What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-29 · 96 added, 126 removed, 375 unchanged (37% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

More than 1,000 of the largest banks and intermediaries, as well as thousands of global merchants, rely on ACI to execute $14 trillion each day in payments and securities.

In addition, myriad organizations utilize our electronic bill presentment and payment services.

Through our comprehensive suite of software solutions delivered on customers’ premises, through the public cloud or through ACI’s private cloud, we provide real-time, immediate payments capabilities and enable the industry’s most complete omni-channel payments experience.

ACI Worldwide, an innovator in global payments technology, delivers software solutions that power intelligent payments orchestration in real time so banks, merchants, and billers can drive growth, while continuously modernizing their payment infrastructures, simply and securely.

With nearly 50 years of trusted payments expertise, we combine our global footprint with a local presence to offer enhanced payment experiences to stay ahead of constantly changing payment challenges and opportunities.

Our products are sold and supported directly and through distribution networks covering three geographic regions – the Americas, EMEA, and Asia Pacific.

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 POS terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

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

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

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Increasing digital payment transaction volumes .

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 that has continued.

The adoption of digital payments continues to accelerate, propelled by the digitization of cash, financial inclusion efforts of countries throughout the world, rapid growth of eCommerce, and the adoption of real-time payments enabling more people, governments, and businesses to embrace digital payments.

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

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

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

This is bolstered by the new data-rich ISO 20022 messaging format prevalent in account-to-account payments, which is delivering greater value to banks and their customers and has now been rolled out across the world and continues to see adoption with local schemes, such as FedWire, planned for 2025.

We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth and new payment types.

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

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

Domestic schemes such as Unified Payments Interface ("UPI") in India and others are being made available to their citizens for cross-border transactions when abroad.

Mature markets, including India, the United Kingdom, Australia, Brazil, Malaysia, Singapore, and Thailand, continue to accelerate innovation, especially in terms of overlay services, driving new transactions.

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

Asia is one of the most innovative markets for adoption of real-time payment systems.

According to ACI’s Prime Time for Real-Time report, Asia Pacific is the largest regional market, with four of the global top five real-time payment markets by volume.

ACI provides solutions for commercial and central banks across Asia.

Latin American countries are pushing ahead with real-time payments modernization initiatives, looking to replicate Brazil’s success with PIX.

ACI is also providing solutions centrally in Colombia and Peru.

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

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

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

Adoption of cloud technology .

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

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

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

Payments intelligence.

fraud, and compliance .

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

As the threat of scams becomes a greater concern for 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 remitting and receiving banks on the accountability for reimbursement.

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

Cloud technology innovations allow the financial services ecosystem to remove technical risk from their operations, accelerate innovation and time to market for new revenue-generating solutions for their customers, and accelerate innovation and ensure scalability and resiliency while improving operating economics over time.

As banks and intermediaries, merchants, and billers

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

Cloud-native solutions running in a multi-tenant SaaS environment also allow ACI to expand our market coverage to smaller institutions, offering scalable solutions which are easy to integrate with but at price points that fit their budgets.

Payments intelligence, fraud, and compliance .

The accelerated adoption of real-time payments, fraudsters leveraging artificial intelligence, and the ramping up of mandates increase the urgency for industry-wide collaboration to mitigate fraud with precision and achieve operational excellence.

As the threat of sophisticated fraud becomes a greater concern for remitting and receiving institutions, consumers are challenged with increased friction to prevent illegitimate access of genuine accounts or funds to protect the consumer trust and confidence, while achieving their strategic objectives.

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

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

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

We continue to evolve our advanced machine learning and network intelligence capabilities to stop criminals and enable frictionless, legitimate business.

Meanwhile, with payments intelligence, organizations can integrate intelligent services to enhance consumer relationships while achieving precise, real-time fraud and risk mitigation capabilities.

Omni-commerce.

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

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

This trend has led to an increase in contactless payments, click and collect, and curbside collection.

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

We believe there is significant opportunity to provide merchants with the tools to deliver a seamless, secure, personalized experience that creates loyalty and satisfaction, and drives conversion rates while protecting consumer data and preventing fraud.

Request for Payment (RfP).

Markets across the world are introducing an innovative payments service called Request for Payment (RfP).

This technology is known by different names in different markets:

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

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

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

ACI is in a unique position to deliver this overlay service given our real-time payments software, our relationships with banks, merchants, and billers, and global real-time connectivity.

Open banking .

Open banking is gaining momentum globally, and while it has been accelerated in Europe by regulations like PSD3, the United States is also seeing significant shifts driven by market demand and technology innovation rather than regulatory mandates.

In the United States, the growing adoption of Request to Pay (RTP) offers an alternative to traditional bill payment methods, allowing payers to respond directly to payment requests with flexibility on timing, method, and amount.

This aligns with the broader movement toward real-time payments, supported by platforms like the FedNow ® Service and The Clearing House’s RTP network.

While the United States doesn't have a regulatory equivalent to PSD3, there's a strong push for open banking solutions that provide greater control and transparency for consumers, and RTP is a key trend within that space.

By embracing both RTP and open banking trends in the United States, payment processors and financial institutions can offer more dynamic, flexible payment options, driving innovation and improving customer experience, while staying competitive in a rapidly evolving payments landscape.

ACI is in a unique position to deliver service that takes advantage of our real-time payments software, our relationships with banks, merchants, and billers, and global connectivity.

Several other factors related to our business may have a significant impact on our operating results from year to year.

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During the year ended December 31, 2023 , the Company recognized a loss for the final post-closing adjustment pursuant to the definitive agreement of $0.5 million, which is recorded in other, net in the accompanying consolidated statements of operations.

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.

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.

The Company and OEP had also entered into a Transition Services Agreement ("TSA"), whereby the Company would continue to perform certain functions on OEP's behalf during a migration period which ended in 2024.

The TSA was 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:

• Committed Backlog, which includes (1) contracted revenue that will be recognized in future periods (contracted but not recognized) from software license fees, maintenance fees, service fees, and SaaS and PaaS fees specified in executed contracts (including estimates of variable consideration if required under ASC 606) and included in the transaction price for those contracts, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods and (2) estimated future revenues from software license fees, maintenance fees, services fees, and SaaS and PaaS fees specified in executed contracts.

• Committed Backlog, which includes (1) contracted revenue that will be recognized in future periods (contracted but not recognized) from software license fees, maintenance fees, service fees, and SaaS and PaaS fees specified in executed contracts (including estimates of variable consideration if required under ASC 606, Revenue From Contracts with Customers ) and included in the transaction price for those contracts, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods and (2) estimated future revenues from software license fees, maintenance fees, services fees, and SaaS and PaaS fees specified in executed contracts.

• Renewal Backlog, which includes estimated future revenues from assumed contract renewals to the extent we believe recognition of the related revenue will occur within the corresponding backlog period.

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Total revenue for the year ended December 31, 2024, increased $141.7 million, or 10%, as compared to the same period in 2023.

• The divestiture resulted in a $32.0 million decrease in total revenue for the year ended December 31, 2023.

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

dollar resulted in a $3.2 million decrease in total revenue during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture and foreign currency, total revenue for the year ended December 31, 2023, increased $65.1 million, or 5%, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, total revenue for the year ended December 31, 2024, increased $144.9 million, or 10%, as compared to the same period in 2023.

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

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SaaS and PaaS costs include payment card interchange fees, the amounts payable to banks and payment card processing fees, which are included in cost of revenue in the accompanying consolidated statements of operations.

All revenue from SaaS and PaaS arrangements that does 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.

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 $48.8 million, or 6%, during the year ended December 31, 2024, as compared to the same period in 2023.

• The divestiture resulted in a $18.1 million decrease in SaaS and PaaS revenue for the year ended December 31, 2023.

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

dollar resulted in a $0.5 million increase in SaaS and PaaS revenue during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture and foreign currency, SaaS and PaaS revenue for the year ended December 31, 2023, increased $63.8 million, or 8%, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the year ended December 31, 2024, increased $48.3 million, or 6%, as compared to the same period in 2023.

• The increase was primarily due to higher transaction volumes during the year ended December 31, 2024, as compared to the same period in 2023, as well as new customer go-lives since December 31, 2023.

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Depending on specific circumstances, multiple overages or no overages may occur during the term of the agreement.

Included in license revenue are license and capacity fees that are payable at the inception of the agreement or annually (initial license fees).

License revenue also includes license and capacity fees payable quarterly or monthly due to negotiated customer payment terms (monthly license fees).

Included in license revenue are license and capacity fees that are payable at the inception of the agreement.

License revenue also includes license and capacity fees payable annually, quarterly, or monthly due to negotiated customer payment terms.

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

License revenue decreased $26.9 million, or 8%, during the year ended December 31, 2023, as compared to the same period in 2022.

License revenue increased $91.1 million, or 28%, during the year ended December 31, 2024, as compared to the same period in 2023.

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

dollar resulted in a $3.0 million decrease in license revenue during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, license revenue for the year ended December 31, 2023, decreased $26.2 million, or 8%, as compared to the same period in 2022.

• The decrease in license revenue was driven by license renewal timing as well as the relative size of new license agreements during the year ended December 31, 2023, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, license revenue for the year ended December 31, 2024, increased $94.1 million, or 30%, as compared to the same period in 2023.

• The increase in license revenue was driven by license renewal timing as well as the relative size of new license and capacity events during the year ended December 31, 2024, as compared to the same period in 2023.

Maintenance Revenue

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 increased $5.0 million, or 3%, during the year ended December 31, 2023, as compared to the same period in 2022.

• The divestiture resulted in a $7.4 million decrease in maintenance revenue for the year ended December 31, 2023.

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

Maintenance revenue decreased $14.3 million, or 7%, during the year ended December 31, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.2 million decrease in maintenance revenue during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture and foreign currency, maintenance revenue for the year ended December 31, 2023, increased $14.0 million, or 7%, as compared to the same period in 2022.

• The increase was primarily driven by annual inflationary increases in product support fees subsequent to December 31, 2022.

• Adjusted for the impact of foreign currency, maintenance revenue for the year ended December 31, 2024, decreased $14.1 million, or 7%, 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 year ended December 31, 2024, as compared to the same period in 2023.

Services Revenue

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Services revenue increased $16.1 million, or 21%, during the year ended December 31, 2024, as compared to the same period in 2023.

• The divestiture resulted in a $6.4 million decrease in services revenue for the year ended December 31, 2023.

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

dollar resulted in a $0.4 million decrease in services revenue during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture and foreign currency, services revenue for the year ended December 31, 2023, increased $13.5 million, or 21%, as compared to the same period in 2022.

• Adjusted for the impact of foreign currency, services revenue for the year ended December 31, 2024, increased $16.5 million, or 21%, as compared to the same period in 2023.

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

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Total operating expenses for the year ended December 31, 2024, increased $54.0 million, or 4%, as compared to the same period in 2023.

• During the year ended December 31, 2023, there was a $18.2 million reduction in operating expense related to the divestiture.

• Total operating expenses for the year ended December 31, 2024, included $8.6 million for cost reduction strategies and $1.0 million of other significant transaction-related expenses during the period.

Total operating expenses for the year ended December 31, 2023, included $21.0 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.8 million of European data center migration expenses during the period.

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

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

dollar resulted in a $1.0 million decrease in total operating expenses for the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, total operating expenses for the year ended December 31, 2023, increased $19.5 million, or 2%, as compared to the same period in 2022.

• Adjusted for the impact of cost reduction strategies, significant transaction-related expenses, and foreign currency, total operating expenses for the year ended December 31, 2024, increased $73.6 million, or 6%, as compared to the same period in 2023.

Cost of Revenue

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Cost of revenue increased $72.6 million, or 10%, during the year ended December 31, 2024, as compared to the same period in 2023.

• During the year ended December 31, 2023, there was a $16.8 million reduction in cost of revenue related to the divestiture.

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

dollar resulted in a $0.5 million decrease in cost of revenue during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture and foreign currency, cost of revenue increased $41.9 million, or 6%, for the year ended December 31, 2023, as compared to the same period in 2022.

• The increase was primarily due to higher personnel and related expenses, payment card interchange and processing fees, and cloud computing fees of $15.7 million, $14.5 million, and $12.3 million, respectively.

• Adjusted for the impact of foreign currency, cost of revenue increased $73.1 million, or 10%, for the year ended December 31, 2024, as 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 $48.2 million and $8.0 million, respectively.

The remaining increase was due to higher personnel and related expenses of $16.9 million, including a $2.8 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 $5.6 million, or 4%, during the year ended December 31, 2023, as compared to the same period in 2022.

• During the year ended December 31, 2023, there was a $1.3 million reduction in R&D expense related to the divestiture.

R&D expense increased $5.9 million, or 4%, during the year ended December 31, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.2 million decrease in R&D expense during the year ended December 31, 2024, as compared to the same period in 2023.

• Adjusted for the impact of the divestiture, significant transaction-related expenses, and foreign currency, R&D expense decreased $3.3 million, or 2%, during the year ended December 31, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower professional fees of $5.8 million, partially offset by an increase in personnel and related expenses of $2.5 million.

• Adjusted for the impact of foreign currency, R&D expense increased $6.1 million, or 4%, during the year ended December 31, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses of $7.1 million, including a $4.2 million increase in stock-based compensation expense, partially offset by lower cloud computing and professional fees of $1.0 million.

Selling and Marketing

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Selling and marketing expense decreased $14.3 million, or 11%, during the year ended December 31, 2024, as compared to the same period in 2023.

• The decrease was primarily due to lower personnel and related expenses and travel and entertainment expenses of $2.6 million and $0.6 million, respectively, partially offset by an increase in advertising and professional fees of $1.0 million.

• The decrease was primarily due to lower personnel and related expenses and advertising and professional fees of $14.0 million and $0.3 million, respectively.

General and Administrative

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General and administrative expense increased $1.2 million, or 1%, during the year ended December 31, 2024, as compared to the same period in 2023.

• General and administrative expenses for the year ended December 31, 2024, included $4.3 million for cost reduction strategies and $1.0 million of other significant transaction-related expenses during the period.

General and administrative expenses for the year ended December 31, 2023, included $21.0 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.8 million of European data center migration expenses during the period.

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

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

dollar resulted in a $0.3 million decrease in general and administrative expense during the year ended December 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 decreased $12.5 million, or 12%, for the year ended December 31, 2023, as compared to the same period in 2022.

• The decrease was primarily due to lower personnel and related expenses and professional and other legal fees of $7.6 million and $4.9 million, respectively.

• Adjusted for the impact of cost reduction strategies, significant transaction-related expenses, and foreign currency, general and administrative expense increased $24.4 million, or 28%, for the year ended December 31, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses of $22.2 million, including a $11.1 million increase in stock-based compensation expense.

The remaining increase was due to an increase in professional and other legal fees of $2.2 million.

Depreciation and Amortization

Depreciation and amortization decreased $11.4 million, or 9%, during the year ended December 31, 2024, as compared to the same period in 2023.

• Depreciation and amortization for the year ended December 31, 2024, included $4.4 million of accelerated depreciation related to the closure of a facility.

• Adjusted for the impact of the facility closure, depreciation and amortization decreased $15.8 million, or 13%, for the year ended December 31, 2024, as compared to the same period in 2023.

• The decrease was primarily due to a $10.0 million decrease in depreciation due to prior facilities cost reduction activities and a $5.8 million decrease in amortization for fully amortized software and intangibles acquired through acquisitions.

Other Income and Expense

Interest expense for the year ended December 31, 2023, increased $25.3 million, or 48%, as compared to the same period in 2022, primarily due to higher interest rates.

Interest expense for the year ended December 31, 2024, decreased $6.0 million, or 8%, as compared to the same period in 2023, primarily due to repayments on the Term Loan.

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

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

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

Other, net was $8.5 million of expense and $43.4 million of income for the years ended December 31, 2023 and 2022, respectively.

Other, net was $1.2 million and $8.5 million of expense for the years ended December 31, 2024 and 2023, respectively.

The effective tax rates for the years ended December 31, 2024 and 2023, were approximately 19% and 18%, respectively.

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

Of the foreign jurisdictions in which we operate, our December 31, 2023 effective rate was most impacted by our operations in Ireland and the United Kingdom and our December 31, 2022 effective tax rate was most impacted by our operations in Ireland.

Our effective tax rates vary from our federal statutory rate due to operating in multiple foreign countries, each with its own tax laws and rates.

These foreign tax laws and rates differ from those we apply to the income generated from our domestic operations.

Of the foreign jurisdictions in which we operate, our December 31, 2024 and 2023 effective tax rates were most impacted by our operations in Ireland and the United Kingdom.

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

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Segment Results

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.

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.

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.

Within the billers segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories.

The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue.

Revenue is attributed to the reportable segments based upon the customer.

Expenses are attributed to the reportable segments in one of three methods:

(1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual projects, or (3) costs that are allocated.

Allocated costs are generally marketing and sales related activities.

Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company's segments and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting .

Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense).

Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to the 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.

Refer to Note 10, Segment Information, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for discussion on identification of operating segments.

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

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Income before income taxes $ 250,409 $ 147,627

Banks Segment Adjus ted EBITDA decreased $13.9 million due to the divestiture.

Excluding the divestiture, Banks Segment Adjusted EBITDA decreased $1.6 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a $11.2 million increase in cash operating expense, partially offset by a $9.6 million increase in revenue.

Merchants Segment Adjusted EBITDA decreased $4.7 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a $3.3 million decrease in revenue and a $1.4 million increase in cash operating expenses.

Billers Segment Adjusted EBITDA increased $35.0 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a $56.5 million increase in revenue, partially offset by a $14.5 million increase in interchange and processing fees.

Banks Segment Adjusted EBITDA increased $70.0 million for the year ended December 31, 2024, compared to the same period in 2023, primarily due to a $85.8 million increase in revenue primarily related to an increase in license revenues, partially offset by a $15.8 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $25.2 million for the year ended December 31, 2024, compared to the same period in 2023, primarily due to a $15.3 million increase in revenue and a $9.9 million decrease in cash operating expenses.

Billers Segment Adjusted EBITDA decreased $11.2 million for the year ended December 31, 2024, compared to the same period in 2023, primarily due to a $48.2 million increase in interchange and processing fees, partially offset by a $40.6 million increase in revenue.

Prior Year Results

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and (iii) to fund acquisitions, capital expenditures, and lease payments.

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

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

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

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state income taxes to repatriate these funds.

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

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

We are also permanently reinvested for outside book/tax basis differences 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 December 31, 2023.

As of December 31, 2024, only the earnings from our Indian foreign subsidiaries are indefinitely reinvested.

We are also permanently reinvested in the outside book/tax basis differences related to foreign subsidiaries.

These outside basis differences could reverse through the sale of foreign subsidiaries, as well as various other events, none of which are considered probable as of December 31, 2024.

Available Liquidity

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$ 744,494 $ 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 and cash flows generated from operations.

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

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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.

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.

The 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.

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.

We repurchased 3,946,537 shares for $128.5 million under our stock repurchase program during the year ended December 31, 2024.

Under the program to date, we have repurchased 58,921,300 shares for approximately $953.8 million.

Under the program to date, we have repurchased 62,867,837 shares for approximately $1.1 billion.

As of December 31, 2024, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $372.5 million.

Subsequent to December 31, 2023, the Company has repurchased additional shares under the repurchase program.

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

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

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

Cash flows provided by operating activities were $25.1 million higher for the year ended December 31, 2023, compared to the same period in 2022.

This increase is primarily due to $69.2 million more in customer receipt collections on higher prior year-end receivable balances, partially offset by $25.0 million more in interest payments due to the increase in interest rates, and $21.9 million more in income tax payments, which is based upon higher pre-tax income in the prior year.

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

Cash flows provided by operating activities was $358.7 million for the year ended December 31, 2024, an increase of 113% compared to $168.5 million for the same period in 2023.

This increase is attributed to improved profitability and corresponding cash flows primarily from customer receipt collections and lower income tax payments, partially offset by working capital use.

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

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During the year ended December 31, 2024, we used cash of $45.1 million to purchase software, property, and equipment, as compared to $37.8 million during the same period in 2023.

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

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 2024, we repaid a net $57.2 million on the Term Loan under the Amendment, $54.0 million on the Revolving Credit Facility, $14.9 million of other debt payments, and $5.1 million of debt issuance costs.

In addition, we used $127.7 million to repurchase common stock, $13.1 million for the repurchase of stock-based compensation awards for tax withholdings, and $25.5 million for settlement assets and liabilities due to processing timing.

We received proceeds of $9.2 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

During 2023, we repaid $73.0 million on the Term Loans, $16.8 million of other debt payments, and $2.2 million of debt issuance costs.

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We received net proceeds of $19.0 million on the Revolving Credit Facility and proceeds of $9.5 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

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

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

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

Prior Year Results

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No reporting units were deemed to be at risk of failing Step 1 of the goodwill impairment test under ASC 350.

Business Combinations

We apply the provisions of ASC 805, Business Combinations , in the accounting for our acquisitions.

It requires us to recognize the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill.

Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships, covenants not to compete, and acquired developed technologies;

brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in our product portfolio;

and discount rates.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Stock-Based Compensation

On June 9, 2020, upon recommendation of our board, stockholders approved the ACI Worldwide, Inc.

On June 9, 2020, upon recommendation of the board, stockholders approved the ACI Worldwide, Inc.

2020 Equity and Incentive Compensation Plan (the “2020 Plan”).

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Termination of the 2016 Incentive Plan did not affect any equity awards outstanding under the 2016 Incentive Plan or 2005 Incentive Plan.

Performance awards granted with a total shareholder return multiplier ("TSRs") are shares that are earned, if at all, based upon achievement of performance goals over a specified period.

For 2023, performance awards granted are earned over a specified period that must not be less than one year and is typically a three-year performance period, based upon achievement of performance goals related to (i) net revenue growth and (ii) net adjusted EBITDA margin over the performance period as determined by the Company with a total shareholder return multiplier up to plus or minus 20%.

Performance share awards granted with a total shareholder return component ("TSRs") are shares that are earned, if at all, based upon achievement of performance goals over a specified period.

For 2024 and 2023, performance share awards granted 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.

For 2022 and 2021, we granted performance shares that are earned based upon the Company’s total shareholder return as compared to a group of peer companies over a three-year performance period.

For 2022, performance share awards granted are earned, if at all, based upon the Company’s total shareholder return as compared to a group of peer companies over a three-year performance period.

The award payout can range from 0% to 200%.

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

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.

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

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As part of our process of determining current tax liability, we exercise judgment in evaluating positions we have taken in our tax returns.

We periodically assess our tax exposures and establish, or adjust, estimated unrecognized benefits for probable assessments by taxing authorities, including the Internal Revenue Service, and various foreign and state authorities.

We periodically assess our tax exposures and establish, or adjust, estimated unrecognized benefits for probable assessments by taxing authorities, including the

Internal Revenue Service, and various foreign and state authorities.

Such unrecognized tax benefits represent the estimated provision for income taxes expected to ultimately be paid.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis