What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 125 added, 203 removed, 215 unchanged (60% of the section changed)

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The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and with our financial statements and related notes contained in this Form 10-Q.

Results for the three and nine months ended September 30, 2024, are not necessarily indicative of results that may be attained in the future.

Global Economy and Inflation

Since 2022, the global economy has experienced high inflation, increased interest rates, and pressures on gross domestic product.

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

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

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.

Results for the three months ended March 31, 2025, are not necessarily indicative of results that may be attained in the future.

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;

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

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

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 point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

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

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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, and 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-premise 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.

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 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 emitting and receiving banks on the accountability for reimbursement.

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

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

The following table sets forth our 60-month backlog estimate, by reportable segment, as of September 30, 2024, June 30, 2024, March 31, 2024, and December 31, 2023 (in millions).

The following table sets forth our 60-month backlog estimate, by reportable segment, as of March 31, 2025, and December 31, 2024 (in millions).

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

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

September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023

Banks $ 2,291 $ 2,230 $ 2,235 $ 2,261

Merchants 757 740 741 754

Billers 3,395 3,398 3,505 3,505

March 31, 2025 December 31, 2024

Payment Software $ 3,142 $ 3,102

Biller 3,597 3,604

Total $ 6,739 $ 6,706

September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Committed $ 2,257 $ 2,413

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The following table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our condensed consolidated statements of operations (in thousands):

Three Month Period Ended September 30, 2024 Compared to the Three Month Period Ended September 30, 2023

Three Months Ended September 30,

Three Month Period Ended March 31, 2025 Compared to the Three Month Period Ended March 31, 2024

Three Months Ended March 31,

Amount % of Total

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Total other income (expense) 13,121 3 % 30,147 177 % (17,026) (6) %

(15,308) (3) % (47) — % (15,261) (4) %

Income before income taxes

Income (loss) before income taxes

71,637 18 % 79,103 1,060 % (7,466) (2) %

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12,767 3 % 12,482 4,380 % 285 — %

Net income (loss)

$ 58,870 15 % $ 66,621 860 % $ (7,751) (2) %

Total revenue for the three months ended September 30, 2024, increased $88.7 million, or 24%, as compared to the same period in 2023.

• The impact of foreign currencies was not significant for the three months ended September 30, 2024, as compared to the same period in 2023.

Total revenue for the three months ended March 31, 2025, increased $78.5 million, or 25%, as compared to the same period in 2024.

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

dollar resulted in a $1.4 million decrease in total revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of foreign currency, total revenue for the three months ended March 31, 2025, increased $79.9 million, or 25%, as compared to the same period in 2024.

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

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All fees from SaaS and PaaS arrangements that do not qualify for treatment as a distinct performance obligation, which includes set-up fees, implementation or customization services, and product support services, are included in SaaS and PaaS revenue.

SaaS and PaaS revenue increased $12.0 million, or 6%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• The increase was primarily driven by new customer go-lives since September 30, 2023, and higher transaction volumes during the three months ended September 30, 2024, as compared to the same period in 2023.

SaaS and PaaS revenue increased $21.4 million, or 10%, during the three months ended March 31, 2025, as compared to the same period in 2024.

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

dollar resulted in a $0.3 million decrease in SaaS and PaaS revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended March 31, 2025, increased $21.7 million, or 10%, as compared to the same period in 2024.

• The increase was primarily driven by new customer go-lives since March 31, 2024, and higher transaction volumes during the three months ended March 31, 2025, as compared to the same period in 2024.

License Revenue

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

License revenue increased $77.8 million, or 98%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• The increase was driven by license renewal timing as well as the relative size of new license and capacity events during the three months ended September 30, 2024, as compared to the same period in 2023.

License revenue increased $54.5 million, or 182%, during the three months ended March 31, 2025, as compared to the same period in 2024.

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

dollar resulted in a $0.2 million decrease in license revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of foreign currency, license revenue for the three months ended March 31, 2025, increased $54.7 million, or 184%, as compared to the same period in 2024.

• The increase was driven by the relative size of new license and capacity events during the three months ended March 31, 2025, as compared to the same period in 2024.

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 decreased $4.4 million, or 8%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• The decrease was primarily driven by customers reducing premium customer support and maintenance on non-strategic products during the three months ended September 30, 2024, as compared to the same period in 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 increased $0.9 million, or 2%, during the three months ended March 31, 2025, as compared to the same period in 2024.

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

dollar resulted in a $0.6 million decrease in maintenance revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of foreign currency, maintenance revenue for the three months ended March 31, 2025, increased $1.5 million, or 3%, as compared to the same period in 2024.

Services Revenue

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

Services revenue increased $3.4 million, or 17%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• The increase was primarily driven by the timing and magnitude of project-related work during the three months ended September 30, 2024, as compared to the same period in 2023.

Services revenue increased $1.8 million, or 8%, during the three months ended March 31, 2025, as compared to the same period in 2024.

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

dollar resulted in a $0.2 million decrease in services revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of foreign currency, services revenue for the three months ended March 31, 2025, increased $2.0 million, or 9%, as compared to the same period in 2024.

• The increase was primarily driven by the timing and magnitude of project-related work during the three months ended March 31, 2025, as compared to the same period in 2024.

Operating Expenses

Total operating expenses for the three months ended September 30, 2024, increased $28.1 million, or 9%, as compared to the same period in 2023.

• Total operating expenses for the three months ended September 30, 2024, included $5.6 million for cost reduction strategies and $0.3 million of other significant transaction-related expenses during the period, compared to $3.8 million for cost reduction strategies and $0.4 million of European data center migration expenses for the same period in 2023.

• The impact of foreign currencies was not significant for the three months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of cost reduction strategies and significant transaction-related expenses, total operating expenses for the three months ended September 30, 2024, increased $26.5 million, or 9%, as compared to the same period in 2023.

Total operating expenses for the three months ended March 31, 2025, increased $29.6 million, or 10%, as compared to the same period in 2024.

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

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

dollar resulted in a $2.0 million decrease in total operating expenses during the three months ended March 31, 2025, compared to the same period in 2024.

• Adjusted for significant transaction-related expenses and foreign currency, total operating expenses for the three months ended March 31, 2025, increased $34.5 million, or 11%, compared to the same period in 2024.

Cost of Revenue

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

Cost of revenue increased $19.7 million, or 11%, during the three months ended September 30, 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 $14.4 million and $1.6 million, respectively.

The remaining increase was due to higher personnel and related expenses of $3.7 million.

Cost of revenue increased $22.3 million, or 12%, during the three months ended March 31, 2025, compared to the same period in 2024.

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

dollar resulted in a $0.7 million decrease in cost of revenue during the three months ended March 31, 2025, compared to the same period in 2024.

• Adjusted for the impact of foreign currency, cost of revenue for the three months ended March 31, 2025, increased $23.0 million, or 12%, compared to the same period in 2024.

• The increase was primarily due to higher payment card interchange fees and personnel and related expenses of $18.4 million and $4.6 million, respectively.

Research and Development

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

R&D expense increased $3.9 million, or 12%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses of $3.8 million, including a $1.2 million increase in stock-based compensation expense.

R&D expense increased $3.9 million, or 11%, during the three months ended March 31, 2025, as compared to the same period in 2024.

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

dollar resulted in a $0.3 million decrease in R&D expenses during the three months ended March 31, 2025, compared to the same period in 2024.

• Adjusted for the impact of foreign currency, R&D expenses for the three months ended March 31, 2025, increased $4.2 million, or 12%, compared to the same period in 2024.

• The increase was primarily due to higher personnel and related expenses.

Selling and Marketing

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

Selling and marketing expense decreased $0.8 million, or 3%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• The decrease was primarily due to lower personnel and related expenses and advertising and professional fees of $0.6 million and $0.2 million, respectively.

Selling and marketing expense increased $5.4 million, or 20%, during the three months ended March 31, 2025, as compared to the same period in 2024.

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

dollar resulted in a $0.5 million decrease in selling and marketing expense during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $5.9 million, or 23%, for the three months ended March 31, 2025, as compared to the same period in 2024.

• The increase was primarily due to higher personnel and related expenses of $6.6 million, partially offset by a decrease in advertising and professional fees of $0.7 million.

General and Administrative

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

General and administrative expense increased $4.1 million, or 14%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• General and administrative expenses for the three months ended September 30, 2024, included $1.2 million related to the closure of a facility and $0.3 million of other significant transaction-related expenses, compared to $3.8 million of expense for cost reduction strategies and $0.4 million of European data center migration expenses in the same period in 2023.

• Adjusted for the impact of significant transaction-related expenses, general and administrative expense increased $6.9 million, or 27%, for the three months ended September 30, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses of $8.1 million, including a $2.8 million increase in stock-based compensation expense, partially offset by a $1.2 million decrease in professional and other legal fees.

General and administrative expense increased $1.6 million, or 6%, during the three months ended March 31, 2025, as compared to the same period in 2024.

• General and administrative expenses for the three months ended March 31, 2024, included $2.6 million for cost reduction strategies and $0.3 million of other significant transaction-related expenses.

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

dollar resulted in a $0.4 million decrease in general and administrative expense during the three months ended March 31, 2025, as compared to the same period in 2024.

• Adjusted for the impact of cost reduction strategies, significant transaction-related expenses, and foreign currency, general and administrative expense increased $4.9 million, or 22%, for the three months ended March 31, 2025, as compared to the same period in 2024.

• The increase was primarily due to higher personnel and related expenses, including a $2.9 million increase in stock-based compensation expense.

Depreciation and Amortization

Depreciation and amortization increased $1.1 million, or 3%, during the three months ended September 30, 2024, as compared to the same period in 2023.

• Depreciation and amortization for the three months ended September 30, 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 $3.3 million, or 11%, for the three months ended September 30, 2024, as compared to the same period in 2023.

• The decrease was primarily due to a $2.2 million decrease in depreciation due to prior facilities cost reduction activities, and a $1.1 million decrease in amortization for fully amortized software and intangibles acquired through acquisitions.

Depreciation and amortization decreased $3.6 million, or 13%, during the three months ended March 31, 2025, as compared to the same period in 2024.

• The decrease was primarily due to a decrease in amortization for fully amortized intangibles acquired through acquisitions.

Other Income and Expense

Interest expense for the three months ended September 30, 2024, decreased $1.5 million, or 7%, as compared to the same period in 2023, primarily due to repayments on the Term Loan.

Interest expense for the three months ended March 31, 2025, decreased $4.3 million, or 23% compared to the same period in 2024, primarily due to lower comparative debt balances during 2025 as well as a decrease in interest rates.

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

Interest income for the three months ended September 30, 2024, increased $0.4 million, or 11%, as compared to the same period in 2023.

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.

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

RESULTS OF OPERATIONS

Nine Month Period Ended September 30, 2024 Compared to the Nine Month Period Ended September 30, 2023

Nine Months Ended September 30,

Amount % of Total

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

Software as a service and platform as a service $ 674,498 59 % $ 48,523 8 % $ 625,975 64 %

License 252,984 22 % 110,303 77 % 142,681 14 %

Maintenance 144,046 13 % (9,390) (6) % 153,436 16 %

Services 69,722 6 % 15,798 29 % 53,924 6 %

Total revenues 1,141,250 100 % 165,234 17 % 976,016 100 %

Operating expenses:

Cost of revenue 591,696 52 % 54,174 10 % 537,522 55 %

Research and development 108,063 9 % 1,941 2 % 106,122 11 %

Selling and marketing 83,992 7 % (14,174) (14) % 98,166 10 %

General and administrative 84,942 7 % (7,733) (8) % 92,675 9 %

Depreciation and amortization 86,710 8 % (6,729) (7) % 93,439 10 %

Total operating expenses 955,403 83 % 27,479 3 % 927,924 95 %

Operating income

185,847 17 % 137,755 286 % 48,092 5 %

Other income (expense):

Interest expense (55,837) (5) % 2,804 (5) % (58,641) (6) %

Interest income 11,833 1 % 1,375 13 % 10,458 1 %

Other, net (1,692) — % 4,711 (74) % (6,403) (1) %

Total other income (expense) (45,696) (4) % 8,890 (16) % (54,586) (6) %

Income (loss) before income taxes 140,151 13 % 146,645 2,258 % (6,494) (1) %

Income tax expense (benefit) 35,588 3 % 40,975 (761) % (5,387) (1) %

Net income (loss) $ 104,563 10 % $ 105,670 9,546 % $ (1,107) — %

Total revenue for the nine months ended September 30, 2024, increased $165.2 million, or 17%, as compared to the same period in 2023.

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

dollar resulted in a $0.4 million decrease in total revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, total revenue for the nine months ended September 30, 2024, increased $165.6 million, or 17%, as compared to the same period in 2023.

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

SaaS and PaaS revenue increased $48.5 million, or 8%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

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

dollar resulted in $0.5 million increase in SaaS and PaaS revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the nine months ended September 30, 2024, increased $48.0 million, or 8%, as compared to the same period in 2023.

• The increase was primarily driven by new customer go-lives since September 30, 2023, and higher transaction volumes during the nine months ended September 30, 2024, as compared to the same period in 2023.

License Revenue

License revenue increased $110.3 million, or 77%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.5 million decrease in license revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, license revenue for the nine months ended September 30, 2024, increased $110.8 million, or 78%, as compared to the same period in 2023.

• The increase was driven by license renewal timing as well as the relative size of new license and capacity events during the nine months ended September 30, 2024, as compared to the same period in 2023.

Maintenance Revenue

Maintenance revenue decreased $9.4 million, or 6%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

• The decrease was primarily driven by customers reducing premium customer support and maintenance on non-strategic products during the nine months ended September 30, 2024, as compared to the same period in 2023.

Services Revenue

Services revenue increased $15.8 million, or 29%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.3 million decrease in services revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, services revenue for the nine months ended September 30, 2024, increased $16.1 million, or 30%, as compared to the same period in 2023.

• The increase was primarily driven by the timing and magnitude of project-related work during the nine months ended September 30, 2024, as compared to the same period in 2023.

Operating Expenses

Total operating expenses for the nine months ended September 30, 2024 increased $27.5 million, or 3%, as compared to the same period in 2023.

• Total operating expenses for the nine months ended September 30, 2024, included $8.6 million for cost reduction strategies and $1.0 million of other significant transaction-related expenses during the period, compared to $19.7 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.6 million of European data center migration expenses for the same period in 2023.

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

dollar resulted in a $0.3 million decrease in total operating expenses for the nine months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of cost reduction strategies, significant transaction-related expenses, and foreign currency, total operating expenses for the nine months ended September 30, 2024, increased $44.9 million, or 5%, as compared to the same period in 2023.

Cost of Revenue

Cost of revenue increased $54.2 million, or 10%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

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

dollar resulted in a $0.3 million decrease in cost of revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

• Adjusted for the impact of foreign currency, cost of revenue increased $54.5 million, or 10%, for the nine months ended September 30, 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 $38.6 million and $6.2 million, respectively.

The remaining increase was due to higher personnel and related expenses of $9.6 million, including a $2.0 million increase in stock-based compensation expense.

Research and Development

R&D expense increased $1.9 million, or 2%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses of $3.3 million, including a $2.9 million increase in stock-based compensation expense, partially offset by lower cloud computing and professional fees of $1.4 million.

Selling and Marketing

Selling and marketing expense decreased $14.2 million, or 14%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

• The decrease was primarily due to lower personnel and related expenses and advertising and professional fees of $12.0 million and $2.2 million, respectively.

General and Administrative

General and administrative expense decreased $7.7 million, or 8%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

• General and administrative expenses for the nine months ended September 30, 2024, included $4.3 million for cost reduction strategies and $1.0 million of other significant transaction-related expenses during the period, compared to $19.7 million for cost reduction strategies, $2.6 million of significant transaction-related expenses, $1.8 million for CEO transition, and $2.6 million of European data center migration expenses during the same period in 2023.

• Adjusted for the impact of significant transaction-related expenses, general and administrative expense increased $13.7 million, or 21%, for the nine months ended September 30, 2024, as compared to the same period in 2023.

• The increase was primarily due to higher personnel and related expenses of $16.9 million, including a $6.8 million increase in stock-based compensation expense, partially offset by a $3.2 million decrease in professional and other legal fees.

Depreciation and Amortization

Depreciation and amortization decreased $6.7 million, or 7%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

• Depreciation and amortization for the nine months ended September 30, 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 $11.1 million, or 12%, for the nine months ended September 30, 2024, as compared to the same period in 2023.

• The decrease was primarily due to a $8.1 million decrease in depreciation due to prior facilities cost reduction activities, and a $3.0 million decrease in amortization for fully amortized software and intangibles acquired through acquisitions.

Other Income and Expense

Interest expense for the nine months ended September 30, 2024, decreased $2.8 million, or 5%, as compared to the same period in 2023, primarily due to repayments on the Term Loan.

Interest income for the nine months ended September 30, 2024, increased $1.4 million, or 13%, as compared to the same period in 2023.

Interest income for the three months ended March 31, 2025, increased $0.1 million, or 1%, as compared to the same period in 2024.

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

Other, net was $1.7 million and $6.4 million of expense for the nine months ended September 30, 2024 and 2023, respectively.

During the three months ended March 31, 2025, other, net also included the $25.9 million gain on the sale of the Company's equity method investment.

Other, net was $23.7 million of income and $2.0 million of expense for the three months ended March 31, 2025 and 2024, respectively.

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

Three Months Ended March 31,

Payment Software $ 200,725 $ 141,157

Biller 193,840 174,862

Total revenue $ 394,565 $ 316,019

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

Payment Software $ 106,561 $ 52,289

Biller 30,895 30,737

Depreciation and amortization (23,985) (27,609)

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Income (loss) before income taxes

Banks Segment Adjusted EBITDA increased $62.9 million for the three months ended September 30, 2024, compared to the same period in 2023, due to a $66.3 million increase in revenue primarily related to an increase in license revenues, partially offset by a $3.4 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $16.4 million for the three months ended September 30, 2024, compared to the same period in 2023, due to a $13.9 million increase in revenue and a $2.5 million decrease in cash operating expense.

Billers Segment Adjusted EBITDA decreased $8.3 million for the three months ended September 30, 2024, compared to the same period in 2023, due to a $16.8 million increase in cash operating expense primarily for payment card interchange and other processing fees, partially offset by a $8.5 million increase in revenue.

Banks Segment Adjusted EBITDA increased $107.5 million for the nine months ended September 30, 2024, compared to the same period in 2023, due to a $109.9 million increase in revenue primarily related to an increase in license and capacity revenue, partially offset by a $2.4 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $26.0 million for the nine months ended September 30, 2024, compared to the same period in 2023, due to a $16.3 million increase in revenue and a $9.7 million decrease in cash operating expense.

Billers Segment Adjusted EBITDA decreased $1.0 million for the nine months ended September 30, 2024, compared to the same period in 2023, due to a $40.0 million increase in cash operating expense primarily for payment card interchange and other processing fees, partially offset by a $39.0 million increase in revenue.

$ 71,637 $ (7,466)

Payment Software Segment Adjusted EBITDA increased $54.3 million for the three months ended March 31, 2025, compared to the same period in 2024, due to a $59.6 million increase in revenue primarily due to an increase in license and services revenues, partially offset by a $5.3 million increase in cash operating expense.

Biller Segment Adjusted EBITDA increased $0.2 million for the three months ended March 31, 2025, compared to the same period in 2024, due to a $19.0 million increase in revenue, partially offset by a $18.8 million increase in cash operating expense, primarily payment card interchange and processing fees.

Liquidity and Capital Resources

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

As of September 30, 2024, we had $177.9 million of cash and cash equivalents, of which $68.2 million was held by our foreign subsidiaries.

As of March 31, 2025, we had $230.1 million of cash and cash equivalents, of which $117.3 million was held by our foreign subsidiaries.

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

state income taxes to repatriate these funds.

As of September 30, 2024, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

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

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of September 30, 2024.

As of March 31, 2025, 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 March 31, 2025.

Available Liquidity

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

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Cash and cash equivalents $ 230,057 $ 216,394

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Total liquidity $ 828,157 $ 744,494

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

The increase in total liquidity is primarily attributable to 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.

The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process.

As of September 30, 2024, the full $75.0 million was available.

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

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

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

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

As of March 31, 2025, the full $75.0 million was available.

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.

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 $128.7 million under the program during the nine months ended September 30, 2024.

We repurchased 264,936 shares for $14.4 million under the program during the three months ended March 31, 2025.

Under the program to date, we have repurchased 63,132,773 shares for approximately $1.1 billion.

As of September 30, 2024, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $372.3 million.

As of March 31, 2025, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $358.1 million.

See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

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

Nine Months Ended

September 30,

Three Months Ended March 31,

Net cash provided by (used by):

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

Cash flows provided by operating activities were $149.5 million higher for the nine months ended September 30, 2024, compared to the same period in 2023.

Our operating cash flows for the current quarter increased primarily due to $20.8 million less in income tax payments, as well as cash flows generated from $104.6 million in net income for the nine months ended September 30, 2024, as compared to a $1.1 million net loss for the same period in 2023.

Cash flows provided by operating activities of $78.2 million were $45.0 million lower for the three months ended March 31, 2025, compared to $123.2 million for the same period in 2024.

Operating cash flows for the current quarter decreased primarily due to lower customer receipt collections as a result of lower invoiced amounts at the prior year-end and higher income taxes paid, partially offset by improved profitability.

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

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

During the first nine months of 2024, we used cash of $31.6 million to purchase software, property, and equipment, as compared to $30.5 million during the same period in 2023.

During the first three months of 2025, we received net proceeds of $46.0 million from the sale of our equity method investment.

In addition, we used cash of $8.9 million to purchase software, property, and equipment, as compared to $17.8 million during the same period in 2024.

Cash Flows from Financing Activities

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

During the first nine months of 2024, we repaid a net $47.8 million on the Term Loan under the Amendment, $9.3 million of other debt payments, and $5.1 million of debt issuance costs.

During the first three months of 2025, we repaid a net $9.4 million on the Term Loan under the Amendment, $70.0 million on the Revolving Credit Facility, and $4.2 million of other debt payments.

In addition, we used $14.4 million to repurchase common stock and $7.1 million for the repurchase of stock-based compensation awards for tax withholdings.

We received net proceeds of $7.0 million on the Revolving Credit Facility, proceeds of $4.1 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and $17.7 million for settlement assets and liabilities due to processing timing.

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

In addition, we used $4.2 million for the repurchase of stock-based compensation awards for tax withholdings, and $4.6 million for settlement assets and liabilities due to processing timing.

We received net proceeds of $1.4 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and $88.3 million for settlement assets and liabilities due to processing timing.

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

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

We received net proceeds of $12.0 million on the Revolving Credit Facility, and proceeds of $1.2 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

Contractual Obligations and Commercial Commitments

For the nine months ended September 30, 2024, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2023.

For the three months ended March 31, 2025, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2024.

Critical Accounting Estimates

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• Intangible Assets and Goodwill

• Business Combinations

• Stock-Based Compensation

• Accounting for Income Taxes

During the nine months ended September 30, 2024, there were no significant changes to our critical accounting policies and estimates.

During the three months ended March 31, 2025, there were no significant changes to our critical accounting policies and estimates.

Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2024, for a more complete discussion of our critical accounting policies and estimates.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis