ANY PAYMENT, EVERY POSSIBILITY.®
ANNUAL REPORT 2019
LEADING THE TRANSFORMATION
TO REAL-TIME PAYMENTS
As the world’s most recognized and preferred real-time
payments solution provider, ACI continues to lead the
transformation of payments to real-time. We’re driving
growth for banks, intermediaries, merchants and billers
by allowing their customers to pay on their terms,
with any currency, through any channel and on any
network — today, tomorrow and beyond.
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
REVENUE
25%
Revenue increased
25% vs. 2018.
RECURRING REVENUE
ACI ON DEMANDTM MARGIN
6 points
14 points
Recurring revenue was 71% of
total revenue vs. 65% in 2018.
ACI On Demand net adjusted EBITDA
margin rose from 5% in 2018 to 19% in 2019.
THE TRANSACTION OPPORTUNITY
ACI is well positioned to seize an increasing share of
payment transactions globally.
2019
2024
3.4T 5.8T*
transactions
transactions
* Includes 2.9T transactions addressable with current ACI
solution/segment focus and 2.9T white space opportunity
FELLOW
SHAREHOLDERS
ACI Worldwide continued to advance our business
in 2019, building on our unique value proposition
serving the real-time, any-to-any payment needs
of banks, intermediaries, merchants and billers in
the fast-growing digital payments industry. We
made key investments, strengthened our portfolio
and secured global strategic wins across all of
our solutions, all of which validate our leadership
position. As the industry continues to advance,
we are well positioned to seize an increasing share
of this exciting and evolving market. Highlights
of 2019 include:
CEO SUCCESSION
In November, Phil Heasley announced his intention
to retire at year end after 15 years leading ACI.
Following a thorough search, in February the
Board appointed Odilon Almeida as President
and Chief Executive Officer. Odilon is a seasoned
executive with senior leadership experience
spanning multiple industries and countries and
brings a strong record of growth acceleration
and value creation. He has a deep understanding
of digital innovation and the rapidly evolving
challenges and opportunities within the payments
space. He brings a proven record of driving
organic and inorganic growth, and the Board
believes he is the right leader to further ACI’s
growth strategy, continue our positive momentum
and deliver long-term value for our stakeholders.
ACQUISITION OF SPEEDPAY
With the completion of our Speedpay acquisition,
ACI is now the leading provider of U.S. biller direct
payments, supporting millions of transactions
and driving digital bill payment forward. With
Speedpay, we have expanded our reach into
existing and complementary segments such as
consumer finance, insurance, healthcare, higher
education, utilities, government and mortgage.
The acquisition has also brought substantial
scale and profitability to our ACI On Demand
business, which now represents more than half of
our consolidated revenues. Our combined ACI-
Speedpay solution provides further opportunities
to accelerate revenue growth in our bill pay
business through the fast-growing areas of real-
time payments and subscription billing.
MICROSOFT COLLABORATION
A key priority in 2019 was advancing our global
strategic partnerships. One of our most notable
ventures was our collaboration with Microsoft
to support payments in the public cloud,
extending the reach of ACI’s market-leading
portfolio through Microsoft Azure. Three leading
banks selected ACI’s Retail Payments solution
running on Microsoft Azure to power their global
payments platform, including one of the largest
acquirers in Brazil and a global top 30 bank.
We expect this momentum to continue as the
Microsoft collaboration helps ACI’s customers
reduce total cost of ownership, increase scalability
and improve speed to market.
We made key investments,
strengthened our portfolio
and secured global strategic
wins across all of our solutions,
all of which validate our
market leadership.
EMERGING MARKET
OPPORTUNITIES
ACI continued to be the payments provider of
choice for leading banks and intermediaries
investing in digital transformation globally. We
saw strong momentum in emerging markets
throughout 2019, winning strategic deals for
our Retail Payments, Real-Time Payments and
Payments Intelligence solutions in Latin America,
Middle East and Asia. Our investment in Mumbai-
based digital payments solution provider
governance frameworks such as the Sustainability
Accounting Standards Board and by ACI’s
Sustainability Working Group, which consists of
internal resources and external advisors. ACI is
also proud to champion and support a diverse
organization. A number of our leaders were
recognized by industry groups for their work and
achievements, as well as their record of promoting
and advocating diversity and inclusion in the
payments industry.
OUR VIEW OF 2020
We have begun 2020 during a time of volatility
due to the global coronavirus (COVID-19)
pandemic. ACI has a robust business continuity
plan in place, and our systems, processes and
people continue to meet the needs of our
customers in a time when digital payments have
taken on greater importance. We remain confident
in ACI’s long-term growth prospects and view
2020 as an important year of transformation as
we advance our position as the global real-time,
any-to-any payments leader.
On behalf of everyone at ACI, we thank our
customers, our suppliers and you, our shareholders,
for your support in 2019 and in the years ahead.
Sincerely,
David A. Poe
Chairman of the Board of Directors
Odilon Almeida
President and Chief Executive Officer
Mindgate Solutions helped to accelerate growth
of real-time payments in India and beyond. In a
global survey of payments technology decision
makers, ACI was the most recognized and most
preferred brand for real-time payments among
banks and intermediaries for the second year in
a row, reinforcing our business strategy.
CUSTOMER-FOCUSED
MERCHANT STRATEGY
We secured many wins for our award-winning
merchant solutions in 2019, supporting the
growing omni-channel, eCommerce and
fraud prevention needs of merchants across
targeted verticals, including retail, hospitality,
telecommunications, entertainment, fuel and
convenience stores, and travel and transportation.
We announced an international relationship with
Worldpay to utilize our solution to accelerate the
rollout of digital payments to its global merchant
network. Our eCommerce platform continues to
win new business, supporting some of the world’s
largest merchant brands.
FINANCIAL GROWTH
With the exception of a delayed contract that
impacted our financial results, 2019 was a positive
year for ACI. In addition to material improved
profitability in our ACI On Demand business as a
result of the Speedpay acquisition, we delivered
strong growth in our Real-Time and eCommerce
Payments solutions. ACI’s full year revenue was
$1.26 billion, up 25 percent from $1.0 billion in
2018. Our year-end 12-month and 60-month
backlog provided solid growth expectations, at
$1.1 billion and $5.8 billion, respectively. We also
repurchased 1.2 million shares of ACI’s common
stock in 2019.
ADVANCING OUR CULTURE
During the year, we continued to evolve our
1ACI culture to be more agile, collaborative,
empowered and customer-centric. While
corporate social responsibility and environmental,
social and governance initiatives have long been
part of our business and corporate culture, this
year we released our first Sustainability Report,
designed to formalize and report on these
important initiatives. The priorities, indicators
and information shared within this report
were influenced by environmental, social and
NOTABLE AWARDS:
NOTABLE
AWARDS
IDC MARKETSCAPE
Worldwide Integrated Payment
Platforms 2019-2020 Vendor
Assessment names ACI a Leader
PAYTECH AWARDS 2019
Ovum Innovation Awards
UP® Real-Time PaymentsTM solution
FROST & SULLIVAN
Innovation Excellence Award
UP Payments Risk ManagementTM solution
for merchants
FROST & SULLIVAN 2019
Global Product Leadership Award
UP Real-Time Payments solution
MEFTECH INNOVATION AWARDS
Best Use of Emerging or Innovative
Technology
UP Real-Time Payments solution
2019 MERCHANT PAYMENTS
ECOSYSTEM AWARDS
Best International/Cross-Border
Payments Solution
ACI Worldwide
FINANCE MONTHLY
Fraud Innovation Firm of the Year
ACI Worldwide
FORRESTER RESEARCH, INC.
The Forrester WaveTM Global Merchant
Payment Providers, Q4 2018 names ACI’s
UP Merchant Payments™ solution a Leader
in global merchant payments
AITE GROUP — AIM EVALUATION
The Leading Providers of U.S. Cash
Management, 2018
ACI Universal Online Banker™ receives
“Best-in-Class” status
NATIONAL TECHNOLOGY AWARDS
Security Innovation of the Year
UP Payments Risk Management solution
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
Or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 0-25346
ACI WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3520 Kraft Rd, Suite 300 Naples, Florida
(Address of principal executive offices)
47-0772104
(I.R.S. Employer
Identification No.)
34105
(Zip code)
(239) 403-4660
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
Name of each exchange on which registered
Title of each class
Common Stock, $0.005 par value
ACIW
Securities registered pursuant to Section 12(g) of the Act: None
Nasdaq Global Select Market
the registrant
the Securities
to Section 13 or Section 15(d) of the
is not required to file reports pursuant
is a well-known seasoned issuer, as defined in Rule 405 of
Indicate by check mark if
Act. Yes ‘ No È
Indicate by check mark if the registrant
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company”, and “emerging growth company” in Rule 12b-2 of the Act. (Check one):
È
Large accelerated filer
‘
Non-accelerated filer
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the Company’s voting common stock held by non-affiliates on June 28, 2019 (the last business day
of the registrant’s most recently completed second fiscal quarter), based upon the last sale price of the common stock on that date of
$34.34 was $3,506,264,959. For purposes of this calculation, executive officers, directors, and holders of 10% or more of the
outstanding shares of the registrant’s common stock are deemed to be affiliates of the registrant and are excluded from the
calculation.
As of February 24, 2020, there were 116,130,399 shares of the registrant’s common stock outstanding.
Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 9, 2020, are incorporated by reference in Part III of this report. This registrant’s Proxy Statement
will be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
‘
Accelerated filer
Smaller reporting company ‘
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
PART II
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Signatures
PART IV
Page
2
14
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90
Forward-Looking Statements
This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties.
Generally, forward-looking statements do not relate strictly to historical or current facts and may include words or phrases such as
“believes,” “will,” “expects,” “anticipates,” “intends,” and words and phrases of similar impact. The forward-looking statements are
made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.
Forward-looking statements in this report include, but are not limited to, statements regarding future operations, business strategy,
business environment, key trends, and, in each case, statements related to expected financial and other benefits. Many of these
factors will be important in determining our actual future results. Any or all of the forward-looking statements in this report may
turn out to be incorrect. They may be based on inaccurate assumptions or may not account for known or unknown risks and
uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those
expressed or implied in any forward-looking statements, and our business, financial condition and results of operations could be
materially and adversely affected. In addition, we disclaim any obligation to update any forward-looking statements after the date of
this report, except as required by law.
All forward-looking statements in this report are expressly qualified by the risk factors discussed in our filings with the Securities
and Exchange Commission (“SEC”). The cautionary statements in this report expressly qualify all of our forward-looking
statements. Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements
include, but are not limited to, those discussed in our Risk Factors in Part I, Item 1A of this Form 10-K.
Trademarks and Service Marks
ACI, ACI Worldwide, the ACI logo, ACI Universal Payments, UP, the UP logo and all ACI product/solution names are trademarks
or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other
parties' trademarks referenced are the property of their respective owners.
1
ITEM 1. BUSINESS
General
PART I
ACI Worldwide, Inc. (“ACI”, “ACI Worldwide”, the “Company,” “we,” “us,” or “our”) is a Delaware corporation incorporated in
November 1993 under the name ACI Holding, Inc. ACI is largely the successor to Applied Communications, Inc. and Applied
Communications Inc. Limited, which we acquired from Tandem Computers Incorporated on December 31, 1993. On July 24, 2007,
we changed our corporate name from “Transaction Systems Architects, Inc.” to “ACI Worldwide, Inc.” We have been marketing our
products and services under the ACI Worldwide brand since 1993 and have gained significant market recognition under this brand
name.
We develop, market, install, and support a broad line of software products and solutions primarily focused on facilitating real-time
electronic payments. Our payment capabilities, technologies, and solutions are marketed under the brand name Universal
Payments®, or “UP®,” which describes the breadth and depth of ACI’s product offerings. UP defines ACI’s enterprise or “universal”
payments capabilities targeting any channel, any network, and any payment type. ACI's UP solutions empower customers to regain
control, choice, and flexibility in today’s complex payments environment, get to market more quickly, and reduce operational costs.
These products and services are used globally by banks, financial intermediaries, merchants and billers, such as third-party
electronic payment processors, payment associations, switch interchanges and a wide range of transaction-generating endpoints,
including automated teller machines (“ATM”), merchant point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets,
corporations, and internet commerce sites. The authentication, authorization, switching, settlement, fraud-checking, and
reconciliation of electronic payments is a complex activity due to the large number of locations and variety of sources from which
transactions can be generated, the large number of participants in the market, high transaction volumes, geographically dispersed
networks, differing types of authorization, and varied reporting requirements. These activities are typically performed online and are
conducted 24 hours a day, seven days a week.
ACI combines a global perspective with local presence to tailor electronic payment solutions for our customers. We believe that we
have one of the most diverse and robust electronic payment product portfolios in the industry with application software spanning the
entire payments value chain. We also believe that our financial performance has been attributable to our ability to design and deliver
quality products and solutions coupled with our ability to identify and successfully consummate and integrate strategic acquisitions.
Fiscal 2019 Acquisition
Speedpay
On May 9, 2019, we acquired E Commerce Group Products, Inc. ("ECG"), a subsidiary of The Western Union Company (“Western
Union”), along with ECG's subsidiary, Speedpay, Inc. (collectively referred to as "Speedpay"). The combination of the Company and
Speedpay bill pay solutions serves more than 4,000 customers across the U.S., bringing expanded reach in existing and
complementary market segments such as consumer finance, insurance, healthcare, higher education, utilities, government, and
mortgage. The acquisition of Speedpay increases the scale of our ACI On Demand ("AOD") platform business and allows the
acceleration of platform innovation.
Target Markets
ACI’s comprehensive electronic payment solutions serve four key markets:
Banks
ACI provides payment solutions to large and mid-size banks globally for both retail banking, digital, and other payment services.
Our 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, we
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.
2
Financial intermediaries
ACI’s payment solutions support financial intermediaries, such as processors, networks, payment service providers (“PSPs”), and
new financial technology entrants. We offer these customers scalable solutions that strategically position them to innovate and
achieve growth and cost efficiency, while protecting them against fraud. Our solutions also allow new entrants in the digital
marketplace to access innovative payment schemes, such as the U.K. Faster Payments New Access Model, Singapore FAST, India
Unified Payments Interface (UPI), the Payments Network Malaysia (PayNet), Real-time Retail Payments Platform (RPP), and
others.
Merchants
ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the PSPs, independent selling
organizations (“ISOs”), value-added resellers (“VARs”), and acquirers who service them. These customers operate in a variety of
verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. Our solutions provide merchants
with a secure, omni-channel payments platform that gives them independence from third-party payment providers. We also offer
secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop.
Billers
Within the biller 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. Our 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.
Solutions
ACI’s UP® solutions span the payments ecosystem to support the electronic payment needs of banks, intermediaries, merchants and
billers. Our six strategic solution areas include the following:
Retail Payments
ACI offers comprehensive consumer payment solutions ranging from core payment engines to back-office support that enable banks
and financial intermediaries to compete effectively in today’s real-time, open payments ecosystem.
UP Retail Payments™ solution enables banks and financial intermediaries to accept, authorize, route and secure payment
transactions. Using the orchestration capabilities of UP Framework™, this solution combines legacy technology with the
modern, service-oriented architecture (SOA)-enabled UP BASE24-eps®, protecting customers’ existing investment while
enabling them to move to a real-time, open environment. Customers have the flexibility to operate this solution on a range of
hardware options, including x86/Linux, IBM System z, IBM System p, HP NonStop and Oracle Solaris servers. This solution
drives innovation and increases customer loyalty by delivering choice and consistency across channels.
ACI Card and Merchant Management™ includes comprehensive credit, debit, smart card and prepaid card issuance and
management; end-to-end merchant account management and settlement; and operation of complex settlement environments
through a flexible system designed to support changing business models. With proven scalability and interoperability with
ACI’s other payment offerings, this suite allows banks to introduce new products to their consumer segments quickly, across
different markets, domestically and internationally.
Real-Time Payments
ACI supports both low and high-value, real-time payment processing for banks and financial intermediaries globally, ensuring multi-
bank, multi-currency and 24x7 payment processing capabilities, as well as complete and ongoing regulatory compliance.
UP Real-Time Payments™ solution is the only global solution that allows banks to address their RTGS (Real-Time Gross
Settlement), SWIFT messaging, automated clearing house ("ACH") and real-time faster payments needs with a single,
universal offering. The solution delivers accelerated time to market with improved management of cash flow; payments
security and fraud detection capabilities; simplified connectivity to new payment types and transparency for customers in
tracking their payments. It supports several major schemes globally, including but not limited to EBA and ECB in Europe;
U.K. Faster; Equens in the Netherlands, Germany, and Italy; GIRO in Hungary; UPI in India; FAST in Singapore; ITMX in
Thailand; RPP in Malaysia; NPP in Australia; and Zelle and TCH in the U.S.
UP Immediate Payments™ solution enables banks and PSPs to meet multiple real-time payment scheme requirements
globally and to quickly create differentiated products to address consumer, business, and merchant demands. The solution
provides gateway connectivity to any live, real-time payments scheme around the world and can serve as a modern, real-time
hub. The cloud solution speeds time to market through pre-packaged offerings available for major schemes globally,
3
including U.K. Faster Payments, The Clearing House Real-Time Payments System, Early Warning Services Zelle Network,
ECB TIPS, and EBA RT1.
Merchant Payments
ACI provides real-time, any-to-any payment capabilities globally in both card-present and card-not-present environments.
UP Merchant Payments™ solution provides merchants with a vendor-agnostic, flexible and secure omni-channel payments
environment through an integration of Postilion®, ACI ReD Shield®, and ACI PAY.ON® Payments Gateway™. Postilion
facilitates transactions generated at the POS, as well as back-office functions, including prepaid, debit and credit card
processing, ACH processing, electronic benefits transfer, card issuance and management, check authorization, customer
loyalty programs, and returned check collection. ACI ReD Shield offers real-time fraud prevention to detect and manage
domestic and cross-border payments fraud across all payment types, as well as an interactive, self-service business
intelligence portal for deep insight into merchant fraud activity. Lastly, the ACI PAY.ON Payments Gateway delivers global
payments connectivity through eCommerce and mCommerce channels, including a network of hundreds of local and cross-
border card acquirers and alternative payment methods almost anywhere in the world.
UP eCommerce Payments™ solution is designed for PSPs, ISOs, VARs, acquirers and others that offer payment services to
their merchant customer base. The cloud-based solution integrates ACI PAY.ON Payments Gateway and ACI ReD Shield, and
is available as a white-label product.
Payments Intelligence
ACI’s big data engine uses powerful analytics to deliver robust fraud prevention and detection capabilities to bank, financial
intermediary, and merchant customers.
UP Payments Risk Management™ solution uses a 360-degree approach to enterprise fraud management. The solution is
designed to combat existing and emerging fraud threats using a combination of machine learning, fraud and payments data,
advanced analytics, flexible rules, and agile decision strategies. For banks and financial intermediaries, the ACI® Proactive
Risk Manager™ component gives customers real-time visibility into threats across their enterprise, including issuer card
fraud, check/deposit fraud, wire fraud, merchant acquirer fraud, internal fraud and money laundering schemes at multiple
perspectives, ranging from an account or customer level. It is available to financial institutions on premise or in the cloud. For
merchants, ACI ReD Shield provides real-time fraud prevention for eCommerce and mCommerce transactions. It is available
in the cloud.
Digital Channels
ACI offers banks advanced cash management capabilities in a multi-tenant, cloud-based platform.
ACI Universal Online Banker™ is a comprehensive digital banking platform designed to meet the needs of small businesses
up to large corporations. It enables banks to generate new revenues through an extensive library of APIs and payment
services while delivering a compelling customer experience with a highly-intuitive user interface. Customers can use digital
tools to easily manage daily collections, disbursements, information reporting, and numerous other corporate cash
management services.
Bill Payments
ACI meets the bill payment needs of corporate customers across myriad industries through a range of electronic bill payment
solutions that help companies raise consumer satisfaction while reducing costs.
ACI Speedpay® solutions enable corporate customers to electronically present bills and collect payments from consumers
through a single, integrated platform that powers the entire bill payments operation. The solution overcomes internal
application silos, providing a seamless consumer experience across all payment channels, payment types, and methods.
Customers can use ACI Speedpay solutions to power one-time payments, recurring payments, service-fee payments,
disbursement services, remittance services, and eBilling. The solution also simplifies treasury management operations
through a broad array of reconciliation, reporting, and payment servicing tools. ACI Speedpay solutions include industry-
leading security, full payment card industry (PCI) compliance, and privacy practices.
On Premise or On Demand Software Delivery Options
Our software solutions are offered to our customers through either a traditional term software license arrangement where the
software is installed and operated on the customer premises or in a third-party public cloud environment (ACI On Premise™),
through an on-demand arrangement where the solution is maintained and delivered through the cloud via our global data centers
(ACI On Demand™), or a combination of the two. Solutions delivered through ACI’s on-demand cloud are available in either a
4
single-tenant environment, known as a software as a service (“SaaS”) offering, or in a multi-tenant environment, known as a
platform as a service (“PaaS”) offering. Pricing and payment terms depend on which solutions the customer requires and their
transaction volumes. Generally, customers are required to commit to a minimum contract of five years, or three years in the case of
certain acquired SaaS and PaaS contracts.
Partnerships and Industry Participation
We have two major types of third-party product partners: 1) technology partners, or industry leaders with whom we work closely
that drive key industry trends and mandates, and 2) business partners, with whom we embed the partners’ technology in ACI
products, host the partners’ software in ACI’s cloud as a part of our AOD offering, or jointly market solutions that include the
products of the other company.
Technology partners help us add value to our solutions, stay abreast of current market conditions and industry developments such as
standards. Technology partner organizations include Diebold, Inc. (“Diebold”), NCR Corporation (“NCR”), Wincor-Nixdorf, VISA,
Mastercard, and SWIFT. In addition, ACI has membership in or participates in the relevant committees of several industry
associations, such as the International Organization for Standardization (“ISO”), Accredited Standards Committee ("ASC") X9,
ATM Industry Association, Financial Services, Interactive Financial eXchange Forum (“IFX”), Nexo Standards, International
Payments Framework Association (“IPFA”), U.K. Cards Association, Smart Card Alliance, and the PCI Security Standards Council.
These partnerships provide direction as it relates to the specifications that are used by the card schemes, and in some cases,
manufacturers. These organizations typically look to ACI as a source of knowledge and experience to be shared in conjunction with
creating and enhancing their standards. The benefit to ACI is in having the opportunity to influence these standards with concepts
and ideas that will benefit the market, our customers, and ACI.
Business partner relationships extend our product portfolio, improve our ability to get our solutions to market, and enhance our
ability to deliver market-leading solutions. We share revenues with these business partners based on several factors related to overall
value contribution in the delivery of the joint solution or payment type. The agreements with business partners include referral,
resale, traditional original equipment manufacturer (“OEM”) relationships, and transaction fee-based payment-enablement
partnerships. These agreements generally grant ACI the right to create an integrated solution that we host or distribute, or provide
ACI access to established payment networks or capabilities. The agreements are generally worldwide in scope and have a term of
several years.
We have alliances with our technology partners HP, IBM, Microsoft Corporation, Amazon, and Oracle USA, Inc. (“Oracle”), whose
industry-leading hardware, software, and cloud-based infrastructure services are utilized by and in delivery of ACI’s products. These
partnerships allow us to understand developments in the partners’ technology and to utilize their expertise in topics like sizing,
scalability, and performance testing.
The following is a list of key product business partners:
• Accuity, Inc.
• Amazon
• Apple Inc.
• Aptean
• Arvato Financial solutions
• Bank of America – Cashpro Online
• Biocatch
• Black Knight Financial Services
• Cardinal Commerce
• Chase Paymentech
• Clickatel
• Computershare Inc.
• DataOceans, LLC
• Diamond Communications Solutions
• Elavon Inc.
5
• Epic Systems Corporation
• FairCom Corporation
• Fifth Third Bank
• Fraudforce
• FutureX
• Guidewire
• Heirloom Computing
• Hewlett-Packard Company (HP)
•
•
•
•
•
•
•
iData Incorporated
Ingenico Group
Integrated Research Limited
International Business Machines Corporation (IBM)
Intuit, Inc.
iSight Case Management
Jack Henry & Associates, Inc.
• Kiosk
• Lean Software Services, Inc.
• Limontech
• MAGTEK Inc.
• Mastercard
• Mi-Pay Limited
• Micro Focus, Inc.
• Microsoft Corporation
• Monex Financial Services Limited
• MTFX
• N2N
• Neustar, Inc.
• Noggintech
• Nordis Technologies
• Opentext
• Oracle USA, Inc. (Oracle)
• Paragon Application Systems, Inc.
• Pavreto
• Pax Technologies
• PayPal
• Payworks GmbH
•
IATA—Perseuss
• Pronexus Inc.
• Rambus Company
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• Reliant Solutions
• RSA Security LLC, the Security Division of Dell EMC Corporation
• Safetrust pcProxPlus BLE
• SAP America, Inc.
• Semafone—Card Protect
• ShopSite
• Solutions by Text, LLC
• Spectrum Message Services Pty Ltd
• Stiftung SIC
• SWIFT
• Symantec Corporation
• ThreatMetrix, Inc.
• TIBCO Software, Inc.
• TSYS Acquiring Solutions
• VISA
• Vocalink Limited, a Mastercard company
• Worldpay Inc.
Services
We offer our customers a wide range of professional services, including analysis, design, development, implementation, integration,
and training. Our service professionals generally perform the majority of the work associated with installing and integrating our
software products. In addition, we work with a limited number of systems integration and services partners such as Accenture, LLC,
Cognizant Technology Solutions Corporation, and Stanchion Payments Solution for staff augmentation and coordinated co-prime
delivery where appropriate.
We offer the following types of services for our customers:
•
Implementation Services. We utilize a standard methodology to deliver customer project implementations across all
product lines and delivery options. Within the process, we provide customers with a variety of services, including
solution scoping reviews, project planning, training, site preparation, installation, product configuration, product
customization, testing and go-live support, and project management throughout the project lifecycle. Implementation
services are typically priced according to the level of technical expertise required.
• Product Support Services. These product-support-funded services are available to customers after a solution has been
installed and are based on the relevant product support category. An extensive team of support analysts are available to
assist customers.
• Technical Services. Our technical services are provided to customers who have licensed one or more of our software
products. Services offered include programming and programming support, day-to-day systems operations, network
operations, help desk staffing, quality assurance testing, problem resolution, system design, and performance planning
and review. Technical services are typically priced according to the level of technical expertise required.
• Education Services. ACI courses include both theory and practical sessions to allow students to work though real
business scenarios and put their newly learned skills to use. This hands-on approach ensures that the knowledge is
retained, and the student is more productive upon their return to the workplace. ACI’s education courses provide students
with knowledge at all levels, to enhance and improve their understanding of ACI products. ACI also provides further,
more in-depth technical courses that allow students to use practical labs to enhance what they have learned in the
classroom. The ACI trainers’ ability to understand customers’ systems means ACI can also provide tailored course
materials for individual customers. Depending upon products purchased, training may be conducted at a dedicated
education facility at one of ACI’s offices, online, on demand or at the customer site.
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Customer Support
ACI provides our customers with product support that is available 24 hours a day, seven days a week. When requested by a
customer, the product support group can remotely access that customer’s systems on a real-time basis which allows us to help
diagnose and correct problems and enhance the continuous availability of a customer’s business-critical systems. We offer our
customers three support options.
Standard Customer Support. After software installation and project completion, we provide maintenance services to customers for a
monthly product support fee. Maintenance services include:
• New product releases (major, minor and patches)
• 24-hour hotline for priority one (“P1”) problem resolution
• Online support portal (eSupport)
• Vendor-required mandates and updates
• Product documentation
• Hardware operating system compatibility
• User group membership
Enhanced Customer Support. This includes all features of Standard Customer Support plus the following:
• Named technical account manager
• Accelerated service levels
• Consulting support
Premium Customer Support. Under the premium customer support option, referred to as the Premium Customer Support Program,
each customer is assigned an experienced technician(s) to work with its system. The technician(s) typically performs functions such
as:
• Configuration and testing software fixes
• Retrofitting custom software modifications (“CSMs”) into new software releases
• Answering questions and resolving problems related to the customer’s implementation
• Maintaining a detailed CSM history
• Monitoring customer problems on ACI’s HELP24™ hotline database on a priority basis
• Supplying onsite support, available upon demand
• Performing an annual system review/health check and capacity planning exercise
We provide new releases of our products on a periodic basis. New releases of our products, which often contain minor product
enhancements, are typically provided at no additional fee for customers under standard customer support agreements. Agreements
with our customers permit us to charge for substantial product enhancements that are not provided as part of the standard, enhanced,
or premium customer support agreement.
Competition
The electronic payments market is highly competitive and subject to rapid change. Competitive factors affecting the market for our
products and services include product features, price, availability of customer support, ease of implementation, product and
company reputation, and a commitment to continued investment in research and development.
Our competitors vary by solution, geography, and market segment. Generally, our most significant competition comes from in-house
information technology departments of existing and potential customers, as well as third-party electronic payment processors (some
of whom are our customers). Many of these companies are significantly larger than us and have significantly greater financial,
technical, and marketing resources.
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Key competitors by solution include the following:
Retail Payments and Real-Time Payments
The third-party software competitors for ACI’s Retail Payments and Real-Time Payments solutions areas are Fidelity National
Information Service, Inc. ("FIS"), Fiserv, Inc. ("Fiserv"), Finastra, Computer Sciences Corporation, NCR, OpenWay Group, and
Total System Services, Inc. (Global Payments), as well as small, regionally-focused companies such as BPC Banking
Technologies, PayEx Solutions AS, Financial Software and Systems, CR2, Lusis Payments Ltd., and Opus Software Solutions
Private Limited. Primary electronic payment processing competitors in this area include global entities such as Atos Origin S.A.,
Fiserv, SiNSYS, VISA and Mastercard, as well as regional or country-specific processors.
Merchant Payments
Competitors in the Merchant Payments solution area come from both third-party software and service providers as well as service
organizations run by major banks. Third-party software and service competitors include NCR, Ingenico Group, Adyen, Worldpay
Inc. (FIS), GlobalCollect, Cybersource (VISA), Square, Inc., Tender Retail Inc., First Data (Fiserv), and VeriFone Systems, Inc.
Payments Intelligence
Principal competitors for our Payments Intelligence solution area are NICE LTD, Fair Isaac Corporation, NCR, BAE Systems, FIS,
Fiserv, SAS Institute, Inc., Kount, Feedzai, Featurespace, Forter, Accertify (American Express), and Cybersource (VISA), as well as
dozens of smaller companies focused on niches of this segment such as anti-money laundering.
Digital Channels
Principal competitors for our Digital Channels solution area are NCR, Bottomline Technologies, Q2 Software, Inc., Jack Henry &
Associates, Inc., FIS, Fiserv, and Finastra.
Bill Payments
The principal competitors for Bill Payment solutions are Fiserv, FIS, Jack Henry & Associates, Inc., TouchNet Information Systems,
Inc., Kubra Customer Interaction Management, Worldpay Inc. (FIS), CSG Systems International, Inc., Nelnet, Inc. and Affiliates,
Higher One, Inc. (Blackboard), Paymentus Corp., NIC, Repay, PayNearMe, Aliaswire Inc., and Invoice Cloud, Inc., as well as
smaller vertical-specific providers.
Research and Development
Our product development efforts focus on new products and improved versions of existing products. We facilitate user group
meetings to help us determine our product strategy, development plans, and aspects of customer support. The user groups are
generally organized geographically or by product lines. We believe that the timely development of new applications and
enhancements is essential to maintain our competitive position in the market.
During the development of new products, we work closely with our customers and industry leaders to determine requirements. We
work with device manufacturers, such as Diebold, NCR, and Wincor-Nixdorf, to ensure compatibility with the latest ATM
technology. We work with network vendors, such as Mastercard, VISA, and SWIFT, to ensure compliance with new regulations or
processing mandates. We work with computer hardware and software manufacturers, such as HPE, IBM, Microsoft Corporation, and
Oracle to ensure compatibility with new operating system releases and generations of hardware. Customers often provide additional
information on requirements and serve as beta-test partners.
We have a continuous process to encourage and capture innovative product ideas. Such ideas include features, as well as entirely
new products or service offerings. A proof of concept (“POC”) may be conducted to validate the idea. If determined to be viable, the
innovation is scheduled into a product roadmap for development and release.
Customers
We provide software products and solutions to customers in a range of industries worldwide with billers, banks, intermediaries, and
merchants comprising our largest industry segments. As of December 31, 2019, we serve more than 5,100 customers, including 18
of the top 20 banks worldwide, as measured by asset size, and thousands of leading merchants globally, as measured by revenue, in
over 90 countries on six continents. No single customer accounted for more than 10% of our consolidated revenues for the years
ended December 31, 2019, 2018, and 2017. No customer accounted for more than 10% of our consolidated receivables balance as of
December 31, 2019 and 2018.
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Selling and Implementation
Our primary method of distribution is direct sales by employees assigned to specific target segments. Headquartered in Naples,
Florida, we have principal United States sales offices in East Brunswick, Norcross, Omaha, and Waltham. In addition, we have sales
offices located outside the United States in Auckland, Bahrain, Bangkok, Beijing, Bogota, Brussels, Buenos Aires, Cape Town,
Dubai, Gouda, Johannesburg, Kuala Lumpur, Limerick, Madrid, Manila, Melbourne, Mexico City, Milan, Montevideo, Mumbai,
Munich, Naples (Italy), Paris, Quito, Santiago, Sao Paulo, Shanghai, Singapore, Sulzbach, Sydney, Tokyo, Toronto, and Watford.
We use distributors and referral partners to supplement our direct sales force in countries where it is more efficient and economical
to do so. We generate a majority of our sales leads through existing relationships with vendors, direct marketing programs,
customers and prospects, or through referrals. ACI’s distributors, resellers and system integration partners are enabled to provide
supplemental or complete product implementation and customization services directly to our customers or in a joint delivery model.
Current international distributors, resellers, referral partners, and implementation partners (collectively, “Channel Partners”) for us
during the year ended December 31, 2019, included:
• AGS Technology Inc. (India)
• ASI International (Colombia/Venezuela/Caribbean)
• Bayshore (China)
• CAPSYS Technologies, LLC (Russia/Eastern Europe)
• Channel Solutions Inc. (Philippines)
• DataOne Asia Co., Ltd. (Thailand)
• DDWay (Italy)
• EFT Corporation (Sub-Saharan Africa)
•
•
Interswitch Ltd. (Sub-Saharan Africa)
JRI Inc. (Japan)
• Korea Computer Inc (Korea)
• Kuvaz (Chile)
• Pactera (China)
• P.T. Abhimata Persada (Indonesia)
• Stanchion (South Africa)
• STJ-CA, Inc. (United States)
• STET (EU)
• Stream IT Consulting Ltd. (Thailand)
• Syscom Computer Co., Ltd. (Shenzhen) (China)
• Syscom Computer Engineering Co. (Taiwan)
• TIS Inc. (Japan)
• Transaction Payment Solutions - Liquid Telecom (Sub-Saharan Africa)
• Worldline (China)
ACI ReD Shield channel partners during the year ended December 31, 2019, included:
• Altapay (Denmark)
• Amadeus (Spain)
• Barclaycard (U.K.)
• Computop (Germany)
• Easynollo (Italy)
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• Evo Payments (United States)
•
Ingenico Group (Netherlands)
• Mastercard/Datacash (U.K.)
• Metrics Global (United States)
• MNP Media Ltd. (U.K.)
• Paysafe Group Plc (United States)
• PayU South Africa (South Africa)
• Planet Payments (United States)
• Secure Trading (U.K.)
• Simplepay (Australia)
• VeriFone Systems, Inc. (United States and European Union)
• Worldline Sweden AB (Sweden)
Biller channel partners during the year ended December 31, 2019, included:
• 3 Point Alliance
• ACH Payment Solutions
• Adirondack Solutions
• API Outsourcing
• Clearwater Payments
• County Information Resources Agency
• Creative Micro – CMI
• Discover
• Donald R. Frey & Co.
• ECHO Health
• Ellucian
• Epic
• Guidewire
• MoneyGram
• Nordis Technologies
• Nortridge Software Company
• Ontario Systems
• Radiant 44
• RRD
• Salepoint
• Semafone
• Shaw
• Solutions by Text
• SourceHOV
• Thompson Reuters
• Transactis (Mastercard)
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• TriZetto (Cognizant)
• The Western Union Company
We distribute the products of other vendors where they complement our existing product lines. We are typically responsible for the
sales and marketing of the vendor’s products, and agreements with these vendors generally provide for revenue sharing based on
relative responsibilities.
Proprietary Rights and Licenses
We rely on a combination of trade secret and copyright laws, license agreements, contractual provisions, and confidentiality
agreements to protect our proprietary rights. We distribute our software products under software license agreements that typically
grant customers nonexclusive licenses to use our products. Use of our software products is usually restricted to designated
computers, specified locations and/or specified capacity, and is subject to terms and conditions prohibiting unauthorized
reproduction or transfer of our software products. We also seek to protect the source code of our software as a trade secret and as a
copyrighted work. Despite these precautions, there can be no assurance that misappropriation of our software products and
technology will not occur.
In addition to our own products, we distribute, or act as a sales agent for, software developed by third parties. However, we typically
are not involved in the development process used by these third parties. Our rights to those third-party products and the associated
intellectual property rights are limited by the terms of the contractual agreement between us and the respective third party.
Although we believe that our owned and licensed intellectual property rights do not infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not assert infringement claims against us. Further, there can be no assurance
that intellectual property protection will be available for our products in all foreign countries.
Like many companies in the electronic commerce and other high-tech industries, third parties have in the past and may in the future
assert claims or initiate litigation related to patent, copyright, trademark, or other intellectual property rights to business processes,
technologies, and related standards that are relevant to us and our customers. These assertions have increased over time as a result of
the general increase in patent claims assertions, particularly in the United States. Third parties may also claim that the third-party’s
intellectual property rights are being infringed by our customers’ use of a business process method that utilizes products in
conjunction with other products, which could result in indemnification claims against us by our customers. Any claim against us,
with or without merit, could be time-consuming, result in costly litigation, cause product delivery delays, require us to enter into
royalty or licensing agreements or pay amounts in settlement, or require us to develop alternative non-infringing technology. We
could also be required to defend or indemnify our customers against such claims. A successful claim by a third party of intellectual
property infringement or one of our customers could compel us to enter into costly royalty or license agreements, pay significant
damages or even stop selling certain products and incur additional costs to develop alternative non-infringing technology.
Government Regulation
Certain of our solutions are subject to federal, state, and foreign regulations and requirements.
Oversight by Banking Regulators. As a provider of payment services to banks and financial intermediaries, we are subject to
regulatory oversight and examination by the Federal Financial Institutions Examination Council (“FFIEC”), an interagency body of
the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the National Credit Union Administration and various state regulatory authorities as part of the Multi-Region Data
Processing Servicer Program (“MDPS”). The MDPS program includes technology suppliers who provide mission critical
applications for a large number of financial institutions that are regulated by multiple regulatory agencies. Periodic information
technology examination assessments are performed using FFIEC interagency guidelines to identify potential risks that could
adversely affect serviced financial institutions, determine compliance with applicable laws and regulations that affect the services
provided to financial institutions and ensure the services we provide to financial institutions do not create systemic risk to the
banking system or impact the safe and sound operation of the financial institutions we serve. In addition, independent auditors
annually review several of our operations to provide reports on internal controls for our clients’ auditors and regulators. We are also
subject to review under state and foreign laws and rules that regulate many of the same activities that are described above, including
electronic data processing and back-office services for financial institutions and the use of consumer information.
Money Transfer. Official Payments Corporation, our EBPP affiliate, is registered as a Money Services Business. Accordingly, we are
subject to the USA Patriot Act and reporting requirements of the Bank Secrecy Act and U.S. Treasury Regulations. These businesses
may also be subject to certain state and local licensing requirements. The Financial Crimes Enforcement Network (“FinCEN”), state
attorneys general, and other agencies have enforcement responsibility over laws relating to money laundering, currency
transmission, and licensing. In addition, most states have enacted statutes that require entities engaged in money transmission to
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register as a money transmitter with that jurisdiction’s banking department. We have implemented policies, procedures, and internal
controls that are designed to comply with all applicable anti-money laundering laws and regulations. ACI has also implemented
policies, procedures, and internal controls that are designed to comply with the regulations and economic sanctions programs
administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”), which enforces economic and trade sanctions
against targeted foreign countries, entities and individuals based on external threats to the U.S. foreign policy, national security, or
economy; by other governments; or by global or regional multilateral organizations, such as the United Nations Security Council
and the European Union as applicable.
Employees
As of December 31, 2019, we had a total of 4,018 employees.
None of our employees are subject to a collective bargaining agreement. We believe that relations with our employees are good.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are available free
of charge on our website at www.aciworldwide.com as soon as reasonably practicable after we file such information electronically
with the SEC. The information found on our website is not part of this or any other report we file with or furnish to the SEC. The
public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, Room 1580,
NW, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at www.sec.gov.
Executive Officers of the Registrant
As of February 27, 2020, our executive officers, their ages, and their positions were as follows:
Name
Craig S. Saks
Scott W. Behrens
Evanthia (Eve) C.
Aretakis
Jeremy M. Wilmot
Carolyn B. Homberger
Michael D. Braatz
Dennis P. Byrnes
Age
49
48
60
Position
Interim President, Interim Chief Executive Officer, and Chief Operating Officer
Executive Vice President, Chief Financial Officer
Executive Vice President, Group President, ACI On Demand
51
39
51
56
Executive Vice President, Group President, ACI On Premise
Executive Vice President, Chief Risk Officer
Executive Vice President, Chief Product Officer
Executive Vice President, Chief Administrative Officer, General Counsel, and Secretary
Mr. Saks was appointed Interim President and Chief Executive Officer in December 2019, effective January 1, 2020. Mr. Saks
continues to serve as the Chief Operating Officer, with more than twenty years of payments and banking expertise. Previously, Mr.
Saks led ACI's Strategic Products division. Prior to joining ACI in February 2012, Mr. Saks was Senior Vice President of Shared
Services at S1 Corporation, which was subsequently acquired by ACI. From 1999 to 2007, Mr. Saks served as the Chief Operating
Officer at Fundamo. Mr. Saks holds a Master of Commerce in IT Management from the University of Cape Town and a Bachelor of
Commerce in Computer Science from the University of Port Elizabeth.
Mr. Behrens serves as Executive Vice President and Chief Financial Officer. Mr. Behrens joined ACI in June 2007 as our Corporate
Controller and was appointed as Chief Accounting Officer in October 2007. Mr. Behrens was appointed Chief Financial Officer in
December 2009. Mr. Behrens ceased serving as our Corporate Controller in December 2010. Mr. Behrens was appointed Executive
Vice President in March 2011. Prior to joining ACI, Mr. Behrens served as Senior Vice President, Corporate Controller and Chief
Accounting Officer at SITEL Corporation from January 2005 to June 2007. He also served as Vice President of Financial Reporting
at SITEL Corporation from April 2003 to January 2005. From 1993 to 2003, Mr. Behrens was with Deloitte & Touche, LLP,
including two years as a Senior Audit Manager. Mr. Behrens holds a Bachelor of Science from the University of Nebraska – Lincoln.
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Ms. Aretakis serves as Executive Vice President and Group President of ACI On Demand. Previously, Ms. Aretakis led ACI's
Product Development group. Prior to joining ACI in 2016, Ms. Aretakis was Executive Vice President at Unify/Siemens Enterprise
Communications. Her responsibilities included P&L management and accountability for software development, product
management and manufacturing of the global product portfolio. She previously served as President of IP Network Solutions at
Siemens, Unit President of the company’s U.S. carrier division and as Executive Vice President at Unisphere Networks. Ms.
Aretakis began her career as a Software Engineer for Texas Instruments and Raytheon. She transitioned to Product Management as
she progressed into management roles of various business units. Ms. Aretakis holds a bachelor’s degree in Computer Science and
Economics from Union College.
Mr. Wilmot serves as Executive Vice President and Group President of ACI On Premise. Prior to his current role, Mr. Wilmot held a
number of senior leadership roles at ACI, including Executive Vice President, Chief Marketing and Revenue Officer, Senior Vice
President and Managing Director for the Americas, President for the Asia-Pacific and Regional Director for Western Europe and
Africa. Prior to joining ACI in 1999, Mr. Wilmot worked for ICL (now Fujitsu) in several capacities, including as International Sales
Manager for Financial Services. Mr. Wilmot holds a Bachelor of Arts in Business Studies from Oxford Brookes University in the
United Kingdom and has completed the Advanced Management Program at INSEAD in France.
Ms. Homberger serves as Executive Vice President and Chief Risk Officer. Previously, Ms. Homberger held a number of senior and
operational leadership positions at ACI, including leading global sales, ACI On Demand, and customer management and
maintenance. Prior to joining ACI Worldwide in 2006, Ms. Homberger worked at GE Healthcare, where she held finance leadership
roles and completed the Financial Management Program (FMP). Ms. Homberger is a board member of the American Transaction
Processors Coalition (ATPC) and Women in Payments. She is Six Sigma Green Belt Certified and holds a Master of Business
Administration from Fordham University and a Bachelor of Science from Miami University.
Mr. Braatz serves as Executive Vice President and Chief Product Officer. Prior to his current role, Mr. Braatz most recently served as
the Chief Marketing and Solutions Officer, Senior Vice President and P&L lead for ACI On Demand’s Software as a Service
solutions, and Senior Vice President and Product Line Manager for ACI On Demand and for ACI’s Payments Risk Management
solution. Prior to joining ACI in 2012, Mr. Braatz served as Senior Vice President of Marketing and Product Management at
Memento Inc., a provider of enterprise fraud management solutions that was acquired by Fidelity National Information Services Inc.
in 2012. Earlier in his career, Mr. Braatz was a consultant for Bain & Company, working with clients in the software and financial
services industries. Mr. Braatz began his professional career as an officer in the United States Air Force, where he attained the rank
of Captain. Mr. Braatz holds a Bachelor of Arts in Mathematics from Northwestern University and a Master of Business
Administration from Northwestern's Kellogg School of Management.
Mr. Byrnes serves as Executive Vice President, Chief Administrative Officer, General Counsel, and Secretary. He has served in that
capacity since March 2011 and as General Counsel and Secretary since joining the Company in June 2003. Prior to joining ACI,
Mr. Byrnes served as an attorney with Bank One Corporation’s technology group from 2002 to 2003; with Sterling Commerce from
1996 to 2002; and with Baker Hostetler from 1991 to 1996. Mr. Byrnes holds a JD from The Ohio State University College of Law,
a Master of Business Administration from Xavier University, and a Bachelor of Science in Engineering from Case Western Reserve
University.
ITEM 1A. RISK FACTORS
Factors That May Affect Our Future Results or the Market Price of Our Common Stock
We operate in a rapidly changing technological and economic environment that presents numerous risks. Many of these risks are
beyond our control and are driven by factors that often cannot be predicted. The following discussion highlights some of these risks.
The markets in which we compete are rapidly changing and highly competitive, and we may not be able to compete effectively.
The markets in which we compete are characterized by rapid change, evolving technologies and industry standards and intense
competition. There is no assurance that we will be able to maintain our current market share or customer base. We face intense
competition in our businesses and we expect competition to remain intense in the future. We have many competitors that are
significantly larger than us and have significantly greater financial, technical and marketing resources, have well-established
relationships with our current or potential customers, advertise aggressively or beat us to the market with new products and
services. In addition, we expect that the markets in which we compete will continue to attract new competitors and new
technologies. Increased competition in our markets could lead to price reductions, reduced profits, or loss of market share.
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To compete successfully, we need to maintain a successful research and development effort. If we fail to enhance our current
products and develop new products in response to changes in technology and industry standards, bring product enhancements or
new product developments to market quickly enough, or accurately predict future changes in our customers’ needs and our
competitors develop new technologies or products, our products could become less competitive or obsolete.
Our Universal Payments strategy could prove to be unsuccessful in the market.
Our UP solutions, including our UP Retail Payments and Real-Time Payments solutions, are strategic for us, in that they are
designated to help us win new accounts, replace legacy payments systems on multiple hardware platforms, and help us transition our
existing customers to a new, real-time, and open-systems product architecture. Our business, financial condition, cash flows and/or
results of operations could be materially adversely affected if we are unable to generate adequate sales of Universal Payments
solutions or if we are unable to successfully deploy them in production environments.
Our future profitability depends on demand for our products.
Our revenue and profitability depend on the overall demand for our products and services. A significant portion of our total revenues
result from licensing our UP Retail Payments solution, including our BASE24 product line and providing related services and
maintenance. Any reduction in demand for, or increase in competition with respect to, our UP Retail Payments solution could have a
material adverse effect on our financial condition, cash flows and/or results of operations.
Consolidations and failures in the financial services industry may adversely impact the number of customers and our revenues in
the future.
Mergers, acquisitions, and personnel changes at key financial services organizations have the potential to adversely affect our
business, financial condition, cash flows, and results of operations. Our business is concentrated in the financial services industry,
making us susceptible to consolidation in, or contraction of, the number of participating institutions within that industry.
Consolidation activity among financial institutions and financial intermediaries has increased in recent years. Changes in financial
conditions have also historically resulted in consolidation and contraction as financial institutions have failed or have been acquired
by or merged with other financial institutions. There are several potential negative effects of increased consolidation activity.
Continuing consolidation could cause us to lose existing and potential customers for our products and services. For instance,
consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume
discounts or discontinue use of certain of our products. Additionally, if a non-customer and a customer combine and the combined
entity in turn decided to forego future use of our products, our revenues would decline.
Potential customers may be reluctant to switch to a new vendor, which may adversely affect our growth, both in the United States
and internationally.
For banks, financial intermediaries, and other potential customers of our products, switching from one vendor of core financial
services software (or from an internally-developed legacy system) to a new vendor is a significant endeavor. Many potential
customers believe switching vendors involves too many potential disadvantages such as disruption of business operations, loss of
accustomed functionality, and increased costs (including conversion and transition costs). As a result, potential customers may resist
change. We seek to overcome this resistance through value enhancing strategies such as a defined conversion/migration process,
continued investment in the enhanced functionality of our software and system integration expertise. However, there can be no
assurance that our strategies for overcoming potential customers’ reluctance to change vendors will be successful, and this resistance
may adversely affect our growth, both in the United States and internationally.
Failure to obtain renewals of customer contracts or obtain such renewals on favorable terms could adversely affect our results of
operations and financial condition.
Failure to achieve favorable renewals of customer contracts could negatively impact our business. Our contracts with our customers
generally run for a period of five years, or three years in the case of certain acquired SaaS and PaaS contracts. At the end of the
contract term, customers have the opportunity to renegotiate their contracts with us and to consider whether to engage one of our
competitors to provide products and services. Failure to achieve high renewal rates on commercially favorable terms could
adversely affect our results of operations and financial condition.
The delay or cancellation of a customer project or inaccurate project completion estimates may adversely affect our operating
results and financial performance.
Any unanticipated delays in a customer project, changes in customer requirements or priorities during the project implementation
period, or a customer’s decision to cancel a project, may adversely impact our operating results and financial performance. In
addition, during the project implementation period, we perform ongoing estimates of the progress being made on complex and
difficult projects and documenting this progress is subject to potential inaccuracies. Changes in project completion estimates are
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heavily dependent on the accuracy of our initial project completion estimates and our ability to evaluate project profits and losses.
Any inaccuracies or changes in estimates resulting from changes in customer requirements, delays or inaccurate initial project
completion estimates may result in increased project costs and adversely impact our operating results and financial performance.
Our software products may contain undetected errors or other defects, which could damage our reputation with customers,
decrease profitability, and expose us to liability.
Our software products are complex. Software may contain bugs or errors that can unexpectedly interfere with the operation of the
software products. Our software products may contain undetected errors or flaws when first introduced or as new versions are
released. These undetected errors may result in loss of, or delay in, market acceptance of our products and a corresponding loss of
sales or revenues. Customers depend upon our products for mission-critical applications, and these errors may hurt our reputation
with customers. In addition, software product errors or failures could subject us to product liability, as well as performance and
warranty claims, which could materially adversely affect our business, financial condition, cash flows and/or results of operations.
If our products and services fail to comply with legislation, government regulations, and industry standards to which our
customers are subject, it could result in a loss of customers and decreased revenue.
Legislation, governmental regulation, and industry standards affect how our business is conducted, and in some cases, could subject
us to the possibility of future lawsuits arising from our products and services. Globally, legislation, governmental regulation and
industry standards may directly or indirectly impact our current and prospective customers’ activities, as well as their expectations
and needs in relation to our products and services. For example, our products are affected by VISA, Mastercard and other major
payment brand electronic payment standards that are generally updated twice annually. Beyond this, our products are affected by
PCI Security Standards. As a provider of electronic data processing to financial institutions, we must comply with FFIEC
regulations and are subject to FFIEC examinations.
In addition, action by government and regulatory authorities such as the Dodd-Frank Wall Street Reform and the Consumer
Protection Act relating to financial regulatory reform, the European Union-wide General Data Protection Regulation (“GDPR”)
(which imposes strict data privacy requirements and regulatory fines of up to 4% of “worldwide turnover”) and the California
Consumer Privacy Act ("CCPA"), as well as legislation and regulation related to credit availability, data usage, privacy, or other
related regulatory developments could have an adverse effect on our customers and therefore could have a material adverse effect on
our business, financial condition, cash flows and results of operations. The regulatory focus on privacy issues also continues to
increase and worldwide laws and regulations concerning the handling of personal information are expanding and becoming more
complex. Our failure, or perceived failure, to comply with laws and regulations concerning the handling of personal information
could result in lost or restricted business, proceedings, actions or fines brought against us or levied by governmental entities or
others, or could adversely affect our business and harm our reputation.
If we fail to comply with the complex regulations applicable to our payments business, we could be subject to liability or our
revenues may be reduced.
Official Payments Corporation is licensed as a money transmitter in those states where such licensure is required. These licenses
require us to demonstrate and maintain certain levels of net worth and liquidity, require us to file periodic reports and subject us to
inspections by state regulatory agencies. In addition, our payment business is generally subject to federal regulation in the United
States, including anti-money laundering regulations and certain restrictions on transactions to or from certain individuals or entities.
The complexity of these regulations will continue to increase our cost of doing business. Any violations of these laws may also
result in civil or criminal penalties against us and our officers or the prohibition against us providing money transmitter services in
particular jurisdictions. We could also be forced to change our business practices or be required to obtain additional licenses or
regulatory approvals that could cause us to incur substantial costs.
In addition, our customers must ensure that our services comply with the government regulations, including the EU GDPR, and
industry standards that apply to their businesses. Federal, state, foreign or industry authorities could adopt laws, rules, or regulations
affecting our customers’ businesses that could lead to increased operating costs that may lead to reduced market acceptance. In
addition, action by regulatory authorities relating to credit availability, data usage, privacy, or other related regulatory developments
could have an adverse effect on our customers and, therefore, could have a material adverse effect on our business, financial
condition, and results of operations.
If we fail to comply with privacy regulations imposed on providers of services to financial institutions, our business could be
harmed.
As a provider of services to financial institutions, we may be bound by the same limitations on disclosure of the information we
receive from our customers as apply to the financial institutions themselves. If we are subject to these limitations and we fail to
comply with applicable regulations, including the EU GDPR, we could be exposed to suits for breach of contract or to governmental
16
proceedings, our customer relationships and reputation could be harmed, and we could be inhibited in our ability to obtain new
customers. In addition, if more restrictive privacy laws or rules are adopted in the future on the federal or state level, or, with respect
to our international operations, by authorities in foreign jurisdictions on the national, provincial, state, or other level, that could have
an adverse impact on our business.
Our risk management and information security programs are the subject of oversight and periodic reviews by the federal agencies
that regulate our business. In the event an examination of our information security and risk management functions results in adverse
findings, such findings could be made public or communicated to our regulated financial institution customers, which could have a
material adverse effect on our business.
If our security measures are breached or become infected with a computer virus, or if our services are subject to attacks that
degrade or deny the ability of users to access our products or services, our business will be harmed by disrupting delivery of
services and damaging our reputation.
As part of our business, we electronically receive, process, store, and transmit sensitive business information of our customers.
Unauthorized access to our computer systems or databases could result in the theft or publication of confidential information or the
deletion or modification of records or could otherwise cause interruptions in our operations. These concerns about security are
increased when we transmit information over the Internet. Security breaches in connection with the delivery of our products and
services, including products and services utilizing the Internet, or well-publicized security breaches, and the trend toward broad
consumer and general public notification of such incidents, could significantly harm our business, financial condition, cash flows
and/or results of operations. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to
exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other
developments will not compromise or breach the technology protecting our networks and confidential information. Computer
viruses have also been distributed and have rapidly spread over the Internet. Computer viruses could infiltrate our systems,
disrupting our delivery of services and making our applications unavailable. Any inability to prevent security breaches or computer
viruses could also cause existing customers to lose confidence in our systems and terminate their agreements with us, and could
inhibit our ability to attract new customers.
We may be unable to protect our intellectual property and technology.
To protect our proprietary rights in our intellectual property, we rely on a combination of contractual provisions, including customer
licenses that restrict use of our products, confidentiality agreements and procedures, and trade secret and copyright laws. Despite
such efforts, we may not be able to adequately protect our proprietary rights, or our competitors may independently develop similar
technology, duplicate products, or design around any rights we believe to be proprietary. This may be particularly true in countries
other than the United States because some foreign laws do not protect proprietary rights to the same extent as certain laws of the
United States. Any failure or inability to protect our proprietary rights could materially adversely affect our business.
We also use a limited amount of software licensed by its authors or other third parties under so-called “open source” licenses and
may continue to use such software in the future. Some of these licenses contain requirements that we make available source code for
modifications or derivative works we create based upon the open source software, and that we license such modifications or
derivative works under the terms of a particular open source license or other license granting third parties certain rights of further
use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software if we
combine our proprietary software with open source software in a certain manner. Additionally, the terms of many open source
licenses have not been interpreted by United States or other courts, and there is a risk that these licenses could be construed in a
manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In addition to risks
related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software,
as open source licensors generally do not provide warranties or controls on origin of the software.
Our exposure to risks associated with the use of intellectual property may be increased for third-party products distributed by us or
as a result of acquisitions since we have a lower level of visibility, if any, into the development process with respect to such third-
party products and acquired technology or the care taken to safeguard against infringement risks.
We may be subject to increasing litigation over our intellectual property rights.
There has been a substantial amount of litigation in the software industry regarding intellectual property rights. Third parties have in
the past, and may in the future, assert claims or initiate litigation related to exclusive patent, copyright, trademark or other
intellectual property rights to business processes, technologies and related standards that are relevant to us and our customers. These
assertions have increased over time as a result of the general increase in patent claims assertions, particularly in the United States.
Because of the existence of a large number of patents in the electronic commerce field, the secrecy of some pending patents and the
rapid issuance of new patents, it is not economical or even possible to determine in advance whether a product or any of its
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components infringes or will infringe on the patent rights of others. Any claim against us, with or without merit, could be time-
consuming, result in costly litigation, cause product delivery delays, require us to enter into royalty or licensing agreements or pay
amounts in settlement, or require us to develop alternative non-infringing technology.
We anticipate that software product developers and providers of electronic commerce solutions could increasingly be subject to
infringement claims, and third parties may claim that our present and future products infringe upon their intellectual property rights.
Third parties may also claim, and we are aware that at least two parties have claimed on several occasions, that our customers’ use
of a business process method which utilizes our products in conjunction with other products infringe on the third-party’s intellectual
property rights. These third-party claims could lead to indemnification claims against us by our customers. Claims against our
customers related to our products, whether or not meritorious, could harm our reputation and reduce demand for our products.
Where indemnification claims are made by customers, resistance even to unmeritorious claims could damage the customer
relationship. A successful claim by a third-party of intellectual property infringement by us or one of our customers could compel us
to enter into costly royalty or license agreements, pay significant damages, or stop selling certain products and incur additional costs
to develop alternative non-infringing technology. Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could adversely affect our business.
Certain payment funding methods expose us to the credit and/or operating risk of our clients.
When we process an automated clearing house or ATM network payment transaction for certain clients, we occasionally transfer
funds from our settlement account to the intended destination account before we receive funds from a client’s source account. The
vast majority of these occurrences are resolved quickly through normal processes. However, if they are not resolved and we are then
unable to reverse the transaction that sent funds to the intended destination, a shortfall in our settlement account will be created.
Although we have legal recourse against our clients for the amount of the shortfall, timing of recovery may be delayed by litigation
or the amount of any recovery may be less than the shortfall. In either case, we would have to fund the shortfall in our settlement
account from our corporate funds.
If we experience business interruptions or failure of our information technology and communication systems, the availability of
our products and services could be interrupted which could adversely affect our reputation, business and financial condition.
Our ability to provide reliable service in a number of our businesses depends on the efficient and uninterrupted operation of our data
centers, information technology and communication systems, and those of our external service providers. As we continue to grow
our ACI On Demand business, our dependency on the continuing operation and availability of these systems increases. Our systems
and data centers, and those of our external service providers, could be exposed to damage or interruption from fire, natural disasters,
power loss, telecommunications failure, unauthorized entry and computer viruses. Although we have taken steps to prevent system
failures and we have installed back-up systems and procedures to prevent or reduce disruption, such steps may not be sufficient to
prevent an interruption of services and our disaster recovery planning may not account for all eventualities. Further, our property and
business interruption insurance may not be adequate to compensate us for all losses or failures that may occur.
An operational failure or outage in any of these systems, or damage to or destruction of these systems, which causes disruptions in
our services, could result in loss of customers, damage to customer relationships, reduced revenues and profits, refunds of customer
charges and damage to our brand and reputation and may require us to incur substantial additional expense to repair or replace
damaged equipment and recover data loss caused by the interruption. Any one or more of the foregoing occurrences could have a
material adverse effect on our reputation, business, financial condition, cash flows and results of operations.
We are engaged in offshore software development activities, which may not be successful and which may put our intellectual
property at risk.
As part of our globalization strategy and to optimize available research and development resources, we utilize our Irish subsidiary to
serve as the focal point for certain international product development and commercialization efforts. This subsidiary oversees remote
software development operations in Romania and elsewhere, as well as manages certain of our intellectual property rights. In
addition, we manage certain offshore development activities in India. While our experience to date with our offshore development
centers has been positive, there is no assurance that this will continue. Specifically, there are a number of risks associated with this
activity, including but not limited to the following:
•
•
communications and information flow may be less efficient and accurate as a consequence of the time, distance and
language differences between our primary development organization and the foreign based activities, resulting in delays
in development or errors in the software developed;
in addition to the risk of misappropriation of intellectual property from departing personnel, there is a general risk of the
potential for misappropriation of our intellectual property that might not be readily discoverable;
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•
the quality of the development efforts undertaken offshore may not meet our requirements because of language, cultural
and experiential differences, resulting in potential product errors and/or delays;
• potential disruption from the involvement of the United States in political and military conflicts around the world;
and
•
currency exchange rates could fluctuate and adversely impact the cost advantages intended from maintaining these
facilities.
There are a number of risks associated with our international operations that could have a material impact on our operations
and financial condition.
We derive a significant portion of our revenues from international operations and anticipate continuing to do so. As a result, we are
subject to risks of conducting international operations. One of the principal risks associated with international operations is
potentially adverse movements of foreign currency exchange rates. Our exposures resulting from fluctuations in foreign currency
exchange rates may change over time as our business evolves and could have an adverse impact on our financial condition, cash
flows and/or results of operations. We have not entered into any derivative instruments or hedging contracts to reduce exposure to
adverse foreign currency changes.
Other potential risks include difficulties associated with staffing and management, reliance on independent distributors, longer
payment cycles, potentially unfavorable changes to foreign tax rules, compliance with foreign regulatory requirements, effects of a
variety of foreign laws and regulations, including restrictions on access to personal information, reduced protection of intellectual
property rights, variability of foreign economic conditions, governmental currency controls, difficulties in enforcing our contracts in
foreign jurisdictions, and general economic and political conditions in the countries where we sell our products and services. Some
of our products may contain encrypted technology, the export of which is regulated by the United States government. Changes in
U.S. and other applicable export laws and regulations restricting the export of software or encryption technology could result in
delays or reductions in our shipments of products internationally. There can be no assurance that we will be able to successfully
address these challenges.
In addition, the implementation of the United Kingdom’s withdrawal from the European Union (referred to as Brexit) could, among
other outcomes, disrupt the free movement of goods, services, and people between the U.K. and the E.U., undermine bilateral
cooperation in key policy areas, and significantly disrupt trade between the U.K. and the E.U. The uncertainties related to Brexit
have cross-border operational, financial and tax implications, among others, and any economic volatility that may arise in the U.K.,
the E.U., or elsewhere may adversely affect our business.
Global economic conditions could reduce the demand for our products and services or otherwise adversely impact our cash
flows, operating results and financial condition.
For the foreseeable future, we expect to derive most of our revenue from products and services we provide to the banking and
financial services industries. The global electronic payments industry and the banking and financial services industries depend
heavily upon the overall levels of consumer, business and government spending. Adverse economic conditions and the potential for
disruptions in these industries as well as the general software sector could result in a decrease in consumers’ use of banking services
and financial service providers resulting in significant decreases in the demand for our products and services which could adversely
affect our business and operating results. A lessening demand in either the overall economy, the banking and financial services
industry or the software sector could also result in the implementation by banks and related financial service providers of cost
reduction measures or reduced capital spending resulting in longer sales cycles, deferral or delay of purchase commitments for our
products and increased price competition which could lead to a material decrease in our future revenues and earnings.
Our business and operating results could be adversely affected by events outside of our control, including natural disasters, wars
and outbreaks of disease or other adverse public health developments.
We may be impacted by natural disasters, wars, and outbreaks of disease or other adverse public health developments such as the
recent COVID-19 coronavirus outbreak. These events could cause disruptions or restrictions on us, our partners and customers,
including restrictions on travel, temporary closure of facilities, and other restrictions. Such disruptions or restrictions may result in
delays or losses of sales and delays in the development or implementation of our products. These events could also result in a
decrease in consumers’ use of our customers’ services, further adversely affecting our business and operating results.
Failure to attract and retain senior management personnel and skilled technical employees could harm our ability to grow.
Our senior management team has significant experience in the financial services industry. The loss of this leadership could have an
adverse effect on our business, operating results and financial condition. Further, the loss of this leadership may have an adverse
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impact on senior management’s ability to provide effective oversight and strategic direction for all key functions within the
Company, which could impact our future business, operating results and financial condition.
Our future success also depends upon our ability to attract and retain highly-skilled technical personnel. Because the development of
our solutions and services requires knowledge of computer hardware, operating system software, system management software, and
application software, our technical personnel must be proficient in a number of disciplines. Competition for such technical personnel
is intense, and our failure to hire and retain talented personnel could have a material adverse effect on our business, operating results
and financial condition.
Our future growth will also require sales and marketing, financial and administrative personnel to develop and support new solutions
and services, to enhance and support current solutions and services and to expand operational and financial systems. There can be no
assurance that we will be able to attract and retain the necessary personnel to accomplish our growth strategies and we may
experience constraints that could adversely affect our ability to satisfy client demand in a timely fashion.
Our ability to maintain compliance with applicable laws, rules and regulations and to manage and monitor the risks facing our
business relies upon the ability to maintain skilled compliance, security, risk and audit professionals. Competition for such skillsets
is intense, and our failure to hire and retain talented personnel could have an adverse effect on our internal control environment and
impact our operating results.
We may become involved in litigation that could materially adversely affect our business financial condition, cash flows and/or
results of operations.
From time to time, we are involved in litigation relating to claims arising out of our operations. Any claims, with or without merit,
could be time-consuming and result in costly litigation. Failure to successfully defend against these claims could result in a material
adverse effect on our business, financial condition, results of operations and/or cash flows.
If we engage in acquisitions, strategic partnerships or significant investments in new business, we will be exposed to risks which
could materially adversely affect our business.
As part of our business strategy, we anticipate that we may acquire new products and services or enhance existing products and
services through acquisitions of other companies, product lines, technologies and personnel, or through investments in, or strategic
partnerships with, other companies. Any acquisition, investment or partnership, is subject to a number of risks. Such risks include
the diversion of management time and resources, disruption of our ongoing business, potential overpayment for the acquired
company or assets, dilution to existing stockholders if our common stock is issued in consideration for an acquisition or investment,
incurring or assuming indebtedness or other liabilities in connection with an acquisition which may increase our interest expense
and leverage significantly, lack of familiarity with new markets, and difficulties in supporting new product lines.
Further, even if we successfully complete acquisitions, we may encounter issues not discovered during our due diligence process,
including product or service quality issues, intellectual property issues and legal contingencies, the internal control environment of
the acquired entity may not be consistent with our standards and may require significant time and resources to improve and we may
impair relationships with employees and customers as a result of migrating a business or product line to a new owner. We will also
face challenges in integrating any acquired business. These challenges include eliminating redundant operations, facilities and
systems, coordinating management and personnel, retaining key employees, customers and business partners, managing different
corporate cultures, and achieving cost reductions and cross-selling opportunities. There can be no assurance that we will be able to
fully integrate all aspects of acquired businesses successfully, realize synergies expected to result from the acquisition, advance our
business strategy or fully realize the potential benefits of bringing the businesses together, and the process of integrating these
acquisitions may further disrupt our business and divert our resources.
See Critical Accounting Policies and Estimates in Part II, Item 7 of this Form 10-K for additional information related to Accounting
Standards Codification ("ASC") 805, Business Combinations.
Our failure to successfully manage acquisitions or investments, or successfully integrate acquisitions could have a material adverse
effect on our business, financial condition, cash flows and/or results of operations. Correspondingly, our expectations related to the
benefits related to our recent acquisitions, prior acquisitions or any other future acquisition or investment could be inaccurate.
We may experience difficulties integrating Speedpay, which could cause us to fail to realize the anticipated benefits of the
acquisition.
Achieving the anticipated benefits of our acquisition of Speedpay will depend in part upon whether we are able to integrate the
business in an effective and efficient manner. There can be no assurance that we will be able to fully integrate all aspects of
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Speedpay successfully, advance our business strategy, or fully realize the potential benefits of bringing the businesses together, and
the process of integrating Speedpay may disrupt our business and divert our resources. Any delay or inability of management to
successfully integrate the operations of Speedpay could compromise our potential to achieve the anticipated long-term strategic
benefits of the acquisitions and could have a material adverse effect on the business, financial condition, cash flows, and results of
operations.
Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of
these assets could negatively affect our financial results.
Our balance sheet includes goodwill and intangible assets that represent a significant portion of our total assets at December 31,
2019. On at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible
assets. If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating
earnings. An impairment of a significant portion of goodwill or intangible assets could materially negatively affect our results of
operations.
Our outstanding debt contains restrictions and other financial covenants that limit our flexibility in operating our business.
Our credit facility and the indenture governing our 5.750% Senior Notes due 2026 (“2026 Notes”) contain customary affirmative
and negative covenants for debt of these types that limit our ability to engage in specified types of transactions. If an event of default
occurs, the lenders, trustee, or holders of the 2026 Notes will be entitled to take various actions, including, but not limited to,
demanding payment for all amounts outstanding. If adverse global economic conditions persist or worsen, we could experience
decreased revenues from our operations attributable to reduced demand for our products and services and as a result, we could fail to
satisfy the financial and other restrictive covenants to which we are subject under our existing debt, resulting in an event of
default. If we are unable to cure the default or obtain a waiver, we will not be able to access our credit facility and there can be no
assurance that we would be able to obtain alternative financing. See Note 5, Debt, to our Notes to Consolidated Financial Statements
in Part IV, Item 15 of this Form 10-K for additional information.
Our existing levels of debt and debt service requirements may adversely affect our financial condition or operational flexibility
and prevent us from fulfilling our obligations under our outstanding indebtedness.
Our level of debt could have adverse consequences for our business, financial condition, operating results and operational flexibility,
including the following: (i) the debt level may cause us to have difficulty borrowing money in the future for working capital, capital
expenditures, acquisitions or other purposes; (ii) our debt level may limit operational flexibility and our ability to pursue business
opportunities and implement certain business strategies; (iii) we use a large portion of our operating cash flow to pay principal and
interest on our credit facility and the 2026 Notes, which reduces the amount of money available to finance operations, acquisitions
and other business activities; (iv) we have a higher level of debt than some of our competitors or potential competitors, which may
cause a competitive disadvantage and may reduce flexibility in responding to changing business and economic conditions, including
increased competition and vulnerability to general adverse economic and industry conditions; (v) some of our debt has a variable
rate of interest, which exposes us to the risk of increased interest rates; (vi) there are significant maturities on our debt that we may
not be able to fulfill or that may be refinanced at higher rates; and (vii) if we fail to satisfy our obligations under our outstanding
debt or fail to comply with the financial or other restrictive covenants required under our credit facility and the 2026 Notes, an event
of default could result that could cause all of our debt to become due and payable and could permit the lenders under our credit
facility to foreclose on the assets securing such debt.
Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of
operations.
In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"),
announced it will no longer compel banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates
Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR.
The Company's Credit Agreement is currently indexed to LIBOR, and the maturity date of the Credit Agreement extends beyond
2021. The Credit Agreement contemplates the discontinuation of LIBOR and provides options for the Company in such an event. It
is uncertain at this time, however, what the potential impact of the transition from LIBOR as an interest rate benchmark to other
potential alternative reference rates, including SOFR, may be on our business, financial condition, and/or results of operations.
Management’s backlog estimate may not be accurate and may not generate the predicted revenues.
Estimates of future financial results are inherently unreliable. Our backlog estimates require substantial judgment and are based on a
number of assumptions, including management’s current assessment of customer and third-party contracts that exist as of the date
the estimates are made, as well as revenues from assumed contract renewals, to the extent that we believe that recognition of the
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related revenue will occur within the corresponding backlog period. A number of factors could result in actual revenues being less
than the amounts reflected in backlog. Our customers or third-party partners may attempt to renegotiate or terminate their contracts
for a number of reasons, including mergers, changes in their financial condition, or general changes in economic conditions within
their industries or geographic locations, or we may experience delays in the development or delivery of products or services
specified in customer contracts. Actual renewal rates and amounts may differ from historical experience used to estimate backlog
amounts. Changes in foreign currency exchange rates may also impact the amount of revenue actually recognized in future periods.
Accordingly, there can be no assurance that contracts included in backlog will actually generate the specified revenues or that the
actual revenues will be generated within a 12-month or 60-month period. Additionally, because backlog estimates are operating
metrics, the estimates are not required to be subject to the same level of internal review or controls as a U.S. generally accepted
accounting principles (“GAAP”) financial measure.
We may face exposure to unknown tax liabilities, which could adversely affect our financial condition, cash flows and/or results
of operations.
We are subject to income and non-income based taxes in the United States and in various foreign jurisdictions. Significant judgment
is required in determining our worldwide income tax liabilities and other tax liabilities. In addition, we expect to continue to benefit
from implemented tax-saving strategies. We believe that these tax-saving strategies comply with applicable tax law. If the governing
tax authorities have a different interpretation of the applicable law and successfully challenge any of our tax positions, our financial
condition, cash flows and/or results of operations could be adversely affected.
Our U.S. companies are the subject of an examination by several state tax departments. Some of our foreign subsidiaries are
currently the subject of a tax examination by the local taxing authorities. Other foreign subsidiaries could face challenges from
various foreign tax authorities. It is not certain that the local authorities will accept our tax positions. We believe our tax positions
comply with applicable tax law and intend to vigorously defend our positions. However, differing positions on certain issues could
be upheld by foreign tax authorities, which could adversely affect our financial condition and/or results of operations.
Our revenue and earnings are highly cyclical, our quarterly results fluctuate significantly, and we have revenue-generating
transactions concentrated in the final weeks of a quarter which may prevent accurate forecasting of our financial results and
cause our stock price to decline.
Our revenue and earnings are highly cyclical causing significant quarterly fluctuations in our financial results. Revenue and
operating results are usually strongest during the third and fourth fiscal quarters ending September 30 and December 31, primarily
due to the sales and budgetary cycles of our customers. We experience lower revenues, and possible operating losses, in the first and
second quarters ending March 31 and June 30. Our financial results may also fluctuate from quarter to quarter and year to year due
to a variety of factors, including changes in product sales mix that affect average selling prices, and the timing of customer renewals
(any of which may impact the pattern of revenue recognition).
In addition, large portions of our customer contracts are consummated in the final weeks of each quarter. Before these contracts are
consummated, we create and rely on forecasted revenues for planning, modeling and earnings guidance. Forecasts, however, are
only estimates and actual results may vary for a particular quarter or longer periods of time. Consequently, significant discrepancies
between actual and forecasted results could limit our ability to plan, budget or provide accurate guidance, which could adversely
affect our stock price. Any publicly-stated revenue or earnings projections are subject to this risk.
Due to the industry we operate in, our stock price may be volatile.
No assurance can be given that operating results will not vary from quarter to quarter, and past performance may not accurately
predict future performance. Any fluctuations in quarterly operating results may result in volatility in our stock price. Our stock price
may also be volatile, in part, due to external factors such as announcements by third parties or competitors, inherent volatility in the
technology sector, variability in demand from our existing customers, failure to meet the expectations of market analysts, the level
of our operating expenses and changing market conditions in the software industry. In addition, the financial markets have
experienced significant price and volume fluctuations that have particularly affected the stock prices of many technology companies
and financial services companies, and these fluctuations sometimes are unrelated to the operating performance of these
companies. Broad market fluctuations, as well as industry-specific and general economic conditions may adversely affect the market
price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
We lease office space in Naples, Florida, for our principal executive headquarters. As of the end of 2019, we also owned and leased
a total of approximately 572,000 square feet of office and data center space in the U.S. and leased approximately 450,000 square
feet of office and data center space outside the U.S., primarily in the United Kingdom, Ireland, and Singapore.
We believe our current facilities are adequate for our present and short-term foreseeable needs and that additional suitable space will
be available as required. We also believe we will be able to renew leases as they expire or secure alternate suitable space.
See Note 14, Leases, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for additional
information regarding our obligations under our facilities leases.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various litigation matters arising in the ordinary course of our business. We are not currently a
party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe would be likely to have a
material effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock trades on The NASDAQ Global Select Market under the symbol ACIW.
As of February 24, 2020, there were 272 holders of record of our common stock. A substantially greater number of shareholders
hold our common stock in “street name”, or as beneficial holders whose shares are held in the name of banks, brokers, or other
financial institutions.
Dividends
We have never declared nor paid cash dividends on our common stock. We do not presently anticipate paying cash dividends.
However, any future determination relating to our dividend policy will be made at the discretion of our board of directors (the
"board") and will depend upon our financial condition, capital requirements, and earnings, as well as other factors the board may
deem relevant. The terms of our current Credit Facility may restrict the payment of dividends subject to us meeting certain financial
metrics and being in compliance with the events of default provisions of the agreement.
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of common stock during the three months ended December 31,
2019:
Total Number
of
Shares
Purchased
Average Price
Paid per Share
—
—
36.18
36.18
— $
—
45,993
45,993 $
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased
Under the
Program
140,969,000
140,969,000
140,969,000
— $
—
—
—
Period
October 1, 2019 through October 31, 2019
November 1, 2019 through November 30, 2019
December 1, 2019 through December 31, 2019 (1)
Total
(1)
Pursuant to our 2005 Equity and Performance Incentive Plan, as amended (the "2005 Incentive Plan"), we granted stock
options. These awards have a term that may not exceed ten years and vesting is determined by the administrator of the
plan. During the three months ended December 31, 2019, 90,750 stock options were exercised by means of net
settlement. We withheld 45,993 of these stock options to pay the employees’ portion of the applicable minimum payroll
withholding taxes and cover the respective exercise price.
In 2005, our board approved a stock repurchase program authorizing us, as market and business conditions warrant, to acquire our
common stock and periodically authorize additional funds for the program, with the intention of using existing cash and cash
equivalents to fund these repurchases. In February 2018, the board approved the repurchase of the Company's common stock for up
to $200.0 million, in place of the remaining purchase amounts previously authorized. As of December 31, 2019, the maximum
remaining amount authorized for purchase under the stock repurchase program was approximately $141.0 million.
There is no guarantee as to the exact number of shares we will repurchase. Repurchased shares are returned to the status of
authorized but unissued shares of common stock. In March 2005, our board approved a plan under Rule 10b5-1 of the Securities
Exchange Act of 1934 to facilitate the repurchase of shares of common stock under the existing stock repurchase program. Under
our Rule 10b5-1 plan, we have delegated authority over the timing and amount of repurchases to an independent broker who does
not have access to inside information about the Company. Rule 10b5-1 allows us, through the independent broker, to purchase
shares at times when we ordinarily would not be in the market because of self-imposed trading blackout periods, such as the time
immediately preceding the end of the fiscal quarter through a period of three business days following our quarterly earnings release.
24
Stock Performance Graph and Cumulative Total Return
The following table shows a line-graph presentation comparing cumulative stockholder return on an indexed basis with a broad
equity market index and either a nationally-recognized industry standard or an index of peer companies selected by us. We
selected the S&P 500 Index and the NASDAQ Electronic Components Index for comparison.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2019
250.00
200.00
150.00
100.00
50.00
0.00
2014
ACI Worldwide, Inc.
2015
2016
S&P 500 Index - Total Return
2017
2018
2019
NASDAQ Electronic Components Index
The graph above assumes a $100 investment was made in our common stock and each index on December 31, 2014, and all
dividends were reinvested. Also included are respective investment returns based on the stock and index values as of the end of each
year during the five-year period. This information was provided by Zacks Investment Research, Inc. of Chicago, Illinois.
The stock performance graph disclosure above is not considered “filed” with the SEC under the Securities and Exchange Act of
1934, as amended, and is not incorporated by reference in any past or future filing by us under the Securities Exchange Act of 1934,
as amended, or the Securities Act of 1933, as amended, unless specifically referenced.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from our consolidated financial statements (in thousands, except per share
data). This data should be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, and the consolidated financial statements and related notes included elsewhere in this annual report. The financial
information below is not necessarily indicative of the results of future operations. Future results could differ materially from
historical results due to many factors, including those discussed in Item 1A, Risk Factors.
2019 (1)(2)
2018 (3)
Years Ended December 31,
2017 (4)
2016 (5)
2015
Income Statement Data:
Total revenues
Net income
Earnings per share:
Basic
Diluted
$ 1,258,294 $ 1,009,780 $ 1,024,191 $ 1,005,701 $ 1,045,977
85,436
129,535
67,062
68,921
5,135
$
$
0.58 $
0.57 $
0.59 $
0.59 $
0.04 $
0.04 $
1.10 $
1.09 $
0.73
0.72
Weighted average common shares outstanding:
Basic
Diluted
116,175
118,571
116,057
117,632
118,059
119,444
117,533
118,847
117,465
118,919
25
Balance Sheet Data:
Working capital
Total assets
Current portion of debt (6)
Debt (long-term portion) (6)
Stockholders’ equity
2019 (1)(2)
2018 (3)
December 31,
2017
2016 (5)
2015
$
308,426 $
269,857 $
100,039 $
31,625 $
3,257,534
34,148
1,350,592
1,129,968
2,122,455
20,767
658,602
1,048,231
1,861,639
17,786
668,356
764,597
1,902,295
90,323
656,063
754,917
(2,360 )
1,975,788
89,710
845,639
654,400
(1)
(2)
(3)
(4)
(5)
The consolidated balance sheet and statement of operations for the year ended December 31, 2019, includes the
acquisition of Speedpay as discussed in Note 3, Acquisition, to our Notes to Consolidated Financial Statements in Part
IV, Item 15 of this Form 10-K.
The consolidated balance sheet and statement of operations for the year ended December 31, 2019, reflects the
application of Accounting Standards Update (“ASU”) 2016-02, Leases (codified as “ASC 842”) as discussed in Note 14,
Leases, to our Notes to Consolidated Financial Statements.
The consolidated balance sheet and statement of operations for the year ended December 31, 2018, reflects the adoption
of ASU 2014-09, Revenue from Contracts with Customers (codified as “ASC 606”), as discussed in Note 2, Revenue, to
our Notes to Consolidated Financial Statements, including a cumulative adjustment of $244.0 million to retained
earnings.
The consolidated statement of operations for the year ended December 31, 2017, reflects the Baldwin Hackett & Meeks,
Inc. (“BHMI”) judgment. We recorded $46.7 million in general and administrative expense and $1.4 million in interest
expense, as discussed in Note 15, Commitments and Contingencies, to our Notes to Consolidated Financial Statements.
The consolidated balance sheet and statement of operations for the year ended December 31, 2016, reflects the sale of
Community Financial Services assets and liabilities.
(6) During the year ended December 31, 2019, we borrowed $500.0 million in the form of a new senior secured term loan
and drew $250.0 million on the available Revolving Credit Facility to fund the acquisition of Speedpay. During the year
ended December 31, 2018, we issued $400.0 million in senior notes due August 15, 2026. We used the net proceeds of
these senior notes to redeem our outstanding $300.0 million senior notes due 2020, which we originally entered in to
during the year ended December 31, 2013. See Note 5, Debt, to our Notes to Consolidated Financial Statements for
additional information.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
ACI Worldwide, the Universal Payments (“UP”) company, powers electronic payments for more than 5,100 organizations around
the world. More than 1,000 of the largest financial institutions and intermediaries, as well as thousands of leading 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 a third-party public cloud environment or through ACI’s private cloud, we provide real-time, immediate payments
capabilities and enable the industry’s most complete omni-channel payments experience.
Our products are sold and supported through distribution networks covering three geographic regions – the Americas, EMEA, and
Asia/Pacific. Each distribution network has its own globally coordinated sales force that it supplements with independent reseller
and/or distributor networks. Our products and solutions are used globally by banks, financial 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. Accordingly, our business and operating results are influenced by trends such as information technology spending
levels, the growth rate of electronic payments, mandated regulatory changes, and changes in the number and type of customers in
the financial services industry. Our products are marketed under the ACI brand.
We derive a majority of our revenues from domestic operations and believe we have large opportunities for growth in international
markets as well as continued expansion domestically in the United States. Refining our global infrastructure is a critical component
of driving our growth. We have launched a globalization strategy which includes elements intended to streamline our supply chain
26
and concentrate expertise in several geographic locations to support a growing international customer base and competitive needs.
We utilize our Irish subsidiaries to manage certain of our intellectual property rights and to oversee and manage certain international
product development and commercialization efforts. We increased our SaaS and PaaS capabilities with a data center in Ireland
allowing our SaaS and PaaS solutions to be more-broadly offered in the European market. We also continue to grow centers of
expertise in Timisoara, Romania and Pune and Bangalore in India, as well as key operational centers such as Cape Town, South
Africa and in multiple locations in the United States.
Key trends that currently impact our strategies and operations include:
Increasing electronic payment transaction volumes. Electronic payment volumes continue to increase around the world, taking
market share from traditional cash and check transactions. In their World Payments Report, Capgemini predicts that non-cash
transaction volumes will grow in volume at an annual rate of 14.2%, from 538.6 billion in 2017 to 1,045.5 billion in 2022, with
varying growth rates based on the type of payment and part of the world. We leverage the growth in transaction volumes through the
licensing of new systems to customers whose older systems cannot handle increased volume and through the sale of capacity
upgrades to existing customers.
Adoption of real-time payments. Customer expectations, from both consumers and billers, are driving the payments world to more
real-time delivery. In the U.K., payments sent through the traditional ACH multi-day batch service can now be sent through the
Faster Payments service giving almost immediate access to the funds, and this is being considered and implemented in several
countries including Malaysia, Thailand, Singapore, Australia, the United States, and various countries in Europe. In Europe, the
ECB TIPS and EBA RT1 schemes are driving real-time payments adoption, while in the U.S. market, Zelle and TCH Real-Time
Payments are now driving the adoption. Corporate customers expect real-time information on the status of their payments instead of
waiting for an end-of-day report. Regulators expect banks to be monitoring key measures like liquidity in real time. ACI’s focus has
always been on the real-time execution of transactions and delivery of information through real-time tools, such as dashboards, so
our experience will be valuable in addressing this trend.
Increasing competition. The electronic payments market is highly competitive and subject to rapid change. Our competition comes
from in-house information technology departments, third-party electronic payment processors, and third-party software companies
located both within and outside of the United States. Many of these companies are significantly larger than us and have significantly
greater financial, technical, and marketing resources. As electronic payment transaction volumes increase, third-party processors
tend to provide competition to our solutions, particularly among customers that do not seek to differentiate their electronic payment
offerings or are eliminating banks from the payments service, reducing the need for our solutions. As consolidation in the financial
services and financial technology industries continues, we anticipate that competition for those customers will intensify.
Adoption of cloud technology. To leverage lower-cost computing technologies, some banks, financial intermediaries, merchants,
and billers are seeking to transition their systems to make use of cloud technology. Our investments and partnerships provide us the
grounding to deliver cloud capabilities now and in the future. Market sizing data from Ovum indicates that spend on SaaS and PaaS
payment systems is growing faster than spend on installed applications.
Electronic payments fraud and compliance. As electronic payment transaction volumes increase, organized criminal organizations
continue to find ways to commit a growing volume of fraudulent transactions using a wide range of techniques. Banks, financial
intermediaries, merchants, and billers continue to seek ways to leverage new technologies to identify and prevent fraudulent
transactions and other attacks such as denial of service attacks. Due to concerns with international terrorism and money laundering,
banks and financial intermediaries in particular are being faced with increasing scrutiny and regulatory pressures. We continue to see
opportunity to offer our fraud detection solutions to help customers manage the growing levels of electronic payments fraud and
compliance activity.
Adoption of smartcard technology. In many markets, card issuers are being required to issue new cards with embedded chip
technology, with the liability shift having gone into effect in 2015 in the United States. Chip-based cards are more secure, harder to
copy, and offer the opportunity for multiple functions on one card (e.g., debit, credit, electronic purse, identification, health records,
etc.). This results in greater card-not-present fraud (e.g., fraud at eCommerce sites).
Single Euro Payments Area (SEPA). The SEPA, primarily focused on the European economic community and the U.K., is
designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions. The
transition to SEPA payment mechanisms will drive more volume to these systems with the potential to cause banks to review the
capabilities of the systems supporting these payments. Our retail payments and real-time payments solutions facilitate key functions
that help banks and financial intermediaries address these mandated regulations.
27
European Payment Service Directive (PSD2). PSD2, which was ratified by the European Parliament in 2015, required member
states to implement new payment regulations in 2018. The XS2A provision effectively creates a new market opportunity where
banks in European Union member countries must provide open API standards to customer data, thus allowing authorized third-party
providers to enter the market.
Financial institution consolidation. Consolidation continues on a national and international basis, as financial institutions seek to
add market share and increase overall efficiency. Such consolidations have increased, and may continue to increase, in their number,
size, and market impact as a result of recent economic conditions affecting the banking and financial industries. There are several
potential negative effects of increased consolidation activity. Continuing consolidation of financial institutions may result in a
smaller number of existing and potential customers for our products and services. Consolidation of two of our customers could
result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our
products. Additionally, if a non-customer and a customer combine and the combined entity decides to forego future use of our
products, our revenue would decline. Conversely, we could benefit from the combination of a non-customer and a customer when
the combined entity continues use of our products and, as a larger combined entity, increases its demand for our products and
services. We tend to focus on larger financial institutions as customers, often resulting in our solutions being the solutions that
survive in the consolidated entity.
Global vendor sourcing. Global and regional banks, financial intermediaries, merchants, and billers are aiming to reduce the costs
in supplier management by picking suppliers who can service them across all their geographies instead of allowing each country
operation to choose suppliers independently. Our global footprint from both a customer and a delivery perspective enable us to be
successful in this globally sourced market. However, projects in these environments tend to be more complex and therefore of higher
risk.
Electronic payments convergence. As electronic payment volumes grow and pressures to lower overall cost per transaction
increase, banks and financial intermediaries are seeking methods to consolidate their payment processing across the enterprise. We
believe that the strategy of using SOA to allow for re-use of common electronic payment functions, such as authentication,
authorization, routing and settlement, will become more common. Using these techniques, banks and financial intermediaries will be
able to reduce costs, increase overall service levels, enable one-to-one marketing in multiple bank channels, leverage volumes for
improved pricing and liquidity, and manage enterprise risk. Our product strategy is, in part, focused on this trend, by creating
integrated payment functions that can be re-used by multiple bank channels, across both the consumer and wholesale bank. While
this trend presents an opportunity for us, it may also expand the competition from third-party electronic payment technology and
service providers specializing in other forms of electronic payments. Many of these providers are larger than us and have
significantly greater financial, technical and marketing resources.
Mobile banking and payments. There is a growing demand for the ability to carry out banking services or make payments using a
mobile phone. According to analysis from the Deloitte Center for Financial Services in 2018, 84% of global consumers use online
banking and 72% use mobile banking applications. Additionally, digital channels are used more frequently than bank branches and
ATMs across all generations and in all countries. Our customers have been making use of existing products to deploy mobile
banking, mobile payments, and mobile commerce solutions for their customers in many countries. In addition, ACI has invested in
mobile products of our own and via partnerships to support mobile functionality in the marketplace.
Electronic bill payment and presentment. EBPP encompasses all facets of bill payment, including biller direct, where customers
initiate payments on biller websites, the consolidator model, where customers initiate payments on a financial institution’s website,
and walk-in bill payment, as one might find in a convenience store. The EBPP market continues to grow as consumers move away
from traditional forms of paper-based payments. Nearly three out of four (73%) online payments are made at the billers’ sites rather
than through banking websites. The biller-direct solutions are seeing strong growth as billers migrate these services to outsourcers,
such as ACI, from legacy systems built in house. We believe that EBPP remains ripe for outsourcing, as a significant amount of
biller-direct transactions are still processed in house. As billers seek to manage costs and improve efficiency, we believe that they
will continue to look to third-party EBPP vendors that can offer a complete solution for their billing needs.
Several other factors related to our business may have a significant impact on our operating results from year to year. For example,
the accounting rules governing the timing of revenue recognition are complex and it can be difficult to estimate when we will
recognize revenue generated by a given transaction. Factors such as creditworthiness of the customer and timing of transfer of
control or acceptance of our products may cause revenues related to sales generated in one period to be deferred and recognized in
later periods. For arrangements in which services revenue is deferred, related direct and incremental costs may also be deferred.
Additionally, while the majority of our contracts are denominated in the U.S. dollar, a substantial portion of our sales are made, and
some of our expenses are incurred, in the local currency of countries other than the United States. Fluctuations in currency exchange
rates in a given period may result in the recognition of gains or losses for that period.
28
We continue to seek ways to grow through organic sources, partnerships, alliances, and acquisitions. We continually look for
potential acquisitions designed to improve our solutions’ breadth or provide access to new markets. As part of our acquisition
strategy, we seek acquisition candidates that are strategic, capable of being integrated into our operating environment, and accretive
to our financial performance.
Chief Executive Officer
On February 18, 2020, we announced the appointment of Odilon Almeida as the Company’s new President and Chief Executive
Officer, effective March 9, 2020. Mr. Almeida will also be appointed to serve as a member of ACI’s board of directors.
Acquisition
Speedpay
On May 9, 2019, we acquired Speedpay for $754.1 million in cash, including working capital adjustments, pursuant to a Stock
Purchase Agreement, among the Company, Western Union, and ACI Worldwide Corp., our wholly owned subsidiary.
To fund the acquisition, we amended our existing Credit Agreement, dated February 24, 2017, for an additional $500.0 million
senior secured term loan, in addition to drawing $250.0 million on the available Revolving Credit Facility. See Note 5, Debt, to our
Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for terms of the Credit Agreement. The remaining
acquisition consideration was funded with cash on hand.
Backlog
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, services 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.
• 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.
We have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed
contract and our historic experience with customer renewal rates.
Our 60-month backlog estimates are derived using the following key assumptions:
• License arrangements are assumed to renew at the end of their committed term or under the renewal option stated in the
contract at a rate consistent with historical experience. If the license arrangement includes extended payment terms, the
renewal estimate is adjusted for the effects of a significant financing component.
• Maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed
maintenance term is less than the committed license term.
• SaaS and PaaS arrangements are assumed to renew at the end of their committed term at a rate consistent with our
historical experiences.
• Foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts
stated in currencies other than the U.S. dollar.
• Our pricing policies and practices are assumed to remain constant over the 60-month backlog period.
In computing our 60-month backlog estimate, the following items are specifically not taken into account:
• Anticipated increases in transaction, account, or processing volumes by our customers.
• Optional annual uplifts or inflationary increases in recurring fees.
• Services engagements, other than SaaS and PaaS arrangements, are not assumed to renew over the 60-month backlog
period.
• The potential impact of consolidation activity within our markets and/or customers.
29
We review our customer renewal experience on an annual basis. The impact of this review and subsequent updates may result in a
revision to the renewal assumptions used in computing the 60-month backlog estimates. 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 December 31, 2019; September 30,
2019; June 30, 2019; March 31, 2019; and December 31, 2018 (in millions). The 60-month backlog estimate includes approximately
$1.5 billion as a result of the acquisition of Speedpay, which occurred on May 9, 2019. Dollar amounts reflect foreign currency
exchange rates as of each period end. This is a non-GAAP financial measure being presented to provide comparability across
accounting periods. We believe this measure provides useful information to investors and others in understanding and evaluating our
financial performance.
ACI On Premise
ACI On Demand
Total
Committed
Renewal
Total
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
$
$
1,977 $
3,855
5,832 $
1,925 $
3,756
5,681 $
1,880 $
3,813
5,693 $
1,861 $
2,290
4,151 $
1,875
2,299
4,174
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
$
$
2,168 $
3,664
5,832 $
2,003 $
3,678
5,681 $
2,105 $
3,588
5,693 $
1,734 $
2,417
4,151 $
1,832
2,342
4,174
Estimates of future financial results require substantial judgment and are based on several assumptions, as described above. These
assumptions may turn out to be inaccurate or wrong for reasons outside of management’s control. For example, our customers may
attempt to renegotiate or terminate their contracts for many reasons, including mergers, changes in their financial condition, or
general changes in economic conditions in the customer’s industry or geographic location. We may also experience delays in the
development or delivery of products or services specified in customer contracts, which may cause the actual renewal rates and
amounts to differ from historical experiences. Changes in foreign currency exchange rates may also impact the amount of revenue
recognized in future periods. Accordingly, there can be no assurance that amounts included in backlog estimates will generate the
specified revenues or that the actual revenues will be generated within the corresponding 60-month period. Additionally, because
certain components of Committed Backlog and all of Renewal Backlog estimates are operating metrics, the estimates are not
required to be subject to the same level of internal review or controls as contracted but not recognized Committed Backlog.
30
The following tables present the consolidated statements of operations, as well as the percentage relationship to total revenues of
items included in our consolidated statements of operations (in thousands):
Results of Operations
Year Ended December 31, 2019, Compared to Year Ended December 31, 2018
2019
2018
Amount
% of Total
Revenue
$ Change
vs 2018
% Change
vs 2018
Amount
% of Total
Revenue
Revenues:
Software as a service and
platform as a service
$
License
Maintenance
Services
Total revenues
Operating expenses:
Cost of revenue
Research and development
Selling and marketing
General and administrative
Depreciation and
amortization
Total operating expenses
Operating income
Other income (expense):
Interest expense
Interest income
Other, net
Total other income
(expense)
Income before income taxes
Income tax expense
Net income
$
Revenues
677,669
288,261
213,409
78,955
1,258,294
617,453
146,573
123,684
135,296
111,532
1,134,538
123,756
(64,033 )
11,967
520
(51,546 )
72,210
5,148
67,062
54 % $
23 %
17 %
6 %
100 %
49 %
12 %
10 %
11 %
9 %
91 %
9 %
(5 )%
1 %
— %
(4 )%
5 %
— %
5 % $
244,644
7,705
(5,736 )
1,901
248,514
187,102
2,943
5,803
27,874
26,947
250,669
(2,155 )
(22,503 )
825
4,244
(17,434 )
(19,589 )
(17,730 )
(1,859 )
56 % $
3 %
(3 )%
2 %
25 %
433,025
280,556
219,145
77,054
1,009,780
43 %
2 %
5 %
26 %
32 %
28 %
(2 )%
54 %
7 %
(114 )%
51 %
(21 )%
(77 )%
(3 )% $
430,351
143,630
117,881
107,422
84,585
883,869
125,911
(41,530 )
11,142
(3,724 )
(34,112 )
91,799
22,878
68,921
43 %
28 %
22 %
7 %
100 %
43 %
14 %
12 %
11 %
8 %
88 %
12 %
(4 )%
1 %
— %
(3 )%
9 %
2 %
7 %
Total revenue for the year ended December 31, 2019, increased $248.5 million, or 25%, as compared to the same period in 2018, of
which $227.7 million, or 23%, was due to the acquisition of Speedpay.
Total revenue was $13.1 million lower for the year ended December 31, 2019, compared to the same period in 2018, due to the
impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign
currency, total revenue for the year ended December 31, 2019, increased $33.9 million, or 3%, compared to the same period in 2018.
31
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue
The Company’s SaaS arrangements allow customers to use certain software solutions (without taking possession of the software) in
a single-tenant cloud environment on a subscription basis. The Company’s PaaS arrangements allow customers to use certain
software solutions (without taking possession of the software) in a multi-tenant cloud environment on a subscription or consumption
basis. Included in SaaS and PaaS revenue are fees paid by our customers for use of our Biller solutions. Biller-related fees may be
paid by our clients or directly by their customers and may be a percentage of the underlying transaction amount, a fixed fee per
executed transaction or a monthly fee for each customer enrolled. 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.
SaaS and PaaS revenue increased $244.6 million, or 56%, during the year ended December 31, 2019, as compared to the same
period in 2018, of which $227.7 million, or 53%, was due to the acquisition of Speedpay. SaaS and PaaS revenue was $2.4 million
lower for the year ended December 31, 2019, compared to the same period in 2018, due to the impact of foreign currencies
weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, SaaS and PaaS
revenue for the year ended December 31, 2019, increased $19.4 million, or 4%, compared to the same period in 2018, of which
$11.7 million is related to new customers adopting our SaaS and PaaS offerings and existing customers adding new functionality or
increasing transaction volumes and $7.7 million is attributable to acceleration of recurring revenue associated with customer-related
consolidation activity.
License Revenue
Customers purchase the right to license ACI software under multi-year, time-based software license arrangements that vary in length
but are generally five years. Under these arrangements the software is installed at the customer’s location or in a third-party cloud
environment through a provider that is managed by the customer (i.e. on-premise). Within these agreements are specified capacity
limits typically based on customer transaction volume. ACI employs measurement tools that monitor the number of transactions
processed by customers and if contractually specified limits are exceeded, additional fees are charged for the overage. Capacity
overages may occur at varying times throughout the term of the agreement depending on the product, the size of the customer, and
the significance of customer transaction volume growth. 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). 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 $7.7 million, or 3%, during the year ended December 31, 2019, as compared to the same period in 2018.
License revenue was $5.3 million lower for the year ended December 31, 2019, compared to the same period in 2018, due to the
impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, license revenue for the
year ended December 31, 2019, increased $13.0 million, or 5%, compared to the same period in 2018.
The increase in license revenue was primarily driven by the timing and relative size of license and capacity events during the year
ended December 31, 2019, as compared to the same period in 2018.
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 $5.7 million, or 3%, during the year ended December 31, 2019, as compared to the same period in
2018. Maintenance revenue was $3.9 million lower for the year ended December 31, 2019, as compared to the same period in 2018,
due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, maintenance
revenue for the year ended December 31, 2019, decreased $1.9 million, or 1%, compared to the same period in 2018.
32
Services Revenue
Services revenue includes fees earned through implementation services and other professional services. Implementation services
include product installations, product configurations, and custom software modifications (“CSMs”). Other professional services
include business consultancy, technical consultancy, on-site support services, product education, and testing services. These services
include new customer implementations as well as existing customer migrations to new products or new releases of existing products.
Services revenue increased $1.9 million, or 2%, during the year ended December 31, 2019, as compared to the same period in 2018.
Services revenue was $1.5 million lower for the year ended December 31, 2019, as compared to the same period in 2018, due to the
impact of certain foreign currencies weakening against the U.S. dollar. Excluding the impact of foreign currency, services revenue
for the year ended December 31, 2019, increased $3.4 million, or 4%, compared to the same period in 2018.
Operating Expenses
Total operating expenses for the year ended December 31, 2019, increased $250.7 million, or 28%, as compared to the same period
in 2018, of which $202.8 million, or 23%, was due to the acquisition of Speedpay and $24.9 million, or 3%, was due to significant
transaction and integration-related expenses associated with the acquisition of Speedpay. Total operating expenses for the year ended
December 31, 2018, included $7.4 million of significant integration and divestiture-related expenses. Total operating expenses were
$11.9 million lower for the year ended December 31, 2019, compared to the same period in 2018, due to the impact of foreign
currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay, significant acquisition and
integration-related expenses, and foreign currency, total operating expenses for the year ended December 31, 2019, increased $42.2
million, or 5%, compared to the same period in 2018, primarily due to higher payment card interchange and processing fees of $18.0
million, stock-based compensation expense of $16.4 million, and depreciation and amortization expense of $7.2 million.
Cost of Revenue
Cost of revenue includes costs to provide SaaS and PaaS services, third-party royalties, amortization of purchased and developed
software for resale, the costs of maintaining our software products, as well as the costs required to deliver, install, and support
software at customer sites. SaaS and PaaS service costs include payment card interchange fees, amounts payable to banks, and
payment card processing fees. Maintenance costs include the efforts associated with providing the customer with upgrades, 24-hour
help desk, post go-live (remote) support, and production-type support for software that was previously installed at a customer
location. Service costs include human resource costs and other incidental costs such as travel and training required for both pre go-
live and post go-live support. Such efforts include project management, delivery, product customization and implementation,
installation support, consulting, configuration, and on-site support.
Cost of revenue increased $187.1 million, or 43%, during the year ended December 31, 2019, compared to the same period in 2018,
of which $165.6 million, or 38%, was due to the acquisition of Speedpay. Cost of revenue was $4.4 million lower for the year ended
December 31, 2019, as compared to the same period in 2018, due to the impact of foreign currencies weakening against the U.S.
dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, cost of revenue increased $25.8 million, or 6%, for
the year ended December 31, 2019, as compared to the same period in 2018, primarily due to an $18.0 million increase in payment
card interchange and processing fees.
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 $2.9 million, or 2%, during the year ended December 31, 2019, as compared to the same period in 2018.
The acquisition of Speedpay contributed $7.6 million to R&D expense during the year ended December 31, 2019. R&D expense
was $3.1 million lower for the year ended December 31, 2019, as compared to the same period in 2018, due to the impact of foreign
currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, R&D
expense decreased $1.5 million, or 1%, for the year ended December 31, 2019, as compared to the same period in 2018.
33
Selling and Marketing
Selling and marketing includes both the costs related to selling our products to current and prospective customers as well as the costs
related to promoting the Company, its products and the research efforts required to measure customers’ future needs and satisfaction
levels. Selling costs are primarily the human resource and travel costs related to the effort expended to license our products and
services to current and potential clients within defined territories and/or industries as well as the management of the overall
relationship with customer accounts. Selling costs also include the costs associated with assisting distributors in their efforts to sell
our products and services in their respective local markets. Marketing costs include costs incurred to promote the Company and its
products, perform or acquire market research to help the Company better understand impending changes in customer demand for
and of our products, and the costs associated with measuring customers’ opinions toward the Company, our products and personnel.
Selling and marketing expense increased $5.8 million, or 5%, during the year ended December 31, 2019, as compared to the same
period in 2018. The acquisition of Speedpay contributed $7.2 million to selling and marketing expense for the year ended
December 31, 2019. Selling and marketing expense was $2.4 million lower for the year ended December 31, 2019, as compared to
the same period in 2018, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the
acquisition of Speedpay and foreign currency, selling and marketing expense increased $1.0 million, or 1%, for the year ended
December 31, 2019, as compared to the same period in 2018.
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 $27.9 million, or 26%, during the year ended December 31, 2019, as compared to the
same period in 2018, of which $1.6 million, or 2%, and $24.4 million, or 23%, was due to the acquisition of Speedpay and
significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively. General and
administrative expense for the year ended December 31, 2018, included $6.4 million of significant transaction and divestiture-
related expenses. General and administrative expense was $1.0 million lower for the year ended December 31, 2019, as compared to
the same period in 2018, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the
acquisition of Speedpay, significant transaction and integration-related expense, and foreign currency, general and administrative
expense increased $9.3 million, or 9%, for the year ended December 31, 2019, as compared to the same period in 2018, primarily
due to an increase in stock-based compensation expense.
Depreciation and Amortization
Depreciation and amortization increased $26.9 million, or 32%, during the year ended December 31, 2019, as compared to the same
period in 2018, of which $20.8 million, or 25%, was due to the acquisition of Speedpay. Depreciation and amortization was $1.0
million lower for the year ended December 31, 2019, as compared to the same period in 2018, due to the impact of foreign
currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency,
depreciation and amortization increased $7.2 million, or 9%, for the year ended December 31, 2019, as compared to the same period
in 2018, due to higher amortization of acquired intangible assets and internal-use software.
Other Income and Expense
Interest expense for the year ended December 31, 2019, increased $22.5 million, or 54%, as compared to the same period in 2018,
primarily due to higher comparative debt balances.
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 year ended December 31, 2019, increased $0.8 million, or 7%,
as compared to the same period in 2018.
Other, net consists of foreign currency gain or loss. Foreign currency gain for the year ended December 31, 2019, was $0.5 million
and foreign currency loss for the year ended December 31, 2018, was $3.7 million.
Income Taxes
The effective tax rates for the years ended December 31, 2019 and 2018, were approximately 7% and 25%, 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
34
in which we operate, our December 31, 2019, effective rate was most impacted by our operations in Ireland, Luxembourg, and the
United Kingdom, and our December 31, 2018, effective tax rate was most impacted by our operations in Ireland and Luxembourg.
Refer to Note 13, Income Taxes, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for
additional information.
Prior Year Results
For discussion of the year ended December 31, 2018, compared to the year ended December 31, 2017, see Results of Operations in
Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2018.
Segment Results
We report financial performance based on our segments, ACI On Premise and ACI On Demand, and analyze Segment Adjusted
EBITDA as a measure of segment profitability.
Our interim Chief Executive Officer is also our 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.
ACI On Premise serves customers who manage their software on site or through a third-party cloud service provider. These on-
premise customers use the Company’s software to develop sophisticated solutions, which are often part of a larger system located
and managed at the customer specified site. These customers require a level of control and flexibility that ACI On Premise solutions
can offer, and they have the resources and expertise to take a lead role in managing these solutions.
ACI On Demand serves the needs of banks, merchants, and billers who use payments to facilitate their core business. These on-
demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-
tenant environment for SaaS offerings, or in a multi-tenant environment for PaaS offerings.
Revenue is attributed to the reportable segments based upon the product sold and mechanism for delivery to 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 products, or (3) costs that are allocated. Allocated costs are generally marketing
and sales related activities as well as information technology and facilities related expense for which multiple segments benefit. We
also allocate certain depreciation costs to the segments.
Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and
assessing the performance of our 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 stock-based compensation, and net other income
(expense).
Corporate and unallocated expenses consist of the corporate overhead costs that are not allocated to reportable segments. These
overhead costs relate to human resources, finance, legal, accounting, merger and acquisition activity, and other costs that are not
considered when management evaluates segment performance.
35
The following is selected financial data for our reportable segments (in thousands):
Years Ended December 31,
2019
2018
Revenues
ACI On Premise
ACI On Demand
Total revenue
Segment Adjusted EBITDA
ACI On Premise
ACI On Demand
Depreciation and amortization
Stock-based compensation expense
Corporate and unallocated expenses
Interest, net
Other, net
Income before income taxes
Depreciation and amortization
ACI On Premise
ACI On Demand
Corporate
Total depreciation and amortization
Stock-based compensation expense
ACI On Premise
ACI On Demand
Corporate and other
Total stock-based compensation expense
$
579,334 $
678,960
576,755
433,025
$ 1,258,294 $ 1,009,780
$
$
$
$
$
$
321,305 $
66,501
(122,569 )
(36,763 )
(104,718 )
(52,066 )
520
72,210 $
11,992 $
34,395
76,182
122,569 $
7,651 $
7,995
21,117
36,763 $
323,902
12,015
(97,350 )
(20,360 )
(92,296 )
(30,388 )
(3,724 )
91,799
11,634
31,541
54,175
97,350
4,348
4,338
11,674
20,360
ACI On Premise Segment Adjusted EBITDA decreased $2.6 million for the year ended December 31, 2019, compared to the same
period in 2018, primarily due to a $5.2 million increase in cash operating expense, partially offset by a $2.6 million increase in
revenue.
ACI On Demand Segment Adjusted EBITDA increased $54.5 million for the year ended December 31, 2019, compared to the same
period in 2018, of which $46.4 million was due to the acquisition of Speedpay. Excluding the impact of the acquisition of Speedpay,
ACI On Demand Segment Adjusted EBITDA increased $8.1 million, primarily due to a $18.3 million increase in revenue, partially
offset by a $10.2 million increase in cash operating expense.
Prior Year Results
For discussion of 2018 compared to 2017, see Segment Results in Part II, Item 7 of our annual report on Form 10-K for the year
ended December 31, 2018.
Liquidity and Capital Resources
General
Our primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet the interest and principal requirements of our
outstanding indebtedness; 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.
36
Available Liquidity
The following table sets forth our available liquidity for the periods indicated (in thousands):
Cash and cash equivalents
Availability under revolving credit facility
Total liquidity
December 31,
2019
121,398 $
261,000
382,398 $
2018
148,502
500,000
648,502
$
$
The decrease in total liquidity is primarily attributable to $239.0 million of outstanding revolving credit facility borrowings and
$48.0 million of payments to purchase property and equipment and software and distribution rights, partially offset by positive
operating cash flows.
The Company and Official Payments Corporation, a wholly owned subsidiary, maintain a $140.0 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 December 31,
2019, $138.5 million was available.
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of December 31,
2019, we had $121.4 million in cash and cash equivalents, of which $49.2 million was held by our foreign subsidiaries. If these
funds were needed for our operations in the U.S., we may potentially be required to pay foreign and U.S. state income taxes to
repatriate these funds. As of December 31, 2019, 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, 2019.
Cash Flows
The following table sets forth summary cash flow data for the periods indicated (in thousands).
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Cash Flow from Operating Activities
Years Ended December 31,
2019
2018
$
137,649 $
(830,481 )
667,223
183,932
(45,360 )
(57,704 )
Net cash flows provided by operating activities for the year ended December 31, 2019, were $137.6 million as compared to $183.9
million during the same period in 2018. Net cash provided by operating activities primarily consists of net income adjusted to add
back depreciation, amortization, and stock-based compensation. Cash flows provided by operating activities were $46.3 million
lower for the year ended December 31, 2019, compared to the same period in 2018, due to the timing of working capital. Our
current policy is to use our operating cash flow primarily for funding capital expenditures, lease payments, stock repurchases, and
acquisitions.
Cash Flow from Investing Activities
During the year ended December 31, 2019, we paid $753.9 million, net of $0.1 million in cash acquired, to acquire Speedpay. We
also used cash of $18.5 million to invest in a payment technology and services company in India and $7.0 million to acquire the
technology assets of RevChip, LLC and TranSend Integrated Technologies Inc. In addition, we used cash of $48.0 million to
purchase software, property and equipment, as compared to $43.9 million during the same period in 2018.
Cash Flow from Financing Activities
Net cash flows provided by financing activities for the year ended December 31, 2019, were $667.2 million, as compared to net cash
flows used by financing activities of $57.7 million during the same period in 2018. During 2019, we received proceeds of $500.0
million from our Delayed Draw Term Loan and $280.0 million from our Revolving Credit Facility to fund our purchase of Speedpay
and stock repurchases, and we repaid $28.9 million on the Initial Term Loan and $41.0 million on the Revolving Credit Facility. In
37
addition, we received proceeds of $16.6 million from the exercise of stock options and the issuance of common stock under our
2017 Employee Stock Purchase Plan, as amended, and used $4.0 million for the repurchase of stock-based compensation awards for
tax withholdings. During 2019, we also used $35.6 million to repurchase common stock. During 2018, we received proceeds of
$400.0 million from the issuance of the 2026 Notes. We used $300.0 million of the proceeds to redeem, in full, our outstanding
6.375% Senior Notes due 2020 and repaid $109.3 million on the Initial Term Loan. In addition, during 2018, we received proceeds
of $22.8 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase
Plan, as amended, and used $2.6 million for the repurchase of restricted share awards ("RSAs") for tax withholdings. During 2018,
we also used $54.5 million to repurchase common stock.
Prior Year Results
For discussion of 2018 compared to 2017, see Liquidity and Capital Resources in Part II, Item 7 of our annual report on Form 10-K
for the year ended December 31, 2018.
Debt
On April 5, 2019, we entered into the Second Amended and Restated Credit Agreement (the "Credit Agreement") to amend and
restate our existing agreement, dated February 24, 2017. The Credit Agreement consists of (a) a five-year $500.0 million senior
secured revolving credit facility (the “Revolving Credit Facility”), (b) a five-year $279.0 million senior secured term loan facility
(the “Initial Term Loan”) and (c) a five-year $500.0 million senior secured term loan facility (the "Delayed Draw Term Loan",
together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility, the
“Credit Facility”).
As of December 31, 2019, we had $239.0 million and $756.1 million outstanding under our Revolving Credit Facility and Term
Loans, respectively, with up to $261.0 million of unused borrowings under the Revolving Credit Facility. As of December 31, 2019,
and at all times during the year, we were in compliance with our debt covenants. The interest rate in effect for the Credit Facility was
4.04% as of December 31, 2019.
We also had $400.0 million outstanding of the 2026 Notes as of December 31, 2019. See Note 5, Debt, to our Notes to Consolidated
Financial Statements in Part IV, Item 15 of this Form 10-K for additional information.
Stock Repurchase Program
We repurchased 1,228,102 shares for $35.6 million under our stock repurchase program during the year ended December 31,
2019. Under the program to date, we have repurchased 45,357,495 shares for approximately $583.4 million. As of December 31,
2019, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $141.0
million. See Note 7, Common Stock and Treasury Stock, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of
this Form 10-K for additional information.
Contractual Obligations and Commercial Commitments
We lease office space and equipment under operating leases that run through October 2028. Additionally, we have entered into a
Credit Agreement that matures in April 2024 and have issued Senior Notes that mature in August 2026.
Contractual obligations as of December 31, 2019, are as follows (in thousands):
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Operating lease obligations
Term loans
Term loans interest (1)
Revolving credit facility
Revolving credit facility interest (2)
Senior notes
Senior notes interest (3)
Financed internal-use software (4)
$
70,284 $
756,060
117,168
239,000
40,528
400,000
149,500
13,822
Total
$ 1,786,362 $
17,180 $
38,950
30,025
—
9,536
—
23,000
5,974
124,665 $
23,116 $
89,381
55,232
—
19,072
—
46,000
7,848
240,649 $
12,738 $
627,729
31,911
239,000
11,920
—
46,000
—
969,298 $
17,250
—
—
—
—
400,000
34,500
—
451,750
38
(1) Based on the Term Loans debt outstanding and interest rate in effect at December 31, 2019, of 4.05%.
(2) Based on Revolving Credit Facility debt outstanding and interest rate in effect at December 31, 2019, of 3.99%.
(3) Based on 2026 Notes issued of $400.0 million with an annual interest rate of 5.750%.
(4) During the year ended December 31, 2019, we financed certain multi-year license agreements for internal-use software
for $10.4 million with annual payments through April 1, 2022. As of December 31, 2019, $13.8 million is outstanding
under these and other agreements previously entered into, of which $6.0 million and $7.8 million is included in other
current liabilities and other noncurrent liabilities, respectively, in our Consolidated Balance Sheet in Part IV, Item 15 of
this Form 10-K as of December 31, 2019.
We are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes under ASC 740,
Income Taxes. The liability for unrecognized tax benefits at December 31, 2019, is $29.0 million.
Off-Balance Sheet Arrangements
Settlement Accounts
We enter into agreements with certain Biller clients to process payment funds on their behalf. When an ACH or ATM network
payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them
into a settlement account. This settlement account is a trust account maintained for the benefit of our clients. A simultaneous
transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back”
transactions are designed to settle at the same time, usually overnight, so we receive the funds from the source at the same time it
sends the funds to their destination. However, due to the transactions being with various financial institutions, there may be timing
differences that result in float balances. These funds are maintained in accounts for the benefit of our clients, which are separate
from our corporate assets. As we do not take ownership of the funds, the settlement accounts are not included in our balance sheet.
We are entitled to interest earned on the fund balances. The collection of interest on these settlement accounts is considered in our
determination of fee structures for clients and represents a portion of the payment for services performed by us. The amount of
settlement funds as of December 31, 2019 and 2018, were $274.0 million and $256.5 million, respectively.
We do not have any other obligations that meet the definition of an off-balance sheet arrangement and that have or are reasonably
likely to have a material effect on our consolidated financial statements.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements requires that we make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our
estimates on historical experience and other assumptions that we believe to be proper and reasonable under the circumstances. We
continually evaluate the appropriateness of estimates and assumptions used in the preparation of our consolidated financial
statements. Actual results could differ from those estimates.
The following key accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation
of the consolidated financial statements. See Note 1, Nature of Business and Summary of Significant Accounting Policies, and Note
2, Revenue, to our Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for a further discussion of
significant accounting policies and revenue recognition.
Revenue Recognition
In accordance with ASC 606, revenue is recognized upon transfer of control of promised products and/or services to customers in an
amount that reflects the consideration the Company expects to receive in exchange for those products and services.
The Company’s software license arrangements provide the customer with the right to use functional intellectual property for the
duration of the contract term. Implementation, support, and other services are typically considered distinct performance obligations
when sold with a software license unless these services are determined to significantly modify the software. Significant judgment is
required to determine the stand-alone selling price (“SSP”) for each performance obligation, the amount allocated to each
performance obligation and whether it depicts the amount that the Company expects to receive in exchange for the related product
and/or service. As the selling prices of the Company’s software licenses are highly variable, the Company estimates SSP of its
software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the
other services. The Company uses a range of amounts to estimate SSP for maintenance and services. These ranges are based on
39
stand-alone sales and vary based on the type of service and geographic region. If the SSP of a performance obligation is not directly
observable, the Company will maximize observable inputs to determine its SSP.
When a software license arrangement contains payment terms that are extended beyond one year, a significant financing component
may exist. The significant financing component is calculated as the difference between the stated value and present value of the
software license fees and is recognized as interest income over the extended payment period. Judgment is used in determining: (1)
whether the financing component in a software license agreement is significant and, if so, (2) the discount rate used in calculating
the significant financing component.
The Company assesses the significance of the financing component based on the ratio of license fees paid over time to total license
fees. If determined to be significant, the financing component is calculated using a rate that discounts the license fees to the cash
selling price.
The Company’s SaaS-based and PaaS-based arrangements represent a single promise to provide continuous access to its software
solutions and their processing capabilities in the form of a service through one of the Company’s data centers. These arrangements
may include fixed and/or variable consideration. Fixed consideration is recognized over the term of the arrangement and variable
consideration, which is a function of transaction volume or another usage-based measure, generally meets the direct allocation
method and revenue is recognized as the usage occurs.
The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors
including the creditworthiness of the customer, economic conditions in the customer’s industry and geographic location, and general
economic conditions.
Certain of our arrangements are through unrelated distributors or sales agents. For software license arrangements in which the
Company acts as a distributor of another company’s product, and in certain circumstances, modifies or enhances the product,
revenues are recorded on a gross basis. These include arrangements in which the Company takes control of the products and is
responsible for providing the product or service. For software license arrangements in which the Company acts as a sales agent for
another company’s product, revenues are recorded on a net basis. Judgment is required in evaluating the facts and circumstances of
our relationship with the distributor or sales agent as well as our operating history and practices that can impact the timing of
revenue recognition related to these arrangements. For software license arrangements in which the Company utilizes a third-party
distributor or sales agent, the Company recognizes revenue upon transfer of control of the software license(s) to the third-party
distributor or sales agent.
We may execute more than one contract or agreement with a single customer. The separate contracts or agreements may be viewed
as one combined arrangement or separate agreements for revenue recognition purposes. We evaluate whether the agreements were
negotiated as a package with a single commercial objective, whether the products or services promised in the agreements represent a
single performance obligation, or whether the amount of consideration to be paid in one agreement depends on the price and/or
performance of another agreement to reach appropriate conclusions regarding whether such arrangements are related or separate.
The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue
recognition related to those arrangements.
Intangible Assets and Goodwill
Our business acquisitions typically result in the recording of intangible assets. As of December 31, 2019 and 2018, our intangible
assets, excluding goodwill, net of accumulated amortization, were $357.0 million and $168.1 million, respectively. The
determination of the value of such intangible assets requires management to make estimates and assumptions that affect the
consolidated financial statements. We assess potential impairments to intangible assets when there is evidence that events or changes
in circumstances indicate the carrying amount of an asset may not be recovered. Judgments regarding the existence of impairment
indicators and future cash flows related to intangible assets are based on operational performance of our businesses, market
conditions, and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions
used, including estimates of future cash flows, volumes, market penetration and discount rates, are consistent with our internal
planning. If these estimates or their related assumptions change in the future, we may be required to record an impairment charge on
all or a portion of our intangible assets. Furthermore, we cannot predict the occurrence of future impairment-triggering events nor
the impact such events might have on our reported asset values. Future events could cause us to conclude that impairment indicators
exist and that intangible assets associated with acquired businesses are impaired. Any resulting impairment loss could have an
impact on our results of operations.
Other intangible assets are amortized using the straight-line method over periods ranging from three years to 20 years.
40
As of December 31, 2019 and 2018, our goodwill was $1.3 billion and $0.9 billion, respectively. In accordance with ASC 350,
Intangibles – Goodwill and Other, we assess goodwill for impairment annually during the fourth quarter of our fiscal year using
October 1 balances, or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset
may not be recovered. We evaluate goodwill at the reporting unit level and have identified our reportable segments, ACI On Premise
and ACI On Demand, as our reporting units. Recoverability of goodwill is measured using a discounted cash flow model
incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in
impairment testing in the absence of available transactional market evidence to determine the fair value.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections,
and terminal value rates. Discount rates, growth rates, and cash flow projections are the most sensitive and susceptible to change, as
they require significant management judgment. Discount rates are determined by using a weighted average cost of capital
(“WACC”). The WACC considers market and industry data, as well as Company-specific risk factors. Operational management,
considering industry and Company-specific historical and projected data, develops growth rates and cash flow projections for each
reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash
flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. If the calculated fair
value is less than the current carrying value, impairment of the reporting unit may exist. The implied fair value of goodwill is
determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill
assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded to write down the
carrying value. The calculated fair value substantially exceeds the current carrying value for all reporting units. 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, our 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, future customer attrition rates, 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 March 23, 2016, our board approved the 2016 Equity and Performance Incentive Plan (the “2016 Incentive Plan”). The 2016
Incentive Plan is intended to meet our objective of balancing stockholder concerns about dilution with the need to provide
appropriate incentives to achieve Company performance objectives. The 2016 Incentive Plan was adopted by the stockholders on
June 14, 2016. Following the adoption of the 2016 Incentive Plan, the 2005 Incentive Plan was terminated. Termination of the 2005
Incentive Plan did not affect any equity awards outstanding under the 2005 Incentive Plan.
In accordance with ASC 718, Compensation – Stock Compensation, stock-based compensation expense for stock option awards is
estimated at the grant date based on the award’s fair value, as calculated by the Black-Scholes option-pricing model and is
recognized as expense ratably over the requisite service period. The Black-Scholes option-pricing model requires various highly
judgmental assumptions, including volatility and expected option life. If any assumptions used in the Black-Scholes option-pricing
model change significantly, stock-based compensation expense may differ materially for future awards from that recorded for
existing awards.
Supplemental stock options granted pursuant to the 2005 Incentive Plan were granted at an exercise price not less than the market
value per share of our common stock on the date of grant. These options vest, if at all, based upon (i) tranche one – any time after
41
the third anniversary date if the stock has traded at 133% of the exercise price for at least 20 consecutive trading days, (ii) tranche
two – any time after the fourth anniversary date if the stock has traded at 167% of the exercise price for at least 20 consecutive
trading days, and (iii) tranche three – any time after the fifth anniversary date if the stock has traded at 200% of the exercise price
for at least 20 consecutive trading days. The employees must remain employed with us as of the anniversary date for supplemental
stock options to vest. The exercise price of these options is the closing market price on the date the awards were granted. To
determine the grant date fair value of the supplemental stock options, a Monte Carlo simulation model was used.
Long-term incentive program performance share awards (“LTIP performance shares”) are earned, if at all, based on the achievement
over a specified period of performance goals related to certain performance metrics. We estimate the fair value of LTIP performance
shares based upon the market price of our stock on the date of grant. 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 awards (“RSAs”) generally have requisite service periods of three years and vest in increments of 33% on the
anniversary of the grant dates. Under each arrangement, shares are issued without direct cost to the employee. We estimate the fair
value of RSAs based upon the market price of our stock on the date of grant. The RSA grants provide for the payment of dividends
on our common stock, if any, to the participant during the requisite service period, and the participant has voting rights for each
share of common stock.
Total shareholder return awards (“TSRs”) are performance shares that are earned, if at all, based upon our 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%. To
determine the grant date fair value of TSRs, a Monte Carlo simulation model is used. We recognize compensation expense for the
TSRs over a three-year performance period based on the grant date fair value.
Restricted share unit awards (“RSUs”) generally have requisite service periods of three years and vest in increments of 33% on the
anniversary of the grant dates. Under each arrangement, RSUs are issued without direct cost to the employee on the vesting date. We
estimate the fair value of RSUs based upon the market price of our stock on the date of grant. We recognize compensation expense
for RSUs on a straight-line basis over the requisite service period.
The assumptions utilized in the Black-Scholes option-pricing and Monte Carlo simulation models, as well as the description of the
plans the stock-based awards are granted under are described in further detail in Note 11, Stock-Based Compensation Plans, to our
Notes to Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.
Accounting for Income Taxes
Accounting for income taxes requires significant judgments in the development of estimates used in income tax calculations. Such
judgments include, but are not limited to, the likelihood we would realize the benefits of net operating loss carryforwards and/or
foreign tax credit carryforwards, the adequacy of valuation allowances, and the rates used to measure transactions with foreign
subsidiaries. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes
in each of the jurisdictions in which we operate. The judgments and estimates used are subject to challenge by domestic and foreign
taxing authorities.
We account for income taxes in accordance with ASC 740, Income Taxes. 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. Such unrecognized tax benefits represent the estimated provision for income taxes
expected to ultimately be paid. It is possible that either domestic or foreign taxing authorities could challenge those judgments or
positions and draw conclusions that would cause us to incur tax liabilities in excess of, or realize benefits less than, those currently
recorded. In addition, changes in the geographical mix or estimated amount of annual pretax income could impact our overall
effective tax rate.
To the extent recovery of deferred tax assets is not more likely than not, we record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. Although we have considered future taxable income along with
prudent and feasible tax planning strategies in assessing the need for a valuation allowance, if we should determine that we would
not be able to realize all or part of our deferred tax assets in the future, an adjustment to deferred tax assets would be charged to
income in the period any such determination was made. Likewise, in the event we are able to realize our deferred tax assets in the
future in excess of the net recorded amount, an adjustment to deferred tax assets would increase income in the period any such
determination was made.
42
New Accounting Standards Recently Adopted
For information related to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial
statements, see Note 1, Nature of Business and Summary of Significant Accounting Policies, to our Notes to Consolidated Financial
Statements in Part IV, Item 15 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Excluding the impact of changes in interest rates and the uncertainty in the global financial markets, there have been no material
changes to our market risk for the year ended December 31, 2019. We conduct business in all parts of the world and are thereby
exposed to market risks related to fluctuations in foreign currency exchange rates. The U.S. dollar is the single largest currency in
which our revenue contracts are denominated. Any decline in the value of local foreign currencies against the U.S. dollar results in
our products and services being more expensive to a potential foreign customer. In those instances where our goods and services
have already been sold, receivables may be more difficult to collect. Additionally, in jurisdictions where the revenue contracts are
denominated in U.S. dollars and operating expenses are incurred in the local currency, any decline in the value of the U.S. dollar will
have an unfavorable impact to operating margins. At times, we enter into revenue contracts that are denominated in the country’s
local currency, primarily in Australia, Canada, the United Kingdom, other European countries, Brazil, India, and Singapore. This
practice serves as a natural hedge to finance the local currency expenses incurred in those locations. We have not entered into any
foreign currency hedging transactions. We do not purchase or hold any derivative financial instruments for speculation or arbitrage.
The primary objective of our cash investment policy is to preserve principal without significantly increasing risk. If we maintained
similar cash investments for a period of one year based on our cash investments and interest rates at December 31, 2019, a
hypothetical ten percent increase or decrease in effective interest rates would increase or decrease interest income by less than $0.1
million annually.
We had approximately $1.4 billion of debt outstanding at December 31, 2019, with $1.0 billion outstanding under our Credit Facility
and $400.0 million in 2026 Notes. Our Credit Facility has a floating rate, which was 4.04% at December 31, 2019. Our 2026 Notes
are fixed-rate long-term debt obligations with a 5.750% interest rate. A hypothetical ten percent increase or decrease in effective
interest rates would increase or decrease interest expense related to the Credit Facility by approximately $4.0 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required consolidated financial statements and notes thereto are included in this annual report and are listed in Part IV, Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the interim Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report,
December 31, 2019.
In connection with our evaluation of disclosure controls and procedures, we have concluded that our disclosure controls and
procedures are effective as of December 31, 2019.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements
for external purposes in accordance with U.S. GAAP. Under the supervision of, and with the participation of our interim Chief
Executive Officer and Chief Financial Officer, management assessed the effectiveness of internal control over financial reporting as
of December 31, 2019.
Management based its assessment on criteria established in “Internal Control Integrated Framework (2013)” issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of December 31, 2019.
43
As permitted by applicable requirements, our evaluation of and conclusion on the effectiveness of internal control over financial
reporting exclude Speedpay, which was acquired by us on May 9, 2019. Since the date of acquisition, Speedpay's financial results
are included in the Company's consolidated financial statements and constituted approximately 18% of revenues and 16% of net
income of the consolidated financial statement amounts as of and for the year ended December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by Deloitte & Touche,
LLP, an independent registered public accounting firm, and Deloitte & Touche, LLP has issued an attestation report on our internal
control over financial reporting.
Changes in Internal Control over Financial Reporting
On May 9, 2019, we completed our acquisition of Speedpay. We consider the transaction material to our results of operations, cash
flows, and financial position from the date of the acquisition through December 31, 2019, and believe the internal controls and
procedures of Speedpay have a material effect on our internal control over financial reporting. See Note 3, Acquisition, to our Notes
to Consolidated Financial Statements in Part 1V, Item 15 of this Form 10-K for discussion of the acquisition and related financial
data.
We are currently in the process of integrating Speedpay operations, and we anticipate a successful integration of operations and
internal controls over financial reporting. Management will continue to evaluate its internal control over financial reporting as it
executes integration activities.
There were no additional changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange
Act) during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ACI Worldwide, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ACI Worldwide, Inc. and subsidiaries (the “Company”) as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control –
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report
dated February 27, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph
regarding the Company’s adoption of FASB Accounting Standards Update 2016-02, Leases, effective January 1, 2019.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the
internal control over financial reporting at Speedpay, Inc., which was acquired on May 9, 2019, and whose financial statements
constitute 18% of revenues and 16% of net income of the consolidated financial statement amounts as of and for the year ended
December 31, 2019. Accordingly, our audit did not include the internal control over financial reporting at Speedpay, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 27, 2020
45
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information under the heading “Executive Officers of the Registrant” in Part 1, Item 1 of this Form 10-K is incorporated herein
by reference.
The other information required by this Item 10 is incorporated by reference from our Proxy Statement for the Annual Meeting of
Stockholders to be held on June 9, 2020 (the “2020 Proxy Statement“), under the sections entitled “Proposal 1 – Election of
Directors,” “Information Regarding Security Ownership – Section 16(a) Beneficial Ownership Reporting Compliance,” Corporate
Governance – Code of Business Conduct and Ethics,” and “Corporate Governance – Board Committees.”
ITEM 11. EXECUTIVE COMPENSATION
Information included in the sections entitled “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation
Committee Report,” “Executive Compensation,” and “Compensation Committee Interlocks and Insider Participation” in our 2020
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information included in the sections entitled “Information Regarding Security Ownership” in our 2020 Proxy Statement is
incorporated herein by reference.
Information included in the section entitled “Information Regarding Equity Compensation Plans” in our 2020 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information included in the section entitled “Certain Relationships and Related Transactions” in our 2020 Proxy Statement is
incorporated herein by reference.
Information included in the sections entitled “Director Independence” and “Board Committees and Committee Meetings” in the
“Corporate Governance” section of our 2020 Proxy Statement is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information included in the sections entitled “Independent Registered Public Accounting Firm Fees” and ”Pre-Approval of Audit
and Non-Audit Services” under “Proposal 2 – Ratification of Appointment of the Company’s Independent Registered Public
Accounting Firm” in our 2020 Proxy Statement is incorporated herein by reference.
46
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this annual report on Form 10-K:
PART IV
(1) Financial Statements. The following index lists consolidated financial statements and notes thereto filed as part of this annual
report on Form 10-K:
Report of Independent Registered Public Accounting Firm – Deloitte & Touche LLP
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2019
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31,
2019
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2019
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2019
Notes to Consolidated Financial Statements
Page
48
51
52
53
54
55
56
(2) Financial Statement Schedules. All schedules have been omitted because they are not applicable, or the required information is
included in the consolidated financial statements or notes thereto.
(3) Exhibits. A list of exhibits filed or furnished with this report on Form 10-K (or incorporated by reference to exhibits previously
filed by ACI) is provided in the accompanying Exhibit Index.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ACI Worldwide, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ACI Worldwide, Inc. and subsidiaries (the “Company”) as of
December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated February 27, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards
Update 2016-02, Leases, using the optional transition method.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Revenue Recognition-Refer to Note 2 to the Financial Statements
Critical Audit Matter Description
The Company recognizes revenue upon transfer of control of promised products and/or services to customers in an amount that
reflects the consideration the Company expects to receive in exchange for those products or services. The Company’s software
license arrangements provide the customer with the right to use functional intellectual property for the duration of the contract term
and are typically bundled with implementation, support, and other services.
Significant judgment is exercised by the Company in determining revenue recognition for these customer arrangements and includes
the following:
•
Determination of the term of a software license arrangement when early termination rights are provided to the customer.
48
•
•
•
•
Determination of whether products and/or services are considered distinct performance obligations that should be accounted
for separately.
Determination of whether the financing component in a software licensing arrangement is significant and, if so, the discount
rate used in calculating the significant financing component.
Assessment of whether the extension of payment terms in a software licensing arrangement results in variable consideration
and, if so, the amount to be included in the transaction price.
Determination of the stand-alone selling price for each performance obligation and whether it depicts the amount that the
Company expects to receive in exchange for the related product and/or service. As the selling prices of the Company’s
software licenses are highly variable, the Company estimates stand-alone selling price of its software licenses using the
residual approach when the software license is sold with other services and observable stand-alone selling prices exist for the
other services.
Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for software
license arrangements was extensive and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s accounting for software license arrangements included the following, among others:
• We tested the effectiveness of controls over the review of software license arrangements, including, among others, the
determination of the contract term, identification of performance obligations, determination of significant financing
component, estimation of variable consideration, and determination of stand-alone selling prices, including those controls over
the determination that software license pricing is highly variable.
• We selected a sample of software license arrangements and performed the following, among others:
•
•
•
•
Obtained contract source documents for each selection, including separate contracts or agreements that should be
combined with the selected arrangement, and other documents that were part of the arrangement.
Tested management’s determination of the contract term, identification of performance obligations, determination of
significant financing component, estimation of variable consideration, and determination of stand-alone selling prices.
Evaluated the reasonableness of the methodology and estimates used by management and the appropriateness of its
revenue recognition conclusions for these key judgment areas.
Tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue
recognized in the financial statements.
• We evaluated management’s determination that software license pricing is highly variable by obtaining management’s highly
variable analysis and performing the following:
•
•
Testing the completeness of management’s analysis by tracing a selection of known data points from an independent
internal source into the highly variable analysis.
Testing the accuracy of management’s analysis by selecting a sample of contracts from the highly variable analysis,
obtaining the contract and price detail, and evaluating whether discounts were appropriately included in the analysis.
•
Testing the mathematical accuracy of management’s calculations.
Acquisition-Refer to Note 3 to the Financial Statements
Critical Audit Matter Description
The Company completed the acquisition of Speedpay, Inc., a subsidiary of The Western Union Company, for $754 million on
May 9, 2019 in a cash transaction. The Company accounted for the acquisition as a business combination. Accordingly, the purchase
price was allocated to the assets acquired, including intangible assets, and liabilities assumed based on their respective fair values.
Intangible assets included goodwill and other identified intangible assets. Other identified intangible assets totaling $322 million as
of May 9, 2019 included assets attributable to software (developed technologies) and customer relationships. The determination of
the fair values of other identified intangible assets required significant management judgment as fair values are based on
assumptions, including future expected cash flows from customer relationships and acquired developed technologies and the
discount rate. To determine the estimated fair values of the other identified intangible assets, management utilized generally
accepted valuation principles and the work of third-party valuation specialists.
49
Given the nature of future expected cash flows and the discount rate utilized in the process to determine the fair values of the other
identified intangible assets, performing audit procedures to evaluate the reasonableness of these future expected cash flows and the
discount rate assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve
our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of other identified intangible assets from the Speedpay Inc. acquisition included the
following, among others:
• We tested the effectiveness of the controls over the Company’s valuation process, including, among others, controls over
future expected cash flows and the discount rate.
• We evaluated the reasonableness of the future expected cash flows utilized in determining fair values of the other intangible
assets, tested the accuracy and completeness of significant data underlying those future expected cash flows and assumptions,
and made inquiries of management regarding the basis for their key judgments. Our primary procedures related to
management’s future expected cash flows included the following:
•
•
Evaluated the reasonableness of management’s future expected cash flows by comparing the future expected cash flows
to historical results, internal communications to management, and certain peer companies.
Compared current-year actual performance as of the acquisition date to future projected cash flows used in the fair value
model.
• With the assistance of our fair value specialists, we evaluated the methodologies and calculations used by management to
determine the fair value of the other identified intangible assets by:
•
•
•
Evaluating the reasonableness of the basis for the various valuation techniques utilized by management’s third-party
valuation specialists to value the other identified intangibles, and the valuation assumptions, including the discount rate.
Testing the mathematical accuracy of the valuation model and calculations.
Testing certain valuation assumptions, including the discount rate by evaluating management’s underlying source
information and developing a range of independent estimates to compare to those selected by management.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 27, 2020
We have served as the Company’s auditor since 2009.
50
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
Current assets
Cash and cash equivalents
Receivables, net of allowances of $5,149 and $3,912, respectively
Settlement assets
Prepaid expenses
Other current assets
Total current assets
Noncurrent assets
Accrued receivables, net
Property and equipment, net
Operating lease right-of-use assets
Software, net
Goodwill
Intangible assets, net
Deferred income taxes, net
Other noncurrent assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Settlement liabilities
Employee compensation
Current portion of long-term debt
Deferred revenue
Other current liabilities
Total current liabilities
Noncurrent liabilities
Deferred revenue
Long-term debt
Deferred income taxes, net
Operating lease liabilities
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 15)
Stockholders’ equity
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at
December 31, 2019 and 2018
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares
issued at December 31, 2019 and 2018
Additional paid-in capital
Retained earnings
Treasury stock, at cost, 24,538,703 and 24,401,694 shares at December 31, 2019 and
2018, respectively
Accumulated other comprehensive loss
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of the consolidated financial statements.
51
December 31,
2019
2018
$
121,398 $
359,197
391,039
24,542
24,200
920,376
148,502
348,182
32,256
23,277
14,260
566,477
213,041
70,380
57,382
234,517
1,280,525
356,969
51,611
72,733
189,010
72,729
—
137,228
909,691
168,127
27,048
52,145
$ 3,257,534 $ 2,122,455
$
37,010 $
368,719
29,318
34,148
65,784
76,971
611,950
53,155
1,339,007
32,053
46,766
44,635
2,127,566
39,602
31,605
38,115
20,767
104,843
61,688
296,620
51,292
650,989
31,715
—
43,608
1,074,224
—
—
702
667,658
930,830
702
632,235
863,768
(355,857 )
(377,639 )
(91,583 )
1,129,968
(92,617 )
1,048,231
$ 3,257,534 $ 2,122,455
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
2018
2017
2019
Revenues
Software as a service and platform as a service
License
Maintenance
Services
Total revenues
Operating expenses
Cost of revenue (1)
Research and development
Selling and marketing
General and administrative
Depreciation and amortization
Total operating expenses
Operating income
Other income (expense)
Interest expense
Interest income
Other, net
Total other income (expense)
Income before income taxes
Income tax expense
Net income
Income per common share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
$
677,669 $
288,261
213,409
78,955
1,258,294
433,025 $
280,556
219,145
77,054
1,009,780
425,572
293,124
222,071
83,424
1,024,191
617,453
146,573
123,684
135,296
111,532
1,134,538
123,756
430,351
143,630
117,881
107,422
84,585
883,869
125,911
(64,033 )
11,967
520
(51,546 )
72,210
5,148
67,062 $
(41,530 )
11,142
(3,724 )
(34,112 )
91,799
22,878
68,921 $
452,286
136,921
107,885
153,032
89,427
939,551
84,640
(39,013 )
564
(2,619 )
(41,068 )
43,572
38,437
5,135
0.58 $
0.57 $
0.59 $
0.59 $
0.04
0.04
116,175
118,571
116,057
117,632
118,059
119,444
$
$
$
(1)
The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for
resale.
The accompanying notes are an integral part of the consolidated financial statements.
52
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years Ended December 31,
2018
2017
2019
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Total other comprehensive income (loss)
Comprehensive income
$
67,062 $
68,921 $
5,135
1,034
1,034
68,096 $
(15,261 )
(15,261 )
53,660 $
16,744
16,744
21,879
$
The accompanying notes are an integral part of the consolidated financial statements.
53
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Balance as of December 31, 2016 $
Net income
Other comprehensive income
Stock-based compensation
Shares issued and forfeited, net,
under stock plans, including
income tax benefits
Repurchase of 1,653,573 shares
of common stock
Repurchase of stock-based
compensation awards for tax
withholdings
Balance as of December 31, 2017
Net income
Other comprehensive loss
Stock-based compensation
Shares issued and forfeited, net,
under stock plans, including
income tax benefits
Repurchase of 2,346,427 shares
of common stock
Repurchase of stock-based
compensation awards for tax
withholdings
Cumulative effect of accounting
change, ASC 606
Balance as of December 31, 2018
Net income
Other comprehensive income
Stock-based compensation
Shares issued and forfeited, net,
under stock plans including
income tax benefits
Repurchase of 1,228,102 shares
of common stock
Repurchase of stock-based
compensation awards for tax
withholdings
Balance as of December 31, 2019 $
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
702 $
—
—
—
600,344 $
—
—
13,683
545,731 $
5,135
—
—
(297,760 ) $
—
—
—
(94,100 ) $
—
16,744
—
—
—
—
702
—
—
—
—
—
—
—
702
—
—
—
—
—
(3,682 )
—
—
610,345
—
—
20,360
1,530
—
—
—
632,235
—
—
36,763
(1,340 )
—
—
—
—
550,866
68,921
—
—
—
—
—
243,981
863,768
67,062
—
—
—
—
20,498
(37,387 )
(5,311 )
(319,960 )
—
—
—
21,218
(54,527 )
(2,588 )
—
(355,857 )
—
—
—
17,821
(35,617 )
—
702 $
—
667,658 $
—
930,830 $
(3,986 )
(377,639 ) $
—
—
—
(77,356 )
—
(15,261 )
—
—
—
—
—
(92,617 )
—
1,034
—
—
—
—
(91,583 ) $
Total
754,917
5,135
16,744
13,683
16,816
(37,387 )
(5,311 )
764,597
68,921
(15,261 )
20,360
22,748
(54,527 )
(2,588 )
243,981
1,048,231
67,062
1,034
36,763
16,481
(35,617 )
(3,986 )
1,129,968
The accompanying notes are an integral part of the consolidated financial statements.
54
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2018
2017
2019
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation
Amortization
Amortization of operating lease right-of-use assets
Amortization of deferred debt issuance costs
Deferred income taxes
Stock-based compensation expense
Other
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables
Accounts payable
Accrued employee compensation
Current income taxes
Deferred revenue
Other current and noncurrent assets and liabilities
Net cash flows from operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of software and distribution rights
Acquisition of businesses, net of cash acquired
Other
Net cash flows from investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Proceeds from exercises of stock options
Repurchase of stock-based compensation awards for tax withholdings
Repurchase of common stock
Proceeds from senior notes
Redemption of senior notes
Proceeds from revolving credit facility
Repayments of revolving credit facility
Proceeds from term portion of credit agreement
Repayments of term portion of credit agreement
Payment for debt issuance costs
Payments on or proceeds from other debt, net
Net cash flows from financing activities
Effect of exchange rate fluctuations on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow information
Income taxes paid, net
Interest paid
$
67,062 $
68,921 $
5,135
24,092
98,477
15,934
4,128
(22,140 )
36,763
5,175
(19,054 )
(7,703 )
(10,829 )
(1,137 )
(37,561 )
(15,558 )
137,649
(23,099 )
(24,915 )
(757,268 )
(25,199 )
(830,481 )
23,805
73,545
—
4,637
(5,734 )
20,360
2,007
(14,760 )
5,766
(9,684 )
(5,115 )
14,219
5,965
183,932
(18,265 )
(25,628 )
—
(1,467 )
(45,360 )
3,591
12,985
(3,986 )
(35,617 )
—
—
280,000
(41,000 )
500,000
(28,900 )
(12,830 )
(7,020 )
667,223
(1,495 )
(27,104 )
148,502
121,398 $
3,098
19,674
(2,588 )
(54,527 )
400,000
(300,000 )
109,000
(111,000 )
—
(109,289 )
(7,319 )
(4,753 )
(57,704 )
(2,076 )
78,792
69,710
148,502 $
24,871
77,353
—
4,286
21,660
13,683
435
(8,243 )
(1,700 )
94
(4,227 )
439
12,411
146,197
(25,717 )
(28,697 )
—
—
(54,414 )
2,958
13,872
(5,311 )
(37,387 )
—
—
67,000
(153,000 )
415,000
(386,040 )
(5,340 )
(9,900 )
(98,148 )
322
(6,043 )
75,753
69,710
27,727 $
58,980 $
32,205 $
35,300 $
37,817
34,976
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
ACI Worldwide, Inc., a Delaware corporation, and its subsidiaries (collectively referred to as “ACI” or the “Company”) develop,
market, install, and support a broad line of software products and services primarily focused on facilitating electronic payments. In
addition to its own products, the Company distributes or acts as a sales agent for software developed by third parties. These products
and services are used principally by banks, financial intermediaries, merchants, and billers, both in domestic and international
markets.
Consolidated Financial Statements
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current year
presentation. The Company reclassified $32.3 million from other current assets to settlement assets and $31.6 million from other
current liabilities to settlement liabilities in the consolidated balance sheet as of December 31, 2018.
Capital Stock
The Company’s outstanding capital stock consists of a single class of common stock. Each share of common stock is entitled to one
vote for each matter subject to a stockholder’s vote and to dividends, if and when declared by the board of directors (the “board”).
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United
States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The
Company’s cash and cash equivalents includes holdings in checking, savings, money market, and overnight sweep accounts, all of
which have daily maturities, as well as time deposits with maturities of three months or less at the date of purchase. The carrying
amounts of cash and cash equivalents on the consolidated balance sheets approximate fair value.
Other Current Liabilities
The components of other current liabilities are included in the following table (in thousands):
Operating lease liabilities
Vendor financed licenses
Royalties payable
Accrued interest
Other
Total other current liabilities
Settlement Assets and Liabilities
December 31,
2019
2018
15,049 $
9,667
6,107
9,212
36,936
76,971 $
—
3,551
11,318
8,407
38,412
61,688
$
$
Individuals and businesses settle their obligations to the Company’s various Biller clients using credit or debit cards or via
automated clearing house (“ACH”) payments. The Company creates a receivable for the amount due from the credit or debit card
processor and an offsetting payable to the client. Upon confirmation that the funds have been received, the Company settles the
obligation to the client. Due to timing, in some instances, the Company may (1) receive the funds into bank accounts controlled by
and in the Company’s name that are not disbursed to its clients by the end of the day, resulting in a settlement deposit on the
Company’s books and (2) disburse funds to its clients in advance of receiving funds from the credit or debit card processor, resulting
in a net settlement receivable position.
56
Off Balance Sheet Settlement Accounts
The Company also enters into agreements with certain Biller clients to process payment funds on their behalf. When an ACH or
automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated
source account and deposit them into a settlement account, which is a trust account maintained for the benefit of the Company’s
clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account.
These “back to back” transactions are designed to settle at the same time, usually overnight, such that the Company receives the
funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various
financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the
benefit of the client which is separate from the Company’s corporate assets. As the Company does not take ownership of the funds,
these settlement accounts are not included in the Company’s balance sheet. The Company is entitled to interest earned on the fund
balances. The collection of interest on these settlement accounts is considered in the Company’s determination of its fee structure for
clients and represents a portion of the payment for services performed by the Company. The amount of settlement funds as of
December 31, 2019 and 2018, were $274.0 million and $256.5 million, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation of these assets is generally computed using the straight-line method over
their estimated useful lives based on asset class. As of December 31, 2019 and 2018, net property and equipment consisted of the
following (in thousands):
Computer and office equipment
Leasehold improvements
Furniture and fixtures
Building and improvements
Useful Lives
3 - 5 years
Lesser of useful life of improvement or remaining life of
lease
7 years
7 - 30 years
Land
Non-depreciable
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
Software
December 31,
2019
143,942 $
2018
129,359
$
33,346
12,980
14,553
1,785
206,606
(136,226 )
$
70,380 $
32,096
12,500
14,381
1,785
190,121
(117,392 )
72,729
Software may be for internal use or for resale. Costs related to certain software, which is for resale, are capitalized in accordance
with Accounting Standards Codification (“ASC”) 985-20, Costs of Software to be Sold, Leased, or Marketed, when the resulting
product reaches technological feasibility. The Company generally determines technological feasibility when it has a detailed
program design that takes product function, feature and technical requirements to their most detailed, logical form and is ready for
coding. The Company does not typically capitalize costs related to software for resale as technological feasibility generally
coincides with general availability of the software. The Company capitalizes the costs of software developed or obtained for internal
use in accordance with ASC 350-40, Internal Use Software. The Company expenses all costs incurred during the preliminary project
stage of its development and capitalizes the costs incurred during the application development stage. Costs incurred relating to
upgrades and enhancements to the software are capitalized if it is determined that these upgrades or enhancements add additional
functionality to the software. Costs incurred during the application development stage include purchased software licenses,
implementation costs, consulting costs, and payroll-related costs for projects that qualify for capitalization. All other costs, primarily
related to maintenance and minor software fixes, are expensed as incurred.
Amortization of software for resale is determined on a product-by-product basis and begins when the product is available for
licensing to customers. The annual amortization is computed using the greater of (a) the ratio of current gross revenues to the total of
current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining
estimated useful life of generally five to ten years, including the period being reported on. Due to competitive pressures, it may be
possible that the estimates of future gross revenue or remaining estimated useful life of the software will be reduced significantly. As
a result, the carrying amount of the software may be reduced accordingly. Amortization of internal-use software is generally
computed using the straight-line method over estimated useful lives of one to ten years.
57
Business Combinations
The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions. It requires the
Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.
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 the Company uses its best estimates and assumptions to accurately
value assets acquired and liabilities assumed at the acquisition date, its 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, it records 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.
Fair Value
ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”) defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 establishes a fair value hierarchy
for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The fair value hierarchy is as follows:
• Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has
the ability to access at the measurement date.
• Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
are derived principally from or corroborated by market data by correlation or other means.
• Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own
assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the
fair value hierarchy). The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted
market prices and interest rate spreads of similar securities. The fair value of the Company’s 5.750% Senior Notes due 2026 (“2026
Notes”) was $432.0 million and $395.0 million as of December 31, 2019 and 2018, respectively.
The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of
the fair value hierarchy).
Goodwill and Other Intangibles
In accordance with ASC 350, Intangibles – Goodwill and Other, the Company assesses goodwill for impairment annually during the
fourth quarter of its fiscal year using October 1 balances or when there is evidence that events or changes in circumstances indicate
that the carrying amount of the asset may not be recovered. The Company evaluates goodwill at the reporting unit level using the
discounted cash flow valuation model and allocates goodwill to these reporting units using a relative fair value approach. During
this assessment, management relies on a number of factors, including operating results, business plans, and anticipated future cash
flows. The Company has identified its reportable segments, ACI On Premise and ACI On Demand, as the reporting units.
The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections
and terminal value rates. Discount rates, growth rates, and cash flow projections are the most sensitive and susceptible to change, as
they require significant management judgment. Discount rates are determined by using a weighted average cost of capital
(“WACC”). The WACC considers market and industry data as well as company-specific risk factors. Operational management,
considering industry and company-specific historical and projected data, develops growth rates and cash flow projections for each
58
reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash
flow estimates beyond the last projected period, assuming a constant WACC and low, long-term growth rates. If the recoverability
test indicates potential impairment, the Company calculates an implied fair value of goodwill for the reporting unit. The implied fair
value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair
value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value
of goodwill assigned to the reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded to write
down the carrying value. The calculated fair value substantially exceeded the current carrying value for all reporting units for all
periods.
Changes in the carrying amount of goodwill attributable to each reporting unit during the year ended December 31, 2019, were as
follows (in thousands):
Gross Balance, prior to December 31, 2018
Total impairment prior to December 31, 2018
Balance, December 31, 2018
Goodwill from acquisitions (1)
Balance, December 31, 2019
ACI On
Demand
ACI On
Premise
$
$
183,783 $
—
183,783
370,834
554,617 $
773,340 $
(47,432 )
725,908
—
725,908 $
Total
957,123
(47,432 )
909,691
370,834
1,280,525
(1) Goodwill from acquisitions relates to the goodwill recorded for the acquisition of E Commerce Group Products, Inc.
("ECG"), along with ECG's subsidiary, Speedpay, Inc. (collectively referred to as "Speedpay") and Walletron, Inc.
("Walletron"), as discussed in Note 3, Acquisition. The purchase price allocations for Speedpay and Walletron are
preliminary as of December 31, 2019, and are subject to future changes during the maximum one-year measurement period.
Other intangible assets, which include customer relationships and trademarks and trade names, are amortized using the straight-line
method over periods ranging from three years to 20 years. The Company reviews its other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Equity Method Investment
On July 23, 2019, the Company invested $18.3 million for a 30% non-controlling financial interest in a payment technology and
services company in India. The Company accounted for this investment using the equity method in accordance with ASC 323,
Investments - Equity Method and Joint Ventures. Accordingly, the Company recorded an initial investment of $18.5 million, which
includes direct costs of acquiring the investment, and is included in other cash flows from investing activities in the consolidated
statement of cash flows and other noncurrent assets in the consolidated balance sheet as of December 31, 2019. The Company
records its share of earnings and losses in the investment on a one-quarter lag basis.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of a long-lived asset group may not be recoverable. An impairment loss is recorded if the sum of the future cash flows
expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset.
The amount of the impairment charge is measured based upon the fair value of the asset group.
Treasury Stock
The Company accounts for shares of its common stock that are repurchased without intent to retire as treasury stock. Such shares are
recorded at cost and reflected separately on the consolidated balance sheets as a reduction of stockholders’ equity. The Company
issues shares of treasury stock upon exercise of stock options, issuance of restricted share awards and restricted share units, payment
of earned performance shares, and for issuances of common stock pursuant to the Company’s employee stock purchase plan. For
purposes of determining the cost of the treasury shares re-issued, the Company uses the average cost method.
Stock-Based Compensation Plans
In accordance with ASC 718, Compensation – Stock Compensation, the Company recognizes stock-based compensation expense for
awards that are probable of vesting on a straight-line basis over the requisite service period of the award, which is generally the
vesting term. Stock-based compensation expense is recorded in operating expenses depending on where the respective individual’s
compensation is recorded. The Company generally utilizes the Black–Scholes option–pricing model to determine the fair value of
stock options on the date of grant. To determine the grant date fair value of the supplemental stock options and total shareholder
59
return awards (“TSRs”), a Monte Carlo simulation model was used. The assumptions utilized in the Black-Scholes option-pricing
and Monte Carlo simulation models, as well as the description of the plans the stock-based awards are granted under, are described
in further detail in Note 11, Stock-Based Compensation Plans.
Translation of Foreign Currencies
The Company’s foreign subsidiaries typically use the local currency of the countries in which they are located as their functional
currency. Their assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date.
Revenues and expenses are translated at the average exchange rates during the period. Translation gains and losses are reflected in
the consolidated financial statements as a component of accumulated other comprehensive income (loss). Transaction gains and
losses, including those related to intercompany accounts, that are not considered to be of a long-term investment nature are included
in the determination of net income. Transaction gains and losses, including those related to intercompany accounts, that are
considered to be of a long-term investment nature are reflected in the consolidated financial statements as a component of
accumulated other comprehensive income (loss).
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets
and liabilities. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
The Company periodically assesses its tax exposures and establishes, or adjusts, estimated unrecognized tax 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.
New Accounting Standards Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-
02, Leases (codified as “ASC 842”). ASC 842 requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the
balance sheet for all leases unless, as a policy election, a lessee elects not to apply ASC 842 to short-term leases. In addition, this
standard requires both lessees and lessors to disclose certain key information about lease transactions. The Company adopted ASC
842 on January 1, 2019 (the effective date) using the optional transition method to not apply the new lease standard in the
comparative periods presented and elected the "practical expedient package", which permits the Company to not reassess prior
conclusions about lease identification, lease classification, and initial direct costs. ASC 842 also provides practical expedients for the
Company’s ongoing accounting, including the combination of lease and non-lease components into a single lease component which
the Company has elected to apply to its leases. As of January 1, 2019, the Company recognized ROU assets and operating lease
liabilities of $63.3 million and $68.6 million, respectively. Refer to Note 14, Leases, for further details.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income. This ASU provides an option to reclassify stranded tax effects within
accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S.
federal corporate income tax rate in the 2017 U.S. Tax Cuts and Jobs Act (or portion thereof) is recorded. This ASU requires
disclosure of a description of the accounting policy for releasing income tax effects from AOCI; whether election is made to
reclassify the stranded income tax effects from the 2017 U.S. Tax Cuts and Jobs Act; and information about the income tax effects
that are reclassified. The Company adopted ASU 2018-2 as of January 1, 2019. The adoption of ASU 2018-2 did not have an impact
on the consolidated balance sheet, statement of operations, and statement of cash flows.
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to
SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment
Company Reporting Modernization, and Miscellaneous Updates, which clarifies or improves the disclosure and presentation
requirements of a variety of codification topics by aligning them with the SEC 's regulations. ASU 2019-07 was effective upon
issuance and did not have a material impact on the consolidated financial statements.
60
Recently Issued Accounting Standards Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial
Instruments, and subsequent amendments to the guidance, ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU
2019-05 in May 2019, and ASU's 2019-10 and 2019-11 in November 2019. This ASU provides financial statement users with more
decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held
by a reporting entity at each reporting date. The amendments in ASU 2016-13 replace the incurred loss impairment methodology in
current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of
reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking
expected credit loss model for accounts receivables. ASU 2016-13 is effective for annual and interim periods beginning after
December 15, 2019.
The Company established a project team to assess implementing changes to its processes and controls in conjunction with a
comprehensive review of its financial instruments. The Company has determined that the adoption of ASU 2016-13 will not have a
material impact on its consolidated balance sheet, statement of operations, and statement of cash flows.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part
of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income
taxes by removing certain exceptions within ASC 740, as well as clarify and simplify other aspects of the accounting for income
taxes to promote consistency among reporting entities. ASU 2019-12 is effective for annual and interim periods beginning after
December 15, 2020. The Company is currently assessing the impact the adoption of ASU 2019-12 will have on its consolidated
balance sheet, statement of operations, and statement of cash flows.
2. Revenue
Revenue Recognition
In accordance with ASC 606, Revenue From Contracts With Customers, revenue is recognized upon transfer of control of promised
products and/or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for
those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to
governmental authorities.
Contract Combination. The Company may execute more than one contract or agreement with a single customer. The separate
contracts or agreements may be viewed as one combined arrangement or separate agreements for revenue recognition purposes. In
order to reach appropriate conclusions regarding whether such agreements should be combined, the Company evaluates whether the
agreements were negotiated as a package with a single commercial objective, whether the amount of consideration to be paid in one
agreement depends on the price and/or performance of another agreement, or whether the product(s) or services promised in the
agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to
each performance obligation and the timing of revenue recognition related to those arrangements.
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Arrangements. The Company’s SaaS-based and PaaS-based
arrangements, including implementation, support and other services, represent a single promise to provide continuous access (i.e. a
stand-ready performance obligation) to its software solutions and their processing capabilities in the form of a service through one of
the Company’s data centers. As each day of providing access to the software solution(s) is substantially the same and the customer
simultaneously receives and consumes the benefits as access is provided, the Company’s single promise under its SaaS-based and
PaaS-based arrangements is comprised of a series of distinct service periods. The Company’s SaaS-based and PaaS-based
arrangements may include fixed consideration, variable consideration, or a combination of the two. Fixed consideration is
recognized over the term of the arrangement or longer if the fixed consideration relates to a material right. A material right would be
a separate performance obligation. The Company estimates the stand-alone selling price for a material right by reference to the
services expected to be provided and the corresponding expected consideration. Variable consideration in these arrangements is
typically a function of transaction volume or another usage-based measure. Depending upon the structure of a particular
arrangement, the Company: (1) allocates the variable amount to each distinct service period within the series and recognizes revenue
as each distinct service period is performed (i.e. direct allocation), (2) estimates total variable consideration at contract inception
(giving consideration to any constraints that may apply and updating the estimates as new information becomes available) and
recognizes the total transaction price over the period to which it relates, or (3) applies the ‘right to invoice’ practical expedient and
recognizes revenue based on the amount invoiced to the customer during the period.
License Arrangements. The Company’s software license arrangements provide the customer with the right to use functional
intellectual property (as it exists at the point in time at which the license is granted) for the duration of the contract term.
61
Implementation, support, and other services are typically considered distinct performance obligations when sold with a software
license unless these services are determined to significantly modify the software.
Payment terms for the Company’s software license arrangements generally include fixed license and capacity fees that are payable
up front or over time. These arrangements may also include incremental usage-based fees that are payable when the customer
exceeds its contracted license capacity limits. The Company accounts for capacity overages as a usage-based royalty that is
recognized when the usage occurs.
When a software license arrangement contains payment terms that are extended beyond one year, a significant financing component
may exist. The significant financing component is calculated as the difference between the stated value and present value of the
software license fees and is recognized as interest income over the extended payment period. The total fixed software license fee net
of the significant financing component is recognized as revenue at the point in time when the software is transferred to the customer.
For those software license arrangements that include customer-specific acceptance provisions, such provisions are generally
presumed to be substantive and the Company does not recognize revenue until the earlier of the receipt of a written customer
acceptance, objective demonstration that the delivered product meets the customer-specific acceptance criteria, or the expiration of
the acceptance period. The Company recognizes revenues on such arrangements upon the earlier of receipt of written acceptance or
the first production use of the software by the customer.
For software license arrangements in which the Company acts as a distributor of another company’s product, and in certain
circumstances, modifies or enhances the product, revenues are recorded on a gross basis. These include arrangements in which the
Company takes control of the products and is responsible for providing the product or service. For software license arrangements in
which the Company acts as a sales agent for another company’s product, revenues are recorded on a net basis. These include
arrangements in which the Company does not take control of products and is not responsible for providing the product or service.
For software license arrangements in which the Company utilizes a third-party distributor or sales agent, the Company recognizes
revenue upon transfer of control of the software license(s) to the third-party distributor or sales agent.
The Company’s software license arrangements typically provide the customer with a standard 90-day assurance-type warranty.
These warranties do not represent an additional performance obligation as services beyond assuring that the software license
complies with agreed-upon specifications are not provided.
Software license arrangements typically include an initial post contract customer support (maintenance or “PCS”) term of one year
with subsequent renewals for additional years within the initial license period. The Company’s promise to those customers who elect
to purchase PCS represents a stand-ready performance obligation that is distinct from the license performance obligation and
recognized over the PCS term.
The Company also provides various professional services to customers with software licenses. These include project management,
software implementation, and software modification services. Revenues from arrangements to provide professional services are
generally distinct from the other promises in the contract(s) and are recognized as the related services are performed. Consideration
payable under these arrangements is either fixed fee or on a time-and-materials basis, which represents variable consideration that
must be estimated using the most likely amount based on the range of hours expected to be incurred in providing the services.
The Company estimates the stand-alone selling price (“SSP”) for maintenance and professional services based on observable stand-
alone sales. The Company applies the residual approach to estimate the SSP for software licenses.
Refer to Note 10, Segment Information, for further details, including disaggregation of revenue based on primary solution category
and geographic location.
Significant Judgments
The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors
including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information.
The Company also applies judgment in determining the term of an arrangement when early termination rights are provided to the
customer.
62
The Company’s software license arrangements with its customers often include multiple promises to transfer licensed software
products and services. Determining whether the products and/or services are distinct performance obligations that should be
accounted for separately may require significant judgment.
The Company’s SaaS and PaaS arrangements may include variable consideration in the form of usage-based fees. If the arrangement
that includes variable consideration in the form of usage-based fees does not meet the allocation exception for variable
consideration, the Company estimates the amount of variable consideration at the outset of the arrangement using either the
expected value or most likely amount method, depending on the specifics of each arrangement. These estimates are constrained to
the extent that it is probable that a significant reversal of incremental revenue will not occur and are updated each reporting period
as additional information becomes available.
Judgment is used in determining: (1) whether the financing component in a software license agreement is significant and, if so, (2)
the discount rate used in calculating the significant financing component. The Company assesses the significance of the financing
component based on the ratio of license fees paid over time to total license fees. If determined to be significant, the financing
component is calculated using a rate that discounts the license fees to the cash selling price.
Judgment is also used in assessing whether the extension of payment terms in a software license arrangement results in variable
consideration and, if so, the amount to be included in the transaction price. The Company applies the portfolio approach to
estimating the amount of variable consideration in these arrangements using the most likely amount method that is based on the
Company’s historical collection experience under similar arrangements.
Significant judgment is required to determine the SSP for each performance obligation, the amount allocated to each performance
obligation and whether it depicts the amount that the Company expects to receive in exchange for the related product and/or service.
As the selling prices of the Company’s software licenses are highly variable, the Company estimates SSP of its software licenses
using the residual approach when the software license is sold with other services and observable SSPs exist for the other services.
The Company uses a range of amounts to estimate SSP for maintenance and services. These ranges are based on stand-alone sales
and vary based on the type of service and geographic region. If the SSP of a performance obligation is not directly observable, the
Company will maximize observable inputs to determine its SSP.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an accrued receivable
when revenue is recognized prior to invoicing and the Company’s right to consideration only requires the passage of time, or
deferred revenue when revenue is recognized subsequent to invoicing.
Total receivables represent amounts billed and amounts earned that are to be billed in the future (i.e., accrued receivables). Included
in accrued receivables are services and SaaS and PaaS revenues earned in the current period but billed in the following period and
amounts due under multi-year software license arrangements with extended payment terms for which the Company has an
unconditional right to invoice and receive payment subsequent to invoicing.
Total receivables, net is comprised of the following (in thousands):
Billed receivables
Allowance for doubtful accounts
Billed receivables, net
Accrued receivables
Significant financing component
Total accrued receivables, net
Less: current accrued receivables
Less: current significant financing component
Total long-term accrued receivables, net
Total receivables, net
December 31,
2019
213,654 $
(5,149 )
208,505
399,302
(35,569 )
363,733
161,714
(11,022 )
213,041
572,238 $
2018
239,275
(3,912 )
235,363
336,858
(35,029 )
301,829
123,053
(10,234 )
189,010
537,192
$
$
No customer accounted for more than 10% of the Company’s consolidated receivables balance as of December 31, 2019 and 2018.
63
The Company maintains a general allowance for doubtful accounts based on historical experience, along with additional customer-
specific allowances. The Company regularly monitors credit risk exposures in consolidated receivables. In estimating the necessary
level of our allowance for doubtful accounts, management considers the aging of accounts receivable, the creditworthiness of
customers, economic conditions within the customer’s industry, and general economic conditions, among other factors.
The following reflects activity in the Company’s allowance for doubtful accounts receivable for the periods indicated (in thousands):
Years Ended December 31,
2018
2017
2019
Balance, beginning of period
Provision increase
Amounts written off, net of recoveries
Foreign currency translation adjustments and other
Balance, end of period
$
$
(3,912 ) $
(2,561 )
1,368
(44 )
(5,149 ) $
(4,799 ) $
(1,505 )
2,269
123
(3,912 ) $
(3,873 )
(2,086 )
1,305
(145 )
(4,799 )
Provision increases recorded in general and administrative expense during the years ended December 31, 2019, 2018, and 2017,
reflect increases in the allowance for doubtful accounts based upon collection experience in the geographic regions in which the
Company conducts business, net of collection of customer-specific receivables that were previously reserved for as doubtful of
collection.
Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and
PaaS services in advance of recording the related revenue.
Changes in deferred revenue were as follows (in thousands):
Balance, January 1, 2018
Deferral of revenue
Recognition of deferred revenue
Foreign currency translation
Balance, December 31, 2018
Deferral of revenue
Recognition of deferred revenue
Foreign currency translation
Balance, December 31, 2019
$
$
145,344
215,188
(200,061 )
(4,336 )
156,135
149,253
(187,069 )
620
118,939
Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods,
which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not
include:
• Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty.
• SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’
practical expedient.
• SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the direct allocation
method.
Revenue allocated to remaining performance obligations was $678.0 million as of December 31, 2019, of which the Company
expects to recognize approximately 48% over the next 12 months and the remainder thereafter.
During the year ended December 31, 2019, the revenue recognized by the Company from performance obligations satisfied in
previous periods was $33.9 million.
64
Costs to Obtain and Fulfill a Contract
The Company accounts for costs to obtain and fulfill its contracts in accordance with ASC 340-40.
The Company capitalizes certain of its sales commissions that meet the definition of incremental costs of obtaining a contract and
for which the amortization period is greater than one year. The costs associated with those sales commissions are capitalized during
the period in which the Company becomes obligated to pay the commissions and are amortized over the period in which the related
products or services are transferred to the customer. As of December 31, 2019 and 2018, $0.5 million and $1.3 million of these costs
are included in other current assets, respectively, and $6.9 million and $11.7 million of these costs are included in other noncurrent
assets, respectively, on the consolidated balance sheets. During the years ended December 31, 2019 and 2018, the Company
recognized $6.6 million and $8.4 million of sales commission expense, respectively, related to the amortization of these costs, which
is included in selling and marketing expense on the consolidated statements of operations.
The Company capitalizes costs incurred to fulfill its contracts that: (1) relate directly to the arrangement, (2) are expected to generate
resources that will be used to satisfy the Company’s performance obligation under the arrangement, and (3) are expected to be
recovered through revenue generated under the arrangement. Contract fulfillment costs are expensed as the Company transfers the
related services to the customer. As of December 31, 2019 and 2018, $0.2 million of these costs are included in other current assets,
and $10.2 million and $12.6 million of these costs are included in other noncurrent assets, respectively, on the consolidated balance
sheets. The amounts capitalized primarily relate to direct costs that enhance resources under the Company’s SaaS and PaaS
arrangements. During the years ended December 31, 2019 and 2018, the Company recognized $5.9 million and $4.7 million of
expense, respectively, related to the amortization of these costs, which is included in cost of revenue on the consolidated statements
of operations.
3. Acquisition
Speedpay
On May 9, 2019, the Company acquired Speedpay, a subsidiary of The Western Union Company (“Western Union”), for $754.1
million in cash, including working capital adjustments, pursuant to a Stock Purchase Agreement, among the Company, Western
Union, and ACI Worldwide Corp., a wholly owned subsidiary of the Company. The Company has included the financial results of
Speedpay in the consolidated financial statements from the date of acquisition. The combination of the Company and Speedpay bill
pay solutions serves more than 4,000 customers across the U.S., bringing expanded reach in existing and complementary market
segments such as consumer finance, insurance, healthcare, higher education, utilities, government, and mortgage. The acquisition of
Speedpay increases the scale of the Company’s On Demand platform business and allows the acceleration of platform innovation
through increased research and development and investment in ACI's On Demand platform infrastructure.
To fund the acquisition, the Company amended its existing Credit Agreement, dated February 24, 2017, for an additional $500.0
million senior secured term loan (“Delayed Draw Term Loan”), in addition to drawing $250.0 million on the available Revolving
Credit Facility. See Note 5, Debt, for terms of the Credit Agreement. The remaining acquisition consideration was funded with cash
on hand.
The Company expensed approximately $22.2 million of costs related to the acquisition of Speedpay for the year ended
December 31, 2019. These costs, which consist primarily of investment bank, consulting, and legal fees, are included in general and
administrative expenses in the accompanying consolidated statements of operations.
Speedpay contributed approximately $227.7 million in revenue and $24.9 million in operating income for the year ended
December 31, 2019.
The consideration paid by the Company to complete the acquisition has been allocated preliminarily to the assets acquired and
liabilities assumed based upon estimated fair values as of the date of the acquisition. The allocation of purchase price is based upon
external valuation and other analyses that have not been completed as of the date of this filing, including, but not limited to, certain
tax matters and accrued liabilities. Accordingly, the purchase price allocations are preliminary and are subject to future adjustments
during the maximum one-year allocation period.
65
In connection with the acquisition, the Company recorded the following amounts based upon its preliminary purchase price
allocation as of December 31, 2019, which are subject to completion of various analyses (in thousands, except weighted average
useful lives):
Current assets:
Cash and cash equivalents
Receivables, net of allowances
Settlement assets
Prepaid expenses
Other current assets
Total current assets acquired
Noncurrent assets:
Goodwill
Software
Customer relationships
Trade names
Other noncurrent assets
Total assets acquired
Current liabilities:
Accounts payable
Settlement liabilities
Employee compensation
Other current liabilities
Total current liabilities acquired
Noncurrent liabilities:
Other noncurrent liabilities
Total liabilities acquired
Net assets acquired
Amount
Weighted
Average
Useful Lives
7 years
15 years
5 years
$
$
135
17,658
239,604
317
19,585
277,299
366,627
113,600
208,500
10,900
3,746
980,672
6,743
212,892
1,959
3,802
225,396
1,219
226,615
754,057
During the year ended December 31, 2019, the Company made adjustments to the preliminary purchase price allocation as
additional information became available for receivables. These adjustments and any resulting adjustments to the statements of
operations were not material to the Company’s previously reported operating results or financial position.
Factors contributing to the purchase price that resulted in the goodwill (which is tax deductible) include the acquisition of
management, sales, and technology personnel with the skills to market new and existing products of the Company, enhanced product
capabilities, complementary products and customers.
Unaudited Pro Forma Financial Information
The pro forma financial information in the table below presents the combined results of operations for ACI and Speedpay as if the
acquisition had occurred January 1, 2018. The pro forma information is shown for illustrative purposes only and is not necessarily
indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred
had the transaction been in effect for the periods presented. This pro forma information is not intended to represent or be indicative
of actual results had the acquisition occurred as of the beginning of each period, and does not reflect potential synergies, integration
costs, or other such costs or savings.
66
Certain pro forma adjustments have been made to net income (loss) for the year ended December 31, 2019 and 2018, to give effect
to estimated adjustments that remove the amortization expense on eliminated Speedpay historical identifiable intangible assets, add
amortization expense for the value of acquired identified intangible assets (primarily acquired software, customer relationships, and
trademarks), and add estimated interest expense on the Company’s additional Delayed Draw Term Loan and Revolving Credit
Facility borrowings. Additionally, certain transaction expenses that are a direct result of the acquisition have been excluded from the
year ended December 31, 2019.
The following is the unaudited summarized pro forma financial information for the periods presented (in thousands, except per share
data):
Pro forma revenue
Pro forma net income
Pro forma income per share:
Basic
Diluted
Walletron
Years Ended December 31,
2019
1,382,957 $
82,003 $
2018
1,361,729
88,428
0.71 $
0.69 $
0.76
0.75
$
$
$
$
On May 9, 2019, the Company also completed the acquisition of Walletron, which delivers patented mobile wallet technology. The
Company has included the financial results of Walletron in the consolidated financial statements from the date of acquisition, which
were not material.
RevChip and TranSend
On October 1, 2019, the Company acquired certain technology assets of RevChip, LLC ("RevChip") and TranSend Integrated
Technologies Inc. ("TranSend") for a combined $7.0 million. As substantially all of the value was in the developed technology, the
purchase was recognized as an asset acquisition. The Company has included the financial results of RevChip and TranSend in the
consolidated financial statements from the date of acquisition, which were not material.
4. Software and Other Intangible Assets
The carrying amount and accumulated amortization of the Company's software assets subject to amortization at each balance sheet
date are as follows (in thousands):
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Balance
Gross
Carrying
Amount
Accumulated
Amortization
Net
Balance
Software for resale
Software for internal use
Total software
$
$
138,823 $
400,065
538,888 $
(122,061 ) $
(182,310 )
(304,371 ) $
16,762 $
217,755
234,517 $
137,666 $
251,804
389,470 $
(110,124 ) $
(142,118 )
(252,242 ) $
27,542
109,686
137,228
Software for resale amortization expense totaled $11.0 million for the year ended December 31, 2019, and totaled $12.8 million
during both the years ended December 31, 2018 and 2017. These software amortization expense amounts are reflected in cost of
revenue in the consolidated statements of operations.
Software for internal use amortization expense recorded during the years ended December 31, 2019, 2018, and 2017, totaled $55.6
million, $41.7 million, and $45.2 million, respectively. These software amortization expense amounts are reflected in depreciation
and amortization in the consolidated statements of operations.
67
The carrying amount and accumulated amortization of the Company’s other intangible assets subject to amortization at each balance
sheet date are as follows (in thousands):
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Balance
Gross
Carrying
Amount
Accumulated
Amortization
Net
Balance
Customer relationships
Trademarks and trade names
$
Total other intangible assets $
507,785 $
27,312
535,097 $
(160,775 ) $
(17,353 )
(178,128 ) $
347,010 $
9,959
356,969 $
297,991 $
16,348
314,339 $
(131,187 ) $
(15,025 )
(146,212 ) $
166,804
1,323
168,127
Other intangible assets amortization expense recorded during the years ended December 31, 2019, 2018, and 2017, totaled $31.9
million, $19.0 million, and $19.4 million, respectively.
Based on capitalized intangible assets as of December 31, 2019, estimated amortization expense amounts in future fiscal years are as
follows (in thousands):
Fiscal Year Ending December 31,
Software
Amortization
2020
2021
2022
2023
2024
Thereafter
Total
5. Debt
$
$
Other
Intangible
Assets
Amortization
37,215
36,730
36,583
36,270
31,781
178,390
356,969
70,056 $
55,595
37,278
25,406
19,983
26,199
234,517 $
As of December 31, 2019, the Company had $239.0 million, $756.1 million, and $400.0 million outstanding under its Revolving
Credit Facility, Term Loan, and Senior Notes, respectively, with up to $261.0 million of unused borrowings under the Revolving
Credit Facility portion of the Credit Agreement, as amended.
Credit Agreement
On April 5, 2019, the Company (and its wholly-owned subsidiaries, ACI Worldwide Corp. and Official Payments Corporation
("OPAY")) entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”), with the lenders, and Bank
of America, N.A., as administrative agent for the lenders, to amend and restate the Company's existing agreement, as amended,
dated February 24, 2017. The amended Credit Agreement permitted the Company to borrow up to $500.0 million in the form of an
additional senior secured term loan; extended the revolver and the existing term loan maturity date from February 24, 2022, to
April 5, 2024; increased the maximum consolidated senior secured net leverage ratio covenant from 3.50:1.00 to 3.75:1.00; and
increased the maximum consolidated total net leverage ratio covenant from 4.25:1.00 to 5.00:1.00, with subsequent decreases
occurring every three quarters thereafter for a specified period of time; among other things. In connection with amending the Credit
Agreement, the Company incurred and paid debt issuance costs of $12.8 million during the year ended December 31, 2019.
The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit
Facility”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans, (b) a five-year $279.0
million senior secured term loan facility (the “Initial Term Loan”) and (c) a five-year $500.0 million Delayed Draw Term Loan
(together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility,
the “Credit Facility”). The Credit Agreement also allows the Company to request optional incremental term loans and increases in
the revolving commitment.
At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to either (a) a base rate
determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime
Rate, (2) the federal funds effective rate plus 1/2 of 1% or (3) a London Interbank Offered Rate ("LIBOR") rate determined by
68
reference to the costs of funds for U.S. dollar deposits for a one-month interest period, adjusted for certain additional costs plus 1%
or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such
borrowings, adjusted for certain additional costs plus an applicable margin. Based on the calculation of the applicable consolidated
total leverage ratio, the applicable margin for borrowings under the Credit Facility is between 0.25% to 1.25% with respect to base
rate borrowings and between 1.25% and 2.25% with respect to LIBOR rate borrowings. Interest is due and payable monthly. The
interest rate in effect for the Credit Facility as of December 31, 2019, was 4.04%.
The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit
Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding
letters of credit in an amount equal to the applicable margin on LIBOR rate borrowings under the Revolving Credit Facility on an
annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees.
The Company’s obligations under the Credit Facility and cash management arrangements entered into with lenders under the Credit
Facility (or affiliates thereof) and the obligations of the subsidiary guarantors are secured by first-priority security interests in
substantially all assets of the Company and any guarantor, including 100% of the capital stock of ACI Worldwide Corp. and each
domestic subsidiary of the Company, each domestic subsidiary of any guarantor, and 65% of the voting capital stock of each foreign
subsidiary of the Company that is directly owned by the Company or a guarantor, in each case subject to certain exclusions set forth
in the credit documentation governing the Credit Facility. The collateral agreement of the Credit Agreement, as amended, released
the lien on certain assets of OPAY, our electronic bill presentment and payment affiliate, to allow OPAY to comply with certain
eligible securities and unencumbered asset requirements related to money transmitter or transfer license rules and regulations.
The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict the
Company’s and its subsidiaries' ability to: create, incur, assume or suffer to exist any additional indebtedness; create, incur, assume
or suffer to exist any liens; enter into agreements and other arrangements that include negative pledge clauses; pay dividends on
capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; create restrictions on the payment of
dividends or other distributions by subsidiaries; make investments, loans, advances and acquisitions; merge, consolidate or enter into
any similar combination or sell assets, including equity interests of the subsidiaries; enter into sale and leaseback transactions;
directly or indirectly engage in transactions with affiliates; alter in any material respect the character or conduct of the business;
enter into amendments of or waivers under subordinated indebtedness, organizational documents and certain other material
agreements; and hold certain assets and incur certain liabilities.
Expected Discontinuation of LIBOR
In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced it will no longer compel
banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee has proposed the
Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the first publication of SOFR rates was
released in April 2018.
The Company is evaluating the potential impact of the transition from LIBOR as an interest rate benchmark to other potential
alternative reference rates, including SOFR. The Company's Credit Agreement is currently indexed to LIBOR and the maturity date
of the Credit Agreement extends beyond 2021. The Credit Agreement contemplates the discontinuation of LIBOR and provides
options for the Company in such an event. The Company will continue to actively assess the related opportunities and risks involved
in this transition.
Senior Notes
On August 21, 2018, the Company completed a $400.0 million offering of the 2026 Notes at an issue price of 100% of the principal
amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750%,
payable semi-annually in arrears on February 15 and August 15 of each year, which commenced on February 15, 2019. Interest
accrued from August 21, 2018. The 2026 Notes will mature on August 15, 2026. In connection with the issuance of the 2026 Notes,
the Company incurred and paid debt issuance costs of $7.3 million for the year ended December 31, 2018.
The Company used the net proceeds of the offering described above to redeem, in full, the Company’s outstanding 6.375% Senior
Notes due 2020, including accrued interest, and repaid a portion of the outstanding amount under the Term Credit Facility.
69
Maturities on debt outstanding at December 31, 2019, are as follows (in thousands):
Fiscal year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
$
38,950
38,950
50,431
69,906
796,823
400,000
1,395,060
The Credit Facility will mature on April 5, 2024, and the 2026 Notes will mature on August 15, 2026. The Revolving Credit Facility
and 2026 Notes do not amortize. The Term Loans do amortize, with principal payable in consecutive quarterly installments.
The Credit Agreement and 2026 Notes contain certain customary affirmative covenants and negative covenants that limit or restrict,
subject to certain exceptions, the incurrence of liens, indebtedness of subsidiaries, mergers, advances, investments, acquisitions,
transactions with affiliates, change in nature of business, and the sale of the assets. In addition, the Credit Agreement and 2026
Notes contain certain customary mandatory prepayment provisions. The Company is also required to maintain a consolidated
leverage ratio at or below a specified amount and an interest coverage ratio at or above a specified amount. As specified in the
Credit Agreement and 2026 Notes agreement, if certain events occur and continue, the Company may be required to repay all
amounts outstanding under the Credit Facility and 2026 Notes. As of December 31, 2019, and at all times during the period, the
Company was in compliance with its financial debt covenants.
Total debt is comprised of the following (in thousands):
Term loans
Revolving credit facility
5.750% Senior Notes, due August 2026
Debt issuance costs
Total debt
Less current portion of term credit facility
Less current portion of debt issuance costs
Total long-term debt
Overdraft Facility
December 31,
2019
756,060 $
239,000
400,000
(21,905 )
1,373,155
38,950
(4,802 )
1,339,007 $
$
$
2018
284,959
—
400,000
(13,203 )
671,756
23,747
(2,980 )
650,989
In 2019, the Company and OPAY entered in to a $140.0 million uncommitted overdraft facility with Bank of America, N.A. The
overdraft facility bears interest at LIBOR plus 0.875% based on the Company’s average outstanding balance and the frequency in
which overdrafts occur. The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an
additional funding mechanism for timing differences that can occur in the bill payment settlement process. Amounts outstanding on
the overdraft facility are included in other current liabilities in the consolidated balance sheet. As of December 31, 2019, there was
$1.5 million outstanding on the overdraft facility.
Other
During the year ended December 31, 2019, the Company financed certain multi-year license agreements for internal-use software
for $10.4 million with annual payments through April 2022. As of December 31, 2019, $13.8 million is outstanding, under these and
other license agreements previously entered into, of which $6.0 million and $7.8 million is included in other current liabilities and
other noncurrent liabilities, respectively, in the consolidated balance sheet. As of December 31, 2018, $9.4 million was outstanding,
of which $2.5 million and $6.9 million was included in other current liabilities and other noncurrent liabilities, respectively, in the
consolidated balance sheet. Upon execution, these arrangements have been treated as a non-cash investing and financing activity for
purposes of the consolidated statements of cash flows.
70
6. Corporate Restructuring and Other Organizational Changes
Lease Terminations
During the year ended December 31, 2017, the Company ceased use of a portion of its leased facilities in Edison, NJ; Chantilly, VA;
Charlotte, NC; Parsippany, NJ; and Waltham, MA. As a result, the Company recorded additional expense of $2.4 million, which was
recorded in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2017.
A summary of the facility closures liability is as follows (in thousands):
Balance, December 31, 2017
Amounts paid during the period
Foreign currency translation adjustments
Balance, December 31, 2018
Amounts paid during the period
Foreign currency translation adjustments
Balance, December 31, 2019
$
$
5,945
(1,732 )
(86 )
4,127
(1,554 )
29
2,602
Of the $2.6 million facility closure liability, $1.3 million is recorded to both other current liabilities and operating lease liabilities in
the consolidated balance sheet as of December 31, 2019.
7. Common Stock and Treasury Stock
In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to
acquire its common stock and periodically authorize additional funds for the program. In February 2018, 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 Company repurchased 1,228,102 shares for $35.6 million under the program for the year ended December 31, 2019. Under the
program to date, the Company has repurchased 45,357,495 shares for approximately $583.4 million. As of December 31, 2019, the
maximum remaining amount authorized for purchase under the stock repurchase program was $141.0 million.
During the year ended September 30, 2006, the Company began to issue shares of treasury stock upon exercise of stock options,
payment of earned performance shares, issuance of restricted share awards (“RSAs”), vesting of restricted share units (“RSUs”), and
for issuances of common stock pursuant to the Company’s employee stock purchase plan ("ESPP"). Treasury shares issued during
the year ended December 31, 2017, included 1,204,559, 560,174, and 158,194 shares issued pursuant to stock option exercises, RSA
grants, and the ESPP, respectively. Treasury shares issued during the year ended December 31, 2018, included 1,379,704, 10,000,
and 148,520 shares issued pursuant to stock option exercises, RSUs vested, and the ESPP, respectively. Treasury shares issued
during the year ended December 31, 2019, included 854,524, 259,634, and 126,983 shares issued pursuant to stock option exercises,
RSUs vested, and the ESPP, respectively.
8. Earnings Per Share
Basic earnings per share is computed in accordance with ASC 260, Earnings per Share, based on weighted average outstanding
common shares. Diluted earnings per share is computed based on basic weighted average outstanding common shares adjusted for
the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been
achieved.
The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings per share (in
thousands):
Years Ended December 31,
2018
2019
2017
Weighted average shares outstanding:
Basic weighted average shares outstanding
Add: Dilutive effect of stock options, RSUs, and contingently issuable
shares
Diluted weighted average shares outstanding
116,175
116,057
118,059
2,396
118,571
1,575
117,632
1,385
119,444
71
The diluted earnings per share computation excludes 1.8 million, 2.2 million, and 3.9 million options to purchase shares, RSUs, and
contingently issuable shares during the years ended December 31, 2019, 2018, and 2017, respectively, as their effect would be anti-
dilutive.
Common stock outstanding as of December 31, 2019 and 2018, was 115,986,352 and 116,123,361, respectively.
9. Other, Net
Other, net is comprised of foreign currency transaction gains of $0.5 million for the year ended December 31, 2019, and foreign
currency transaction losses of $3.7 million and $2.6 million for the years ended December 31, 2018 and 2017, respectively.
10. Segment Information
The Company reports financial performance based on its segments, ACI On Premise and ACI On Demand, and analyzes Segment
Adjusted EBITDA as a measure of segment profitability.
The Company’s interim 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.
ACI On Premise serves customers who manage their software on site or through a third-party cloud service provider. These on-
premise customers use the Company’s software to develop sophisticated solutions, which are often part of a larger system located
and managed at the customer specified site. These customers require a level of control and flexibility that ACI On Premise solutions
can offer, and they have the resources and expertise to take a lead role in managing these solutions.
ACI On Demand serves the needs of banks, merchants, and billers who use payments to facilitate their core business. These on-
demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-
tenant environment for SaaS offerings, or in a multi-tenant environment for PaaS offerings.
Revenue is attributed to the reportable segments based upon the product sold and mechanism for delivery to 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 products, or (3) costs that are allocated. Allocated costs are generally marketing
and sales related activities as well as information technology and facilities related expense for which multiple segments benefit. The
Company also allocates certain depreciation costs to the segments.
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 stock-based compensation, and net other income
(expense).
Corporate and unallocated expenses consist of the corporate overhead costs that are not allocated to reportable segments. These
overhead costs relate to human resources, finance, legal, accounting, merger and acquisition activity, and other costs that are not
considered when management evaluates segment performance. For the year ended December 31, 2017, corporate and unallocated
expenses included $46.7 million of general and administrative expense for the legal judgment discussed in Note 15, Commitments
and Contingencies.
72
The following is selected financial data for the Company’s reportable segments for the periods indicated (in thousands):
Years Ended December 31,
2019
2018
2017
Revenues
ACI On Premise
ACI On Demand
Total revenue
Segment Adjusted EBITDA
ACI On Premise
ACI On Demand
Depreciation and amortization
Stock-based compensation expense
Corporate and unallocated expenses
Interest, net
Other, net
Income before income taxes
Depreciation and amortization
ACI On Premise
ACI On Demand
Corporate
Total depreciation and amortization
Stock-based compensation expense
ACI On Premise
ACI On Demand
Corporate
Total stock-based compensation expense
$
579,334 $
678,960
598,590
425,601
$ 1,258,294 $ 1,009,780 $ 1,024,191
576,755 $
433,025
$
$
$
$
$
$
321,305 $
66,501
(122,569 )
(36,763 )
(104,718 )
(52,066 )
520
72,210 $
11,992 $
34,395
76,182
122,569 $
7,651 $
7,995
21,117
36,763 $
323,902 $
12,015
(97,350 )
(20,360 )
(92,296 )
(30,388 )
(3,724 )
91,799 $
11,634 $
31,541
54,175
97,350 $
4,348 $
4,338
11,674
20,360 $
347,094
(1,832 )
(102,224 )
(13,683 )
(144,715 )
(38,449 )
(2,619 )
43,572
13,094
34,171
54,959
102,224
2,234
2,230
9,219
13,683
Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset
information.
73
The following is revenue by primary geographic market and primary solution category for the Company’s reportable segments for
the periods indicated (in thousands):
Year Ended December 31, 2019
ACI
On Demand
ACI
On Premise
Total
Year Ended December 31, 2018
ACI
On Demand
ACI
On Premise
Total
Primary Geographic Markets
Americas - United States
Americas - Other
EMEA
Asia Pacific
$
Total
Primary Solution Categories
Bill Payments
Digital Channels
Merchant Payments
Payments Intelligence
Real-Time Payments
Retail Payments
Total
$
$
$
172,660 $
68,020
251,035
87,619
579,334 $
— $
32,980
25,693
33,790
97,153
389,718
579,334 $
609,160 $
9,350
50,629
9,821
781,820 $
77,370
301,664
97,440
678,960 $ 1,258,294 $
510,300 $
44,731
77,204
36,019
3,456
7,250
510,300 $
77,711
102,897
69,809
100,609
396,968
678,960 $ 1,258,294 $
131,382 $
61,969
296,157
87,247
576,755 $
— $
35,231
30,447
42,353
92,068
376,656
576,755 $
369,097 $
9,577
48,889
5,462
500,479
71,546
345,046
92,709
433,025 $ 1,009,780
275,526 $
40,342
64,956
41,330
2,193
8,678
275,526
75,573
95,403
83,683
94,261
385,334
433,025 $ 1,009,780
Primary Geographic Markets
Americas - United States
Americas - Other
EMEA
Asia Pacific
Total
Primary Solution Categories
Bill Payments
Digital Channels
Merchant Payments
Payments Intelligence
Real-Time Payments
Retail Payments
Total
Year Ended December 31, 2017
ACI
On Premise
ACI
On Demand
Total
$
$
$
$
175,682 $
72,802
270,388
79,718
598,590 $
— $
47,973
27,155
32,478
70,087
420,897
598,590 $
365,553 $
9,429
47,872
2,747
541,235
82,231
318,260
82,465
425,601 $ 1,024,191
271,421 $
46,063
56,018
41,628
2,785
7,686
271,421
94,036
83,173
74,106
72,872
428,583
425,601 $ 1,024,191
The following is the Company’s long-lived assets by geographic location for the periods indicated (in thousands):
December 31,
2019
2018
Long-lived Assets
United States
Other
Total
74
$ 1,526,046 $
811,435
717,495
$ 2,285,547 $ 1,528,930
759,501
No single customer accounted for more than 10% of the Company’s consolidated revenues during the years ended December 31,
2019, 2018, and 2017. No other country outside the United States accounted for more than 10% of the Company’s consolidated
revenues during the years ended December 31, 2019, 2018, and 2017.
11. Stock-Based Compensation Plans
Employee Stock Purchase Plan
On April 6, 2017, the board approved the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which was approved by shareholders
at the 2017 Annual Shareholder meeting. The 2017 ESPP provides employees with an opportunity to purchase shares of the
Company’s common stock. The 1999 Employee Stock Purchase Plan terminated upon the August 1, 2017, effective date of the 2017
ESPP. Under the Company’s 2017 ESPP, a total of 3,000,000 shares of the Company’s common stock have been reserved for
issuance to eligible employees. Participating employees are permitted to designate up to the lesser of $25,000 or 10% of their annual
base compensation for the purchase of common stock under the ESPP. Purchases under the ESPP are made one calendar month after
the end of each fiscal quarter. The price for shares of common stock purchased under the ESPP is 85% of the stock’s fair market
value on the last business day of the three-month participation period.
Additionally, the discount offered pursuant to the Company’s ESPP discussed above is 15%, which exceeds the 5% non-
compensatory guideline in ASC 718 and exceeds the Company’s estimated cost of raising capital. Consequently, the entire 15%
discount to employees is deemed to be compensatory for purposes of calculating expense using a fair value method. Compensation
expense related to the ESPP for the year ended December 31, 2019, was approximately $0.6 million and compensation expense
related to the ESPP for both the years ended December 31, 2018 and 2017, was approximately $0.5 million.
Stock Incentive Plans – Active Plans
2016 Equity and Performance Incentive Plan
On March 23, 2016, the board approved the 2016 Equity and Performance Incentive Plan (the “2016 Incentive Plan”). The 2016
Incentive Plan is intended to meet the Company’s objective of balancing stockholder concerns about dilution with the need to
provide appropriate incentives to achieve Company performance objectives. The 2016 Incentive Plan was adopted by the
stockholders on June 14, 2016. Following the adoption of the 2016 Incentive Plan, the 2005 Equity and Performance Incentive Plan,
as amended (the “2005 Incentive Plan”) was terminated. Termination of the 2005 Incentive Plan did not affect any equity awards
outstanding under the 2005 Incentive Plan.
The 2016 Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights,
restricted share and restricted share units, performance shares and performance units, and other awards (“awards”). Subject to
adjustment in certain circumstances, the maximum number of shares of common stock that may be issued or transferred in
connection with awards granted under the 2016 Incentive Plan will be the sum of (i) 8,000,000 shares of common stock and (ii) any
shares of common stock that are represented by options previously granted under the 2005 Incentive Plan which are forfeited,
expire, or are canceled without delivery of common stock or which result in the forfeiture or relinquishment of common stock back
to the Company. To the extent awards granted under the 2016 Incentive Plan terminate, expire, are canceled without being exercised,
are forfeited or lapse for any reason, the shares of common stock subject to such award will again become available for grants under
the 2016 Incentive Plan.
The 2016 Incentive Plan expressly prohibits re-pricing stock options and appreciation rights. The 2016 Incentive Plan also, subject
to certain limited exceptions, expressly requires a one-year vesting period for all stock options and appreciation rights.
No eligible person selected by the board to receive awards (“participant”) will receive stock options, stock appreciation rights,
restricted share awards, restricted share units, and other awards under the 2016 Incentive Plan, during any calendar year, for more
than 3,000,000 shares of common stock. In addition, no participant may receive performance shares or performance units having an
aggregate value on the date of grant in excess of $9,000,000 during any calendar year. Each of the limits described above may be
adjusted equitably to accommodate a change in the capital structure of the Company.
2005 Equity and Performance Incentive Plan
The Company had a 2005 Incentive Plan, as amended, under which shares of the Company’s common stock were reserved for
issuance to eligible employees or non-employee directors of the Company. The 2005 Incentive Plan provided for the grant of
incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards, and
other awards. The maximum number of shares of the Company’s common stock that was issued or transferred in connection with
awards granted under the 2005 Incentive Plan was the sum of (i) 23,250,000 shares and (ii) any shares represented by outstanding
75
options that had been granted under designated terminated stock option plans that were subsequently forfeited, expired, or are
canceled without delivery of the Company’s common stock.
Stock Options
Stock options granted pursuant to the 2016 Incentive Plan are granted at an exercise price not less than the market value per share of
the Company’s common stock on the date of grant. Under the 2016 Incentive Plan, the term of the outstanding options may not
exceed ten years nor be less than one year. Vesting of options is determined by the compensation committee of the board and the
administrator of the 2016 Incentive Plan and can vary based upon the individual award agreements. In addition, outstanding options
do not have dividend equivalent rights associated with them under the 2016 Incentive Plan.
A summary of stock option activity is as follows:
Outstanding, December 31, 2018
Exercised
Forfeited
Outstanding, December 31, 2019
Exercisable, December 31, 2019
Weighted
Average
Exercise Price
($)
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
of In-the-
Money
Options ($)
17.76
15.78
17.89
18.18
17.86
3.71 $
3.70 $
78,949,941
69,349,255
Number of
Shares
4,864,836 $
(854,524 )
(3,496 )
4,006,816 $
3,462,664 $
The weighted average grant date fair value of stock options granted during the years ended December 31, 2018 and 2017, was $7.03
and $6.24, respectively. The Company did not grant stock options during the year ended December 31, 2019. The total intrinsic
value of stock options exercised during the years ended December 31, 2019, 2018, and 2017, was $16.0 million, $15.8 million, and
$13.4 million, respectively.
The fair value of options granted in the respective fiscal years are estimated on the date of grant using the Black-Scholes option-
pricing model, acceptable under ASC 718, with the following weighted average assumptions:
Expected life (years)
Risk-free interest rate
Expected volatility
Expected dividend yield
Years Ended December 31,
2018
2017
5.6
2.7 %
26.4 %
—
5.6
1.9 %
29.4 %
—
Expected volatilities are based on the Company’s historical common stock volatility, derived from historical stock price data for
periods commensurate with the options’ expected life. The expected life of options granted represents the period of time options are
expected to be outstanding, based primarily on historical employee option exercise behavior. The risk-free interest rate is based on
the implied yield currently available on U.S. Treasury zero coupon bonds issued with a term equal to the expected life at the date of
grant of the options. The expected dividend yield is zero, as the Company has historically paid no dividends and does not anticipate
dividends to be paid in the future.
Long-term Incentive Program Performance Share Awards
During the year ended December 31, 2017, pursuant to the Company’s 2016 Incentive Plan, the Company granted long-term
incentive program performance share awards (“LTIP performance shares”). These LTIP performance shares are earned, if at all,
based upon the achievement, over a specified period that must not be less than one year and is typically a three-year performance
period, of performance goals related to (i) the compound annual growth over the performance period in the sales for the Company as
determined by the Company, and (ii) the cumulative operating income or EBITDA over the performance period as determined by the
Company. Up to 200% of the LTIP performance shares may be earned upon achievement of performance goals equal to or
exceeding the maximum target levels for the performance goals over the performance period. On a quarterly basis, management
76
must evaluate the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment
to determine the amount of compensation expense to record in the consolidated financial statements.
A summary of the nonvested LTIP performance shares is as follows:
Nonvested at December 31, 2018
Forfeited
Change in expected attainment
Nonvested at December 31, 2019
Number of
Shares at
Expected
Attainment
Weighted
Average
Grant Date
Fair Value
540,697 $
(56,567 )
185,339
669,469 $
19.83
18.80
20.09
20.12
During the year ended December 31, 2019, the Company revised the expected attainment rates for outstanding LTIP performance
shares due to changes in forecasted sales and operating income, resulting in additional stock-based compensation expense of
approximately $3.7 million.
Restricted Share Awards
During the years ended December 31, 2017, pursuant to the Company’s 2016 Incentive Plan and 2005 Incentive Plan, the Company
granted RSAs. The awards have requisite service periods of three years and vest in increments of 33% on the anniversary of the
grant dates. Under each arrangement, shares are issued without direct cost to the employee. RSAs granted to our board vest one year
from grant or as of the next annual shareholders meeting, whichever is earlier. The Company estimates the fair value of the RSAs
based upon the market price of the Company’s stock at the date of grant. The RSA grants provide for the payment of dividends on
the Company’s common stock, if any, to the participant during the requisite service period, and the participant has voting rights for
each share of common stock. The Company recognizes compensation expense for RSAs on a straight-line basis over the requisite
service period.
A summary of nonvested RSAs is as follows:
Nonvested at December 31, 2018
Vested
Forfeited
Nonvested at December 31, 2019
Number of
Shares
213,337 $
(106,610 )
(13,885 )
92,842 $
Weighted
Average
Grant Date
Fair Value
20.21
20.17
20.64
20.13
During the year ended December 31, 2019, a total of 106,610 RSAs vested. The Company withheld 32,371 of those shares to pay
the employees’ portion of the minimum payroll withholding taxes.
Total Shareholder Return Awards
During the years ended December 31, 2019, 2018, and 2017, pursuant to the 2016 Incentive Plan, the Company granted total
shareholder return awards (“TSRs”). TSRs are performance shares that 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%. To determine the grant date fair value of the TSRs, a Monte Carlo simulation model is used. The Company
recognizes compensation expense for the TSRs over a three-year performance period based on the grant date fair value.
77
The grant date fair value of the TSRs was estimated using the following weighted-average assumptions:
Expected life (years)
Interest rate
Volatility
Expected dividend yield
A summary of nonvested TSRs is as follows:
Nonvested as of December 31, 2018
Granted
Forfeited
Nonvested as of December 31, 2019
Restricted Share Units
Years Ended December 31,
2019
2018
2017
2.8
2.5 %
29.3 %
—
2.9
2.4 %
28.0 %
—
2.9
1.5 %
26.5 %
—
Number of
Shares at
Expected
Attainment
Weighted
Average
Grant Date
Fair Value
718,931 $
436,674
(93,314 )
1,062,291 $
29.25
47.90
35.37
35.77
During the year ended December 31, 2019, pursuant to the 2016 Incentive Plan, the Company granted restricted share unit awards
(“RSUs”). RSUs generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the
grant dates. RSUs granted to our board vest one year from grant or as of the next annual shareholders meeting, whichever is earlier.
Under each arrangement, RSUs are issued without direct cost to the employee on the vesting date. The Company estimates the fair
value of the RSUs based upon the market price of the Company’s stock at the date of grant. The Company recognizes compensation
expense for RSUs on a straight-line basis over the requisite service period.
A summary of nonvested RSUs is as follows:
Nonvested as of December 31, 2018
Granted
Vested
Forfeited
Nonvested as of December 31, 2019
Number of
Shares
651,045 $
742,579
(259,634 )
(124,586 )
1,009,404 $
Weighted
Average
Grant Date
Fair Value
23.82
33.28
24.16
29.79
29.96
During the year ended December 31, 2019, a total of 259,634 RSUs vested. The Company withheld 57,802 of those shares to pay
the employees’ portion of the minimum payroll withholding taxes.
As of December 31, 2019, there was unrecognized compensation expense of $20.5 million related to RSUs, $15.0 million related to
TSRs, $0.5 million related to LTIP performance shares, $0.3 million related to nonvested RSAs, and $0.2 million related to
nonvested stock options, which the Company expects to recognize over weighted average periods of 1.9 years, 1.9 years, 0.1 years,
0.2 years, and 0.3 years, respectively.
The Company recorded stock-based compensation expense recognized under ASC 718 during the years ended December 31, 2019,
2018, and 2017, of $36.8 million, $20.4 million, and $13.7 million, respectively, with corresponding tax benefits of $5.9 million,
$3.9 million, and $1.7 million, respectively. The Company recognizes compensation expense for stock option awards that vest with
only service conditions on a straight-line basis over the requisite service period. The Company recognizes compensation expense for
stock option awards that vest with service and market-based conditions on a straight-line basis over the longer of the requisite
service period or the estimated period to meet the defined market-based condition.
78
12. Employee Benefit Plans
ACI 401(k) Plan
The ACI 401(k) Plan is a defined contribution plan covering all domestic employees of the Company. Participants may contribute up
to 75% of their annual eligible compensation up to a maximum of $19,000 (for employees who are under the age of 50 on
December 31, 2019) or a maximum of $25,000 (for employees aged 50 or older on December 31, 2019). After one year of service,
the Company matches 100% of the first 4% of eligible participant contributions and 50% of the next 4% of eligible participant
contributions, not to exceed $5,000 per employee annually. Company contributions charged to expense were $6.4 million during
both the years ended December 31, 2019 and 2018, and $5.3 million during the year ended December 31, 2017.
ACI Worldwide EMEA Group Personal Pension Scheme
The ACI Worldwide EMEA Group Personal Pension Scheme is a defined contribution plan covering substantially all ACI
Worldwide (EMEA) Limited (“ACI-EMEA”) employees. For those ACI-EMEA employees who elect to participate in the plan, the
Company contributes a minimum of 8.5% of eligible compensation to the plan for employees employed at December 1, 2000 (up to
a maximum of 15.5% for employees aged over 55 years on December 1, 2000) or from 6% to 10% of eligible compensation for
employees employed subsequent to December 1, 2000. ACI-EMEA contributions charged to expense were $1.5 million during the
year ended December 31, 2019, and $1.6 million during both the years ended December 31, 2018 and 2017.
13. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into U.S. Law. As of December 31, 2018, the Company
had completed its accounting for the tax effects related to the enactment of the Tax Act.
The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. During the year ended
December 31, 2017, the Company remeasured certain deferred tax assets and liabilities and recorded a $15.0 million provisional tax
charge. During the year ended December 31, 2018, the Company reduced the initial provisional tax charge by recording a $4.9
million benefit related to accelerated tax deductions claimed on the 2018 U.S. Federal Income Tax Return.
The Tax Act required U.S. companies to pay a one-time transition tax on certain unremitted foreign earnings. During the year ended
December 31, 2017, the Company recorded a $20.9 million provisional tax charge based on post-1986 earnings and profits of
foreign subsidiaries that were previously deferred from U.S. income taxes. Upon further analysis, the Company reduced the initial
provisional tax charge by recording an $8.1 million benefit during the year ended December 31, 2018.
During the year ended December 31, 2018, the Company recorded a $15.5 million valuation allowance on its deferred tax asset
related to U.S. foreign tax credits based upon business conditions and tax laws in effect at that time.
During the year ended December 31, 2019, following the acquisition of Speedpay, the Company determined it will more likely than
not be able to utilize foreign tax credits in future years due to additional income generated by Speedpay; therefore, the Company
released the $15.5 million valuation allowance that had been established on this deferred tax asset.
The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign
subsidiaries. The Company has elected to account for GILTI in the year the tax is incurred.
Prior to 2018, the Company considered all earnings in foreign subsidiaries to be indefinitely reinvested, and accordingly, recorded
no deferred income taxes related to unremitted earnings. As of December 31, 2019 and 2018, the Company considered only the
earnings in its Indian subsidiaries to be indefinitely reinvested. The earnings of all other foreign subsidiaries are no longer
considered indefinitely reinvested. The Company is also permanently reinvested for outside book/tax basis differences related to
foreign subsidiaries.
For financial reporting purposes, income before income taxes includes the following components (in thousands):
United States
Foreign
Total
Years Ended December 31,
2018
2019
2017
$
$
(16,317 ) $
88,527
72,210 $
16,312 $
75,487
91,799 $
(42,863 )
86,435
43,572
79
The expense (benefit) for income taxes consists of the following (in thousands):
Federal
Current
Deferred
Total
State
Current
Deferred
Total
Foreign
Current
Deferred
Total
Total
Years Ended December 31,
2019
2018
2017
$
3,738 $
(25,150 )
(21,412 )
590
342
932
22,960
2,668
25,628
5,148 $
$
6,545 $
(6,587 )
(42 )
4,441
(2,649 )
1,792
17,626
3,502
21,128
22,878 $
2,586
19,212
21,798
(1,857 )
(1,324 )
(3,181 )
16,048
3,772
19,820
38,437
Differences between the income tax expense computed at the statutory federal income tax rate and per the consolidated statements
of operations are summarized as follows (in thousands):
Tax expense at federal rate of 21% (35% pre-2018)
$
State income taxes, net of federal benefit
Change in valuation allowance
Foreign tax rate differential
Unrecognized tax benefit increase
Tax effect of foreign operations
Tax benefit of research & development
Transition tax
Revaluation of deferred tax balances
Performance-based compensation
Domestic production activities
Other
Income tax provision
$
Years Ended December 31,
2019
2018
2017
15,164 $
1,227
(12,760 )
(2,535 )
898
6,698
(2,506 )
—
—
(560 )
—
(478 )
5,148 $
19,278 $
5,246
12,657
(4,796 )
1,262
8,546
(2,557 )
(8,112 )
(4,937 )
(4,541 )
—
832
22,878 $
15,250
(2,238 )
(1,884 )
(15,622 )
3,007
5,532
(1,904 )
20,867
14,953
2,081
(3,793 )
2,188
38,437
The countries having the greatest impact on the tax rate adjustment line shown in the above table as “Foreign tax rate differential”
are Ireland, Luxembourg, and the United Kingdom for the year ended December 31, 2019; Ireland and Luxembourg for the year
ended December 31, 2018; and Ireland, Luxembourg, and the United Kingdom for the year ended December 31, 2017.
80
The deferred tax assets and liabilities result from differences in the timing of the recognition of certain income and expense items for
tax and financial accounting purposes. The sources of these differences at each balance sheet date are as follows (in thousands):
Deferred income tax assets:
Net operating loss carryforwards
Tax credits
Compensation
Deferred revenue
Research and development expense deferral
Other
Gross deferred income tax assets
Less: valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Depreciation and amortization
Deferred revenue
Total deferred income tax liabilities
Net deferred income taxes
Deferred income taxes / liabilities included in the balance sheet are:
Deferred income tax asset – noncurrent
Deferred income tax liability – noncurrent
Net deferred income taxes
December 31,
2019
2018
23,030 $
52,902
18,791
25,599
—
4,065
124,387
(7,653 )
116,734 $
(52,978 ) $
(44,198 )
(97,176 )
19,558 $
51,611 $
(32,053 )
19,558 $
25,745
43,838
15,934
27,587
12,631
5,393
131,128
(20,415 )
110,713
(60,872 )
(54,508 )
(115,380 )
(4,667 )
27,048
(31,715 )
(4,667 )
$
$
$
$
$
$
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. The Company considers
projected future taxable income, carryback opportunities, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are
deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible differences, net of the
valuation allowances recorded. During the year ended December 31, 2019, the Company decreased its valuation allowance by $12.8
million which relates to a reduction in the valuation allowance on U.S. foreign tax credits offset by an increase in valuation
allowance on foreign net operating losses.
At December 31, 2019, the Company had domestic federal tax net operating losses (“NOLs”) of $65.9 million, which will begin to
expire in 2020. The Company had deferred tax assets equal to $1.4 million related to domestic state tax NOLs which will begin to
expire in 2020. The Company does not have any valuation allowance against the federal tax NOLs but has provided a $1.2 million
valuation allowance against the deferred tax asset associated with the state NOLs. The Company had foreign tax NOLs of $30.4
million, of which $28.1 million may be utilized over an indefinite life, with the remainder expiring over the next 17 years. The
Company has provided a $0.7 million valuation allowance against the deferred tax asset associated with the foreign NOLs.
The Company had U.S. foreign tax credit carryforwards at December 31, 2019, of $40.7 million, for which an $1.2 million valuation
allowance has been provided. The U.S. foreign tax credits will begin to expire in 2022. The Company had foreign tax credit
carryforwards in other foreign jurisdictions at December 31, 2019, of $1.9 million, of which $1.3 million may be utilized over an
indefinite life, with the remainder expiring over the next seven years. The Company has provided a $1.2 million valuation allowance
against the tax benefit associated with these foreign credits. The Company also has domestic federal and state general business tax
credit carryforwards at December 31, 2019, of $15.7 million and $0.8 million, respectively, which will begin to expire in 2020 and
2022, respectively.
The unrecognized tax benefit at December 31, 2019 and 2018, was $29.0 million and $28.4 million, respectively, of which $22.4
million and $22.6 million, respectively, are included in other noncurrent liabilities in the consolidated balance sheets. Of the total
81
unrecognized tax benefit amounts at December 31, 2019 and 2018, $28.2 million and $27.5 million, respectively, represent the net
unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate in the respective years.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows (in
thousands):
Balance of unrecognized tax benefits at beginning of year
$
Increases for tax positions of prior years
Decreases for tax positions of prior years
Increases for tax positions established for the current period
Decreases for settlements with taxing authorities
Reductions resulting from lapse of applicable statute of limitation
Adjustment resulting from foreign currency translation
Balance of unrecognized tax benefits at end of year
$
2019
2018
2017
28,406 $
2,784
(96 )
2,542
(220 )
(4,462 )
46
29,000 $
27,237 $
315
(61 )
1,185
—
(115 )
(155 )
28,406 $
24,278
2,478
(114 )
1,677
(154 )
(1,155 )
227
27,237
The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign
jurisdictions. The United States, Germany, India, Ireland, Luxembourg, Mexico, the United Kingdom, and Uruguay are the main
taxing jurisdictions in which the Company operates. The years open for audit vary depending on the tax jurisdiction. In the United
States, the Company’s tax returns for years following 2015 are open for audit. In the foreign jurisdictions, the tax returns open for
audit generally vary by jurisdiction between 2003 and 2018.
The Company’s Indian income tax returns covering fiscal years 2003, 2005, 2010 through 2013, and 2016 are under audit by the
Indian tax authority. Other foreign subsidiaries could face challenges from various foreign tax authorities. It is not certain that the
local authorities will accept the Company’s tax positions. The Company believes its tax positions comply with applicable tax law
and intends to vigorously defend its positions. However, differing positions on certain issues could be upheld by tax authorities,
which could adversely affect the Company’s financial condition and results of operations.
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12
months by approximately $11.7 million due to the settlement of various audits and the expiration of statutes of limitations. The
Company accrues interest related to uncertain tax positions in interest expense or interest income and recognizes penalties related to
uncertain tax positions in other income or other expense. As of December 31, 2019 and 2018, $1.2 million is accrued for the
payment of interest and penalties related to income tax liabilities. The aggregate amount of interest and penalties expense (benefit)
recorded in the statements of operations for the years ended December 31, 2019, 2018, and 2017, is $0.2 million, $0.0 million, and
$(0.8) million, respectively.
14. Leases
The Company has operating leases for corporate offices and data centers. Excluding office leases, leases with an initial term of 12-
months or less that do not include an option to purchase the underlying asset are not recorded on the consolidated balance sheet and
are expensed on a straight-line basis over the lease term.
The Company’s leases typically include certain renewal options to extend the leases for up to 25 years, some of which include
options to terminate the leases within one year. The exercise of lease renewal options is at the Company’s sole discretion. The
Company combines lease and non-lease components of its leases and currently has no leases with options to purchase the leased
property. Payments of maintenance and property tax costs paid by the Company are accounted for as variable lease cost, which are
expensed as incurred.
The components of lease cost are as follows (in thousands):
Operating lease cost
Variable lease cost
Sublease income
Total lease cost
82
Year Ended
December 31, 2019
18,486
3,756
(528 )
21,714
$
$
Supplemental cash flow information related to leases is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases
Year Ended
December 31, 2019
$
$
19,578
10,478
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):
Assets:
Operating lease right-of-use assets
Liabilities:
Other current liabilities
Operating lease liabilities
Total operating lease liabilities
Weighted average remaining operating lease term (years)
Weighted average operating lease discount rate
December 31, 2019
$
$
$
57,382
15,049
46,766
61,815
6.58
4.00 %
The Company uses its incremental borrowing rate as the discount rate. As the Company enters into operating leases in multiple
jurisdictions and denominated in currencies other than the U.S. dollar, judgment is used to determine the Company’s incremental
borrowing rate including (1) conversion of its subordinated borrowing rate (using published yield curves) to an unsubordinated and
collateralized rate, (2) adjusting the rate to align with the term of each lease, and (3) adjusting the rate to incorporate the effects of
the currency in which the lease is denominated.
Maturities on lease liabilities as of December 31, 2019, are as follows (in thousands):
Fiscal Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total lease liability
$
$
17,180
13,050
10,066
7,787
4,951
17,250
70,284
8,469
61,815
83
Future payments under operating lease agreements accounted for under ASC 840, Leases, as of December 31, 2018, were as follows
(in thousands):
Fiscal Year Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
$
$
16,925
14,212
10,538
8,178
6,529
21,196
77,578
As of December 31, 2019, the Company has additional operating leases for office facilities that have not yet commenced with
minimum lease payments of $2.1 million. These operating leases will commence in fiscal year 2020, with lease terms of one to five
years.
15. Commitments and Contingencies
In accordance with ASC 460, Guarantees, the Company recognizes the fair value for guarantee and indemnification arrangements it
issues or modifies if these arrangements are within the scope of the interpretation. In addition, the Company must continue to
monitor the conditions that are subject to the guarantees and indemnifications, as required under the previously existing generally
accepted accounting principles, to identify if a loss has occurred. If the Company determines it is probable a loss has occurred, then
any estimable loss would be recognized under those guarantees and indemnifications. Under its customer agreements, the Company
may agree to indemnify, defend, and hold harmless its customers from and against certain losses, damages, and costs arising from
claims alleging that the use of its software infringes the intellectual property of a third-party. Historically, the Company has not been
required to pay material amounts in connection with claims asserted under these provisions, and accordingly, the Company has not
recorded a liability relating to such provisions.
Under its customer agreements, the Company also may represent and warrant to customers that its software will operate
substantially in conformance with its documentation, and that the services the Company performs will be performed in a
workmanlike manner by personnel reasonably qualified by experience and expertise to perform their assigned tasks. Historically,
only minimal costs have been incurred relating to the satisfaction of warranty claims. In addition, from time to time, the Company
may guarantee the performance of a contract on behalf of one or more of its subsidiaries, or a subsidiary may guarantee the
performance of a contract on behalf of another subsidiary.
Other guarantees include promises to indemnify, defend, and hold harmless the Company’s executive officers, directors, and certain
other key officers. The Company’s certificate of incorporation provides that it will indemnify and advance expenses to its directors
and officers to the maximum extent permitted by Delaware law. The indemnification covers any expenses and liabilities reasonably
incurred by a person, by reason of the fact that such person is, was, or has agreed to be a director or officer, in connection with the
investigation, defense, and settlement of any threatened, pending, or completed action, suit, proceeding, or claim. The Company’s
certificate of incorporation authorizes the use of indemnification agreements, and the Company enters into such agreements with its
directors and certain officers from time to time. These indemnification agreements typically provide for a broader scope of the
Company’s obligation to indemnify the directors and officers than set forth in the certificate of incorporation. The Company’s
contractual indemnification obligations under these agreements are in addition to the respective directors’ and officers’ rights under
the certificate of incorporation or under Delaware law.
Legal Proceedings
On September 23, 2015, a jury verdict was returned against ACI Worldwide Corp. (“ACI Corp.”), a subsidiary of the Company, for
$43.8 million in connection with counterclaims brought by Baldwin Hackett & Meeks, Inc. (“BHMI”) in the District Court of
Douglas County, Nebraska. On September 21, 2012, ACI Corp. sued BHMI for misappropriation of ACI Corp.’s trade secrets. The
jury found that ACI Corp. had not met its burden of proof regarding these claims. On March 6, 2013, BHMI asserted counterclaims
alleged to arise out of ACI Corp.’s filing of its lawsuit. The court entered a judgment against ACI Corp. for $43.8 million for
damages and $2.7 million for attorney fees and costs. ACI Corp. disagreed with the verdicts and judgment, and, after the trial court
denied ACI Corp.’s post-judgment motions, ACI Corp. perfected an appeal of the dismissal of its claims against BHMI and the
judgment in favor of BHMI. On June 9, 2017, the Nebraska Supreme Court affirmed the District Court judgment. The Company
recorded expense of $48.1 million during the year ended December 31, 2017, of which $46.7 million is included in general and
84
administrative expense and $1.4 million is included in interest expense in the accompanying consolidated statement of operations.
The Company paid the judgment, including interest, during the year ended December 31, 2017.
16. Quarterly Financial Data (Unaudited)
The following consists of quarterly financial data (in thousands, except per share amounts):
Quarter Ended
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
Year Ended
December 31,
2019
Revenues:
Software as a service and
platform as a service
License
Maintenance
Services
Total revenues
Operating expenses:
Cost of revenue (1)
Research and development
Selling and marketing
General and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Other income (expense):
Interest expense
Interest income
Other, net
Total other income (expense)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per share
Basic
Diluted
$
$
$
$
$
108,557
21,078
55,111
21,109
205,855
$
172,499
52,541
51,922
20,656
297,618
$
192,952
92,058
52,638
17,253
354,901
$
203,661
122,584
53,738
19,937
399,920
114,941
36,194
29,430
31,517
21,866
233,948
(28,093 )
(11,614 )
3,033
(1,912 )
(10,493 )
(38,586 )
(12,623 )
155,240
39,235
32,962
49,319
26,744
303,500
(5,882 )
(15,323 )
2,997
1,402
(10,924 )
(16,806 )
(22,531 )
(25,963 ) $
5,725 $
174,168
36,543
30,417
27,286
31,169
299,583
55,318
(18,987 )
2,988
(2,369 )
(18,368 )
36,950
5,136
31,814 $
173,104
34,601
30,875
27,174
31,753
297,507
102,413
(18,109 )
2,949
3,399
(11,761 )
90,652
35,166
55,486 $
(0.22 ) $
(0.22 ) $
0.05 $
0.05 $
0.27 $
0.27 $
0.48 $
0.47 $
677,669
288,261
213,409
78,955
1,258,294
617,453
146,573
123,684
135,296
111,532
1,134,538
123,756
(64,033 )
11,967
520
(51,546 )
72,210
5,148
67,062
0.58
0.57
(1) The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
85
Revenues:
Software as a service and
platform as a service
License
Maintenance
Services
Total revenues
Operating expenses:
Cost of revenue (1)
Research and development
Selling and marketing
General and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Other income (expense):
Interest expense
Interest income
Other, net
Total other income (expense)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per share
Basic
Diluted
$
$
$
Quarter Ended
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
Year Ended
December 31,
2018
$
$
104,280
28,046
56,659
20,325
209,310
$
113,600
45,555
55,048
20,792
234,995
$
104,519
68,964
54,373
17,669
245,525
$
110,626
137,991
53,065
18,268
319,950
433,025
280,556
219,145
77,054
1,009,780
107,336
36,791
31,893
28,649
21,345
226,014
(16,704 )
(9,365 )
2,744
(55 )
(6,676 )
(23,380 )
(3,952 )
(19,428 ) $
116,261
37,862
33,160
28,837
21,033
237,153
(2,158 )
(9,717 )
2,742
(1,677 )
(8,652 )
(10,810 )
3,764
(14,574 ) $
102,473
36,008
28,252
29,537
20,896
217,166
28,359
(12,573 )
2,763
(1,304 )
(11,114 )
17,245
2,012
15,233 $
104,281
32,969
24,576
20,399
21,311
203,536
116,414
(9,875 )
2,893
(688 )
(7,670 )
108,744
21,054
87,690 $
(0.17 ) $
(0.17 ) $
(0.13 ) $
(0.13 ) $
0.13 $
0.13 $
0.76 $
0.74 $
430,351
143,630
117,881
107,422
84,585
883,869
125,911
(41,530 )
11,142
(3,724 )
(34,112 )
91,799
22,878
68,921
0.59
0.59
(1) The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
86
EXHIBIT INDEX
Exhibit
No.
2.01
3.01
3.02
4.01
4.02
4.03
10.01
10.02
10.03
(1)
(2)
(3)
(4)
(5)
(6)*
(7)*
(8)*
10.04
(9)*
10.05
(10)*
10.06
(11)*
10.07
(12)*
10.08
(13)*
Description
Stock Purchase Agreement, dated February 28, 2019
2013 Amended and Restated Certificate of Incorporation of the Company
Amended and Restated Bylaws of the Company
Form of Common Stock Certificate (P)
Indenture, dated as of August 21, 2018, among ACI Worldwide, Inc., the guarantors listed therein, and
Wilmington Trust, National Association, as trustee
Form of 5.750% Senior Notes due 2026 (Included as Exhibit A to Exhibit 4.02)
ACI Worldwide, Inc. 2017 Employee Stock Purchase Plan
ACI Worldwide, Inc. 2005 Equity and Performance Incentive Plan, as amended
Form of Severance Compensation Agreement (Change-in-Control) between the Company and certain
officers, including executive officers
Form of Indemnification Agreement between the Company and certain officers, including executive
officers
Form of Nonqualified Stock Option Agreement – Non-Employee Director for the Company’s 2005 Equity
and Performance Incentive Plan, as amended
Form of Nonqualified Stock Option Agreement – Employee for the Company’s 2005 Equity and
Performance Incentive Plan, as amended
Form of LTIP Performance Shares Agreement for the Company’s 2005 Equity and Performance Incentive
Plan, as amended
Amended and Restated Employment Agreement by and between the Company and Philip G. Heasley,
dated December 4, 2015 (effective as of January 7, 2016)
10.09
10.10
(14)* ACI Worldwide, Inc. 2013 Executive Management Incentive Compensation Plan
(15)*
Form of Change-in-Control Employment Agreement between the Company and certain officers, including
executive officers
Form of Restricted Share Award Agreement for the Company’s 2005 Equity and Performance Incentive
Plan, as amended
10.11
(16)*
10.12
10.13
(17)* Amended and Restated Deferred Compensation Plan
(18)
10.14
(19)*
10.15
(20)*
10.16
(21)*
10.17
(22)*
Amended and Restated Credit Agreement, dated February 24, 2017, by and among ACI Worldwide, Inc.,
Bank of America, N.A. and the lenders that are party thereto
Form of 2015 Supplemental LTIP Performance Shares Agreement for the Company’s 2005 Equity and
Performance Incentive Plan, as amended
Form of 2015 Supplemental Non-Qualified Stock Option Agreement - Employee for the Company’s 2005
Equity and Performance Incentive Plan, as amended
Form of 2015 LTIP Performance Shares Agreement for the Company’s 2005 Equity and Performance
Incentive Plan, as amended
Form of 2015 Non-Qualified Stock Option Agreement - Employee for the Company’s 2005 Equity and
Performance Incentive Plan, as amended
10.18
10.19
(23)* ACI Worldwide, Inc. 2016 Equity and Performance Incentive Plan
(24)*
10.20
(25)*
10.21
(26)*
10.22
(27)*
10.23
(28)*
10.24
(29)*
Form of 2016 Supplemental Performance Share Award Agreement for the Company’s 2016 Equity and
Performance Incentive Plan
Form of 2016 Supplemental Nonqualified Stock Option Agreement for the Company’s 2016 Equity and
Performance Incentive Plan
Form of 2016 Performance Share Award Agreement for the Company’s 2016 Equity and Performance
Incentive Plan
Form of 2016 Nonqualified Stock Option Agreement for the Company’s 2016 Equity and Performance
Incentive Plan
Form of 2016 Restricted Share Award Agreement for the Company’s 2016 Equity and Performance
Incentive Plan
Form of 2016 Restricted Share Award Agreement – Non-Employee Director for the Company’s 2016
Equity and Performance Incentive Plan
87
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
21.01
23.01
31.01
31.02
32.01
32.02
(30)* Form of Change-in-Control Employment Agreement
(31)*
Form of 2016 Restricted Share Unit Award Agreement for the Company’s 2016 Equity and Performance
Incentive Plan
(32)* Form of Restricted Share Unit Award Agreement CEO (RSUs)
(33)* Form of Performance Share Award Agreement CEO (rTSR Performance Share Awards)
(34)* Form of Restricted Share Unit Award Agreement (RSUs)
(35)* Form of Performance Share Award Agreement (rTSR Performance Share Awards)
(36)
(37)
Amendment Agreement to the Amended and Restated Credit Agreement, dated April 5, 2019
November 5, 2019 Retirement and General Release Agreement between the Company and Philip G.
Heasley
(38)* Form of Severance Agreement between ACI Worldwide, Inc. and Odilon Almeida
(39)*
Form of Change in Control Employment Agreement between ACI Worldwide, Inc. and certain officers,
including executive officers
Subsidiaries of the Registrant (filed herewith)
Consent of Independent Registered Public Accounting Firm (filed herewith) – Deloitte & Touche LLP
Certification of Chief Executive Officer pursuant to S.E.C. Rule 13a-14, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of Chief Financial Officer pursuant to S.E.C. Rule 13a-14, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith)
**
**
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
XBRL Taxonomy Extension Definition Linkbase
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Incorporated herein by reference to Exhibit 2.01 to the registrant's quarterly report on Form 10-Q for the period ended
March 31, 2019.
Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed August 17, 2017.
Incorporated herein by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed February 27, 2017.
Incorporated herein by reference to Exhibit 4.01 to the registrant’s Registration Statement No. 33-88292 on Form S-1.
Incorporated herein by reference to Exhibit 4.1 to the registrant’s current report on Form 8-K filed August 21, 2018.
Incorporated herein by reference to Annex A to the registrant’s Proxy Statement filed on April 27, 2017.
Incorporated herein by reference to Exhibit 10.07 to the registrant’s quarterly report on Form 10-Q for the period ended
June 30, 2014.
Incorporated herein by reference to Exhibit 10.9 to the registrant’s annual report on Form 10-K for the year ended
December 31, 2009.
Incorporated herein by reference to Exhibit 10.10 to the registrant’s annual report on Form 10-K for the year ended
December 31, 2009.
Incorporated herein by reference to Exhibit 10.17 to the registrant’s annual report on Form 10-K for the year ended
December 31, 2009.
Incorporated herein by reference to Exhibit 10.18 to the registrant’s annual report on Form 10-K for the year ended
December 31, 2009.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed December 16,
2009.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed on December 10, 2015.
Incorporated herein by reference to Annex A to the registrant’s Proxy Statement for its 2013 Annual Meeting (File No. 000-
25346) filed on April 29, 2013.
88
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
Incorporated herein by reference to Exhibit 10.3 the registrant’s current report on Form 8-K filed June 20, 2016.
Incorporated herein by reference to Exhibit 10.29 to the registrant’s annual report on Form 10-K for the year ended
December 31, 2009.
Incorporated herein by reference to Exhibit 4.3 to the registrant’s Registration Statement No. 333-169293 on Form S-8
filed September 9, 2010
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed February 27,
2017.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed January 30, 2015.
Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed January 30, 2015.
Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed January 30, 2015.
Incorporated herein by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed January 30, 2015.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed June 20, 2016.
Incorporated herein by reference to Exhibit 10.02 to the registrant’s quarterly report on Form 10-Q for the period ended
June 30, 2016.
Incorporated herein by reference to Exhibit 10.03 to the registrant’s quarterly report on Form 10-Q for the period ended
June 30, 2016.
Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed February 27,
2017.
Incorporated herein by reference to Exhibit 10.05 to the registrant’s quarterly report on Form 10-Q for the period ended
June 30, 2016.
Incorporated herein by reference to Exhibit 10.06 to the registrant’s quarterly report on Form 10-Q for the period ended
June 30, 2016.
Incorporated herein by reference to Exhibit 10.07 to the registrant’s quarterly report on Form 10-Q for the period ended
June 30, 2016.
Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed June 20, 2016.
Incorporated herein by reference to Exhibit 10.26 to the registrant’s annual report on Form 10-K for the year ended
December 31, 2017.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed March 8, 2019.
Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed March 8, 2019.
Incorporated herein by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed March 8, 2019.
Incorporated herein by reference to Exhibit 10.4 to the registrant’s current report on Form 8-K filed March 8, 2019.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed April 11, 2019.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed November 7,
2019.
Incorporated herein by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed February 20,
2020.
Incorporated herein by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed February 20,
2020.
__________________
*
**
Denotes exhibit that constitutes a management contract, or compensatory plan or arrangement.
This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically
incorporates it by reference.
89
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2020
ACI WORLDWIDE, INC.
(Registrant)
By:
/s/ CRAIG S. SAKS
Craig S. Saks
Interim President, Interim Chief Executive Officer, and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Name
/S/ CRAIG S. SAKS
Craig S. Saks
/S/ SCOTT W. BEHRENS
Scott W. Behrens
Title
Interim President, Interim Chief Executive Officer, and Chief
Operating Officer (Interim Principal Executive Officer)
Date
February 27, 2020
Executive Vice President, Chief Financial Officer, and Chief
Accounting Officer (Principal Financial Officer)
February 27, 2020
/S/ DAVID A. POE
Chairman of the Board and Director
February 27, 2020
David A. Poe
/S/ PAM H. PATSLEY
Director
Pam H. Patsley
/S/ JAMES C. HALE
Director
James C. Hale
/S/ CHARLES E. PETERS, JR Director
Charles E. Peters, JR
/S/ ADALIO T. SANCHEZ
Director
Adalio T. Sanchez
/S/ THOMAS W. WARSOP, III Director
Thomas W. Warsop, III
/S/ JANET O. ESTEP
Director
Janet O. Estep
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
90
BOARD OF DIRECTORS
DAVID A. POE
Chairman of the Board,
ACI Worldwide, Inc.
Director Emeritus and Advisor,
Edgar, Dunn & Company
Former CEO and Senior Director,
Edgar, Dunn & Company
ODILON ALMEIDA
President and CEO,
ACI Worldwide, Inc.
Former Operating Partner,
Advent International
Former President,
Western Union Global
Money Transfer
JANET O. ESTEP
Former President and CEO,
NACHA
Former Executive Vice President,
Transaction Services
Division and Merchant Payment
Services Division, U.S. Bank
Former Vice President
of Sales and Marketing,
Pace Analytical Services
JAMES C. HALE
Founder and Chairman,
Columbus Strategic Advisors LLC
Founder, Managing Partner
Emeritus and Advisor, FTV Capital
Former Senior Managing Partner,
Bank America Securities
(Montgomery Securities)
PAMELA H. PATSLEY
Former Executive Chairman
and CEO, MoneyGram
International, Inc.
Former President,
First Data International
Former President and CEO,
Paymentech, Inc.
Former CFO, First USA, Inc.
CHARLES E. PETERS, JR.
Former Executive Vice President
and CFO, Red Hat, Inc.
Former Senior Vice President
and CFO, Burlington Industries
Former Senior Vice President of
Finance, Boston Edison Company
ADALIO T. SANCHEZ
President, S Group Advisory, LLC
Former Senior Vice President,
Lenovo Group Limited
Former Senior Executive Officer,
International Business Machines
THOMAS W. WARSOP III
CEO, One Call Care Management
CEO, Hananui, LLC
Former Executive Chairman,
York Risk Services Group
Former President and CEO,
The Warranty Group, Inc.
Former Group President,
Fiserv, Inc.
INVESTOR
INFORMATION
Copies of ACI Worldwide, Inc.’s
Annual Report on Form 10-K for
the year that ended December 31,
2019, as filed with the Securities
and Exchange Commission, will be
sent free of charge to stockholders
upon written request to:
Investor Relations Department
ACI Worldwide, Inc.
3520 Kraft Road, Suite 300
Naples, FL 34105
TRANSFER AGENT
Communications regarding change
of address, transfer of stock
ownership or lost stock certificates
should be sent directly to:
EQ Shareowner Services
1110 Centre Pointe Curve
Suite 101
Mendota Heights, MN 55120
STOCK LISTING
The company’s common stock
trades on the NASDAQ Global
Select Market under the
symbol ACIW.
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
First National Tower
1601 Dodge Street, Suite 3100
Omaha, NE 68102
PRINCIPAL OFFICES
CORPORATE HEADQUARTERS
Naples, Florida, United States
ARGENTINA
AUSTRALIA
AUSTRIA
BAHRAIN
BELGIUM
BRAZIL
CANADA
CHILE
CHINA
COLOMBIA
FRANCE
GERMANY
HONG KONG
INDIA
INDONESIA
IRELAND
ITALY
JAPAN
MALAYSIA
MEXICO
NETHERLANDS
NEW ZEALAND
PHILIPPINES
ROMANIA
RUSSIA
SAUDI ARABIA
SINGAPORE
SOUTH AFRICA
SOUTH KOREA
SPAIN
TAIWAN
THAILAND
U.A.E.
U.K.
U.S.
URUGUAY
ACI Worldwide, the Universal Payments® (UP)
company, powers electronic payments for
more than 5,100 organizations around the
world. More than 1,000 of the largest financial
institutions and intermediaries, as well as
thousands of global merchants, rely on ACI to
execute $14 trillion each day in payments and
securities. In addition, thousands of corporate
and government organizations utilize our
electronic bill presentment and payment
services. Through our comprehensive suite of
software solutions delivered on customers’
premises or through ACI’s private cloud,
we provide real-time, immediate payments
capabilities and enable the industry’s most
complete omni-channel payments experience.
LEARN MORE
WWW.ACIWORLDWIDE.COM
@ACI_WORLDWIDE
CONTACT@ACIWORLDWIDE.COM
Americas +1 402 390 7600
Asia Pacific +65 6334 4843
Europe, Middle East, Africa +44 (0) 1923 816393
© Copyright ACI Worldwide, Inc. 2020
ACI, ACI Worldwide, the ACI logo, ACI Universal
Payments, UP, the UP logo and all ACI product/
solution names are trademarks or registered
trademarks of ACI Worldwide, Inc., or one of its
subsidiaries, in the United States, other countries
or both. Other parties’ trademarks referenced are
the property of their respective owners.
AAR7138 04-20