFR for applicable interest period relevant to such borrowing, in each case plus an applicable margin. The applicable margin for borrowings under the Credit Facilities is, based on the calculation of the applicable consolidated total leverage ratio, between 0.5 % to 1.5 % with respect to base rate borrowings and between 1.5 % and 2.5 % with respect to term SOFR rate borrowings. Interest is due and payable monthly. The interest rate in effect for the Credit Facility as of September 30, 2024, was 6.70 %. The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on SOFR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees. The Company’s subsidiaries, ACI Worldwide Corp. and ACI Payments, Inc. are co-borrowers under the Credit Agreement. The obligations of the borrowers under the Credit Facilities and the obligations of the Company and its subsidiaries under cash management arrangements entered into with lenders under the Credit Facilities (or affiliates thereof) are jointly and severally guaranteed by the Company and all of its existing and future material domestic subsidiaries, subject to certain exclusions. The obligations of the borrowers in respect of the Credit Facilities are secured by first-priority security interests in substantially all assets of the borrowers, including 100 % of the capital stock of each domestic subsidiary of the borrower and 65 % of the voting capital stock of each foreign subsidiary that is directly owned by a borrower, in each case subject to certain exclusions set forth in the Credit Agreement. 12 Table of contents The Credit Agreement contains customary negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant additional liens, and make certain acquisitions, investments, asset dispositions, and restricted payments. In addition, the Credit Agreement contains financial covenants that require the Company to maintain, as of the end of any fiscal quarter, (i) a consolidated total net leverage ratio of less than or equal to 4.25 to 1.00, (ii) a consolidated senior secured net leverage ratio of less than or equal to 3.75 to 1.00, and (iii) a minimum consolidated interest coverage ratio of greater than or equal to 3.00 to 1.00, in each case subject to certain exclusions as set forth in the Credit Agreement. The Credit Agreement also contains certain customary affirmative covenants and events of default. If an event of default, as specified in the Credit Agreement, shall occur and be continuing, the Company may be required to repay all amounts outstanding under the Credit Facilities. Senior Notes On August 21, 2018, the Company completed a $ 400.0 million offering of the 2026 Notes at an issue price of 100 % of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750 %, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes will mature on August 15, 2026. Maturities on debt outstanding as of September 30, 2024, are as follows (in thousands): Fiscal Year Ending December 31, Remainder of 2024 $ 9,375 2025 37,500 2026 437,500 2027 37,500 2028 37,500 Thereafter 443,500 Total $ 1,002,875 As of September 30, 2024, and at all times during the period, the Company was in compliance with its financial debt covenants. Total debt is comprised of the following (in thousands): September 30, 2024 December 31, 2023 Term loans $ 471,875 $ 519,698 Revolving credit facility 131,000 124,000 5.750 % Senior notes, due August 2026 400,000 400,000 Debt issuance costs ( 8,578 ) ( 5,694 ) Total debt 994,297 1,038,004 Less: current portion of term loans 37,500 77,900 Less: current portion of debt issuance costs ( 2,590 ) ( 3,495 ) Total long-term debt $ 959,387 $ 963,599 Overdraft Facility In 2019, the Company and ACI Payments, Inc. entered in to an uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at the federal funds effective rate plus 2.25 % based on the Company’s average outstanding balance and the frequency in which overdrafts occur. The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process. Amounts outstanding on the overdraft facility are included in other current liabilities in the condensed consolidated balance sheet. As of September 30, 2024 and December 31, 2023, there was $ 75.0 million available and no amount outstanding on the overdraft facility. 13 Table of contents Other The Company finances certain multi-year license agreements for internal-use software. Upon execution, these arrangements are treated as a non-cash investing and financing activity for purposes of the condensed consolidated statements of cash flows. As of September 30, 2024, no amount was outstanding on these agreements. As of December 31, 2023, $ 3.6 million was outstanding on these agreements, all of which was included in other current liabilities in the consolidated balance sheet. 4. Software and Other Intangible Assets The carrying amount and accumulated amortization of the Company's software assets subject to amortization at each balance sheet date are as follows (in thousands): September 30, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance Software for internal use $ 478,291 $ ( 387,978 ) $ 90,313 $ 469,325 $ ( 360,907 ) $ 108,418 Amortization of software for internal use is computed using the straight-line method over an estimated useful life of generally three to eight years . Software for internal use amortization expense recorded during the three months ended September 30, 2024 and 2023, totaled $ 16.6 million and $ 16.3 million, respectively. Software for internal use amortization expense recorded during the nine months ended September 30, 2024 and 2023, totaled $ 47.9 million and $ 49.3 million, respectively. These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations. The carrying amount and accumulated amortization of the Company’s other intangible assets subject to amortization at each balance sheet date are as follows (in thousands): September 30, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance Customer relationships $ 450,398 $ ( 278,088 ) $ 172,310 $ 447,654 $ ( 252,828 ) $ 194,826 Trademarks and trade names 22,065 ( 22,065 ) — 21,899 ( 21,079 ) 820 Total other intangible assets $ 472,463 $ ( 300,153 ) $ 172,310 $ 469,553 $ ( 273,907 ) $ 195,646 Other intangible assets amortization expense recorded during the three months ended September 30, 2024 and 2023, totaled $ 7.1 million and $ 8.5 million, respectively. Other intangible assets amortization expense recorded during the nine months ended September 30, 2024 and 2023, totaled $ 23.8 million and $ 25.4 million, respectively. Based on capitalized intangible assets as of September 30, 2024, estimated amortization expense amounts in future fiscal years are as follows (in thousands): Fiscal Year Ending December 31, Software Amortization Other Intangible Assets Amortization Remainder of 2024 $ 14,849 $ 5,672 2025 44,333 21,103 2026 23,498 21,103 2027 5,929 20,839 2028 1,661 18,441 Thereafter 43 85,152 Total $ 90,313 $ 172,310 14 Table of contents 5. Stock-Based Compensation Plans Employee Stock Purchase Plan Shares issued under the 2017 Employee Stock Purchase Plan during the nine months ended September 30, 2024 and 2023, totaled 71,181 and 101,565 , respectively. Stock Options A summary of stock option activity is as follows: Number of Shares Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value of In-the-Money Options ($) Outstanding as of December 31, 2023 873,512 $ 18.76 Exercised ( 104,951 ) 18.62 Outstanding as of September 30, 2024 768,561 $ 18.78 1.31 $ 24,689,894 Exercisable as of September 30, 2024 768,561 $ 18.78 1.31 $ 24,689,894 The total intrinsic value of stock options exercised during the nine months ended September 30, 2024 and 2023, was $ 2.4 million and $ 0.9 million, respectively. There were no stock options granted during the nine months ended September 30, 2024 or 2023. Performance Share Awards During the nine months ended September 30, 2024, pursuant to the Company's 2020 Equity and Incentive Compensation Plan, the Company granted performance share awards with a total shareholder return component ("TSRs"). These performance share awards are earned, if at all, based upon achievement, over a specified period that must not be less than one year and is typically a three-year performance period. The awards have operating performance goals that include (i) adjusted EBITDA metrics and (ii) revenue growth rates as determined by the Company with a TSR multiplier up to plus or minus 20 %. Up to 200 % of the performance shares could be earned upon achievement of the performance goals, including the multiplier. On a quarterly basis, management evaluates the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the consolidated financial statements. A summary of nonvested TSRs is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2023 673,126 $ 40.73 Granted 561,471 34.00 Forfeited ( 70,496 ) 33.71 Change in payout rate ( 203,945 ) 50.60 Nonvested as of September 30, 2024 960,156 $ 35.22 In the first quarter of 2024, the TSRs granted in 2021 were earned by the employees. However, the performance goals were not met and no shares were issued. 15 Table of contents The fair value of TSRs granted during the nine months ended September 30, 2024 and 2023, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, Compensation - Stock Compensation , using the following weighted average assumptions: Nine months ended September 30, 2024 2023 Expected life (years) 2.7 2.9 Risk-free interest rate 4.4 % 3.6 % Expected volatility 36.8 % 37.1 % Expected dividend yield — — Restricted Share Units A summary of nonvested restricted share unit awards ("RSUs") is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2023 1,574,883 $ 26.81 Granted 1,342,737 32.36 Vested ( 815,772 ) 28.71 Forfeited ( 147,618 ) 28.29 Nonvested as of September 30, 2024 1,954,230 $ 29.72 During the nine months ended September 30, 2024, a total of 815,772 RSUs vested. The Company withheld 252,290 of those shares to pay the employees’ portion of the minimum payroll withholding taxes. As of September 30, 2024, there was unrecognized compensation expense of $ 50.7 million related to RSUs and $ 22.8 million related to TSRs, which the Company expects to recognize over a weighted average period of 2.1 years and 2.0 years, respectively. The Company recorded stock-based compensation expense recognized under ASC 718 for the three months ended September 30, 2024 and 2023, of $ 11.3 million and $ 6.8 million, respectively, with corresponding tax benefits of $ 1.9 million and $ 1.2 million, respectively. The Company recorded stock-based compensation expense recognized under ASC 718 for the nine months ended September 30, 2024 and 2023, of $ 30.2 million and $ 17.5 million, respectively, with corresponding tax benefits of $ 5.0 million and $ 3.2 million , respectively. 6. Common Stock and Treasury Stock In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program. In June 2024, the board approved the repurchase of the Company's common stock of up to $ 400.0 million, in place of the remaining purchase amounts previously authorized. The Company repurchased 3,946,537 shares for $ 128.7 million during the nine months ended September 30, 2024. Under the program to date, the Company has repurchased 62,867,837 shares for approximately $ 1.1 billion. As of September 30, 2024, the maximum remaining amount authorized for purchase under the stock repurchase program was $ 372.3 million. 16 Table of contents 7. Earnings (Loss) Per Share Basic earnings (loss) per share is computed in accordance with ASC 260, Earnings Per Share , based on weighted average outstanding common shares. Diluted earnings (loss) per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been achieved. The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings (loss) per share (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Weighted average shares outstanding: Basic weighted average shares outstanding 104,770 108,667 105,651 108,428 Add: Dilutive effect of stock options and RSUs 1,248 266 901 — Diluted weighted average shares outstanding 106,018 108,933 106,552 108,428 The diluted earnings (loss) per share computation excludes 1.0 million and 2.0 million options to purchase shares, RSUs, and contingently issuable shares during the three months ended September 30, 2024 and 2023, respectively, as their effect would be anti-dilutive. The diluted earnings (loss) per share computation excludes 1.2 million and 3.2 million options to purchase shares, RSUs, and contingently issuable shares during the nine months ended September 30, 2024 and 2023, respectively, as their effect would be anti-dilutive. Common stock outstanding as of September 30, 2024, and December 31, 2023, was 104,870,815 and 108,077,738 , respectively. 8. Other, Net Other, net is primarily comprised of foreign currency transaction gains and losses. Other, net was $ 0.8 million of expense and $ 1.1 million of income for the three months ended September 30, 2024 and 2023, respectively. Other, net was $ 1.7 million and $ 6.4 million of expense for the nine months ended September 30, 2024 and 2023, respectively. 9. Segment Information The Company reports financial performance based on its operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as a measure of segment profitability. The Company’s Chief Executive Officer is also the chief operating decision maker ("CODM"). The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from corporate operations. No operating segments have been aggregated to form the reportable segments. Banks. ACI provides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands. Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who service them. These customers operate in a variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. The Company's solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop. Billers. Within the billers segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue. 17 Table of contents Revenue is attributed to the reportable segments based upon customer. Expenses are attributed to the reportable segments in one of three methods: (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual projects, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities. Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’s segments, and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting. Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense). Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to corporate overhead costs that are not allocated to reportable segments. The overhead costs relate to human resources, finance, legal, accounting, and merger and acquisition activity. These costs along with depreciation and amortization and stock-based compensation are not considered when management evaluates segment performance. The following is selected financial data for the Company’s reportable segments for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue Banks $ 222,031 $ 155,684 $ 471,109 $ 361,231 Merchants 50,120 36,267 123,865 107,556 Billers 179,601 171,064 546,276 507,229 Total revenue $ 451,752 $ 363,015 $ 1,141,250 $ 976,016 Segment Adjusted EBITDA Banks $ 153,944 $ 91,010 $ 274,794 $ 167,313 Merchants 26,711 10,296 52,737 26,751 Billers 30,920 39,186 99,092 100,056 Depreciation and amortization ( 31,515 ) ( 30,463 ) ( 86,710 ) ( 93,438 ) Stock-based compensation expense ( 11,346 ) ( 6,822 ) ( 30,165 ) ( 17,537 ) Corporate and unallocated expenses ( 46,128 ) ( 41,283 ) ( 123,901 ) ( 135,053 ) Interest, net ( 14,485 ) ( 16,345 ) ( 44,004 ) ( 48,183 ) Other, net ( 823 ) 1,084 ( 1,692 ) ( 6,403 ) Income (loss) before income taxes $ 107,278 $ 46,663 $ 140,151 $ ( 6,494 ) Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information. 18 Table of contents The following is revenue by primary solution category for the Company’s reportable segments for the periods indicated (in thousands): Three Months Ended September 30, 2024 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 179,601 $ 179,601 Merchant Payments — 50,120 — 50,120 Fraud Management 18,451 — — 18,451 Real-Time Payments 45,376 — — 45,376 Issuing and Acquiring 158,204 — — 158,204 Total $ 222,031 $ 50,120 $ 179,601 $ 451,752 Three Months Ended September 30, 2023 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 171,064 $ 171,064 Merchant Payments — 36,267 — 36,267 Fraud Management 16,543 — — 16,543 Real-Time Payments 26,374 — — 26,374 Issuing and Acquiring 112,767 — — 112,767 Total $ 155,684 $ 36,267 $ 171,064 $ 363,015 Nine Months Ended September 30, 2024 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 546,276 $ 546,276 Merchant Payments — 123,865 — 123,865 Fraud Management 39,145 — — 39,145 Real-Time Payments 96,553 — — 96,553 Issuing and Acquiring 335,411 — — 335,411 Total $ 471,109 $ 123,865 $ 546,276 $ 1,141,250 Nine Months Ended September 30, 2023 Banks Merchants Billers Total Primary Solution Categories Bill Payments $ — $ — $ 507,229 $ 507,229 Merchant Payments — 107,556 — 107,556 Fraud Management 38,051 — — 38,051 Real-Time Payments 72,271 — — 72,271 Issuing and Acquiring 250,909 — — 250,909 Total $ 361,231 $ 107,556 $ 507,229 $ 976,016 19 Table of contents Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Banks Software as a service and platform as a service $ 11,697 $ 10,167 $ 33,924 $ 29,158 License 143,338 77,779 235,357 136,980 Maintenance 43,916 48,084 133,215 142,050 Services 23,080 19,654 68,613 53,043 Total $ 222,031 $ 155,684 $ 471,109 $ 361,231 Merchants Software as a service and platform as a service $ 32,069 $ 30,162 $ 94,298 $ 89,660 License 14,091 1,900 17,627 5,701 Maintenance 3,643 3,834 10,831 11,314 Services 317 371 1,109 881 Total $ 50,120 $ 36,267 $ 123,865 $ 107,556 Billers Software as a service and platform as a service $ 179,601 $ 171,040 $ 546,276 $ 507,157 License — — — — Maintenance — 24 — 72 Services — — — — Total $ 179,601 $ 171,064 $ 546,276 $ 507,229 The following is the Company's revenue by geographic location for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue United States $ 241,054 $ 226,911 $ 698,704 $ 633,379 Other 210,698 136,104 442,546 342,637 Total $ 451,752 $ 363,015 $ 1,141,250 $ 976,016 The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands): September 30, 2024 December 31, 2023 Long-lived Assets United States $ 1,155,409 $ 1,216,158 Other 787,302 763,437 Total $ 1,942,711 $ 1,979,595 No single customer accounted for more than 10% of the Company's consolidated revenue during the three and nine months ended September 30, 2024 and 2023. The United Kingdom accounted for 12.0 % of the Company's consolidated revenues during the three months ended September 30, 2024. No other country outside the United States accounted for more than 10% of the Company's consolidated revenues during the three months ended September 30, 2023 and nine months ended September 30, 2024 and 2023. 20 Table of contents 10. Income Taxes For the three and nine months ended September 30, 2024, the Company's effective tax rate was 24 % and 25 %, respectively. The Company reported a tax charge on pretax income for both the three and nine months ended September 30, 2024, with foreign entities recognizing earnings of $ 107.6 million and $ 148.1 million, respectively. For the three and nine months ended September 30, 2023, the Company's effective tax rate was 19 % and 83 %, respectively. The Company reported a tax charge on pretax income for the three months ended September 30, 2023 and a tax benefit on pretax loss for the nine months ended September 30, 2023, with foreign entities recognizing earnings of $ 47.9 million and $ 64.9 million, respectively. The Company’s effective tax rate could fluctuate on a quarterly basis due to the occurrence of significant and unusual or infrequent items, such as vesting of stock-based compensation or foreign currency gains and losses. The Company’s effective tax rate could also fluctuate due to changes in the valuation of its deferred tax assets or liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, the Company is occasionally subject to examination of its income tax returns by tax authorities in the jurisdictions it operates. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. The Organization for Economic Co-operation and Development Inclusive Framework on Base Erosion and Profit Shifting released Pillar Two Model Rules (“Pillar Two”) for a global minimum tax. Many countries have enacted certain aspects of the Pillar Two framework with effective dates in 2024. Entities operating in countries where Pillar Two has been enacted are required to estimate Pillar Two top-up tax obligations beginning in the first quarter of 2024. For the nine months ended September 30, 2024, the Company did not have material Pillar Two top-up tax obligations impacting the Company’s estimated annual effective tax rate. The Company will continue to evaluate the impact of proposed and enacted legislation as new guidance becomes available. As of September 30, 2024, and December 31, 2023, the amount of unrecognized tax benefits for uncertain tax positions was $ 21.0 million and $ 20.9 million, respectively, excluding related liabilities for interest and penalties of $ 0.4 million and $ 0.5 million, respectively. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $ 2.3 million, due to the settlement of various audits and the expiration of statutes of limitation. 11. Commitments and Contingencies Legal Proceedings In April 2021, ACH files associated with one of the Company's mortgage servicing customers were inadvertently transmitted into the ACH network during a test of the Company's payment processing system. The Company took immediate corrective action and issued reversing ACH files, restoring affected accounts. The Company’s customer commenced an action for damages as a result of this event. The Company settled with the customer for the amount of $ 1.8 million, which will be funded by insurance carriers. Funds received from or expected to be received from insurance carriers are generally subject to the respective carriers' reservation of rights. The Company is from time to time subject to other claims, litigation and investigations. While the Company believes that none of the currently pending matters is reasonably likely to have a material adverse effect on it, there can be no assurance with respect thereto or future matters. 21 Table of contents