UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 15, 2011 (February 15, 2011)
ACI WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 0-25346 | 47-0772104 | ||
| (State or other jurisdiction | (Commission File Number) | (IRS Employer | ||
| of incorporation) | Identification No.) |
120 Broadway, Suite 3350
New York, New York 10271
(Address of principal executive offices) (Zip Code)
New York, New York 10271
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (646) 348-6700
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operation and Financial Condition.
On February 15, 2011, ACI Worldwide, Inc. (“the Company”) issued a press release announcing
its financial results for the three months and year ended December 31, 2010. A copy of this press
release is attached hereto as Exhibit 99.1.
The foregoing information (including the exhibits hereto) is being furnished under “Item 2.02-
Results of Operations and Financial Condition” and Item 7.01- Regulation FD Disclosure.” Such
information (including the exhibits hereto) shall not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly
set forth by specific reference in such filing.
The filing of this report and the furnishing of this information pursuant to Items 2.02 and
7.01 do not mean that such information is material or that disclosure of such information is
required.
Item 7.01. Regulation FD Disclosure.
See “Item 2.02- Results of Operations and Financial Condition” above.
Item 9.01. Financial Statements and Exhibits.
| 99.1 | Press Release dated February 15, 2011 | ||
| 99.2 | Investor presentation materials dated February 15, 2011 |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ACI WORLDWIDE, INC. |
||||
| /s/ Scott W. Behrens | ||||
| Scott W. Behrens, Senior Vice President, Chief Financial Officer and Chief Accounting Officer | ||||
Date: February 15, 2011
3
EXHIBIT INDEX
| Exhibit No. | Description | |
99.1
|
Press Release dated February 15, 2011 | |
99.2
|
Investor presentation materials dated February 15, 2011 |
4
Exhibit 99.1
News Release
ACI Worldwide, Inc. Reports Financial
Results for the Quarter and Year Ended December 31, 2010
Results for the Quarter and Year Ended December 31, 2010
OPERATING HIGHLIGHTS
| • | Full year diluted EPS of $0.80, an increase of 40% over prior year | ||
| • | The most significant sales year in ACI’s 35-year history with $525 million in deals closed | ||
| • | Achieved record quarterly revenue of $141.2 million | ||
| • | Quarterly Operating Income and Operating EBITDA growth of 22% |
| Quarter Ended | Year Ended | |||||||||||||||||||||||
| Better / | Better / | Better / | Better / | |||||||||||||||||||||
| (Worse) | (Worse) | (Worse) | (Worse) | |||||||||||||||||||||
| Quarter ended | Quarter ended | Quarter ended | Year ended | Year ended | Year ended | |||||||||||||||||||
| $ MMs | Dec 31, 2010 | Dec 31, 2009 | Dec 31, 2009 | Dec 31, 2010 | Dec 31, 2009 | Dec 31, 2009 | ||||||||||||||||||
Diluted
EPS |
$ | 0.80 | $ | 0.23 | 40 | % | $ | 0.80 | $ | 0.23 | 40 | % | ||||||||||||
Revenue |
$ | 141.2 | $ | 15.3 | 12 | % | $ | 418.4 | $ | 12.6 | 3 | % | ||||||||||||
Operating Income |
$ | 42.8 | $ | 7.8 | 22 | % | $ | 53.6 | $ | 12.0 | 29 | % | ||||||||||||
Operating EBITDA |
$ | 51.7 | $ | 9.4 | 22 | % | $ | 87.8 | $ | 14.9 | 20 | % | ||||||||||||
(NEW YORK — February 15, 2011) — ACI Worldwide, Inc. (NASDAQ:ACIW), a leading international
provider of payment systems, today announced financial results for the period ended December 31,
2010. We will hold a conference call on February 15, 2011, at 8:30 a.m. EST to discuss
this information. Interested persons may also access a real-time audio broadcast of the
teleconference at www.aciworldwide.com/investors.
“2010 was a year in which ACI began to accelerate along its profitability curve. We achieved solid
growth in revenue over the prior year and extraordinary growth in sales as customers purchased
global or multi-country product offerings. Critically, we achieved a 260 basis point improvement
in operating income profitability. Our 60-month backlog of
committed and renewable client bookings continues to grow nicely and we anticipate another good
year in 2011, characterized by continued progress on global account deals,
better products with
faster and improved services implementations and more incremental growth in profitability and
EBITDA margin,” said Chief Executive Officer Philip Heasley.
FINANCIAL SUMMARY
Sales
Sales bookings in the quarter totaled $174.8 million which was an increase of $4.7 million, or 3%,
as compared to the December 2009 quarter. The stronger quarter was driven by a large UK merchant
acquirer renewal, a new Japanese BASE24-eps payment hub customer, an Italian processor and Americas
bank renewals with add-on sales including those which are sizable BASE24-eps migrations. Notable
changes in the mix of sales compared to last year’s quarter included a rise of $17.1 million in new
application sales.
On an annual basis, sales bookings rose by $100.6 million to total $525.2 million in fiscal year
2010 as compared to $424.6 million for the twelve months ended December 31, 2009. The positive
variance was driven by a rise of $78.5 million in term extension sales as well as $34.7 million in
add-on sales.
Revenues
Revenue was $141.2 million in the quarter ended December 31, 2010, an increase of $15.3 million, or
12%, over the prior-year quarter revenues. The rise in revenue over the prior-year quarter reflects
higher monthly recurring revenue of $16.7 million. Deferred revenue increased $15.1 million over
the prior-year quarter.
Revenue for the twelve months ended December 31, 2010 was $418.4 million, an increase of $12.6
million, or 3%, over revenues of $405.8 million for the twelve months ended December 31, 2009.
Revenue growth is largely attributed to higher monthly recurring revenues during the 2010 period as
compared to the prior-year.
Backlog
As of December 31, 2010, our estimated 60-month backlog was $1.566 billion, an increase of $54
million as compared to $1.512 billion at December 31, 2009. The increase was primarily attributable
to the larger average deal size signed during calendar 2010. As
of December 31, 2010, our 12-month backlog was $381 million, an increase of $26 million as compared
to $355 million for the quarter ended December 31, 2009.
Operating Expenses
Operating expenses were $98.4 million in the December 2010 quarter compared to $90.9 million in the
December 2009 quarter, a rise of $7.5 million, or 8%. Operating expense rise was led primarily by
increased advertising and promotions expense and higher than normal deferred services cost
recognition as well as by higher reserves taken for bad debt expense.
Operating
expenses for the year ended December 31, 2010 were $364.8 million, a rise of $0.6 million
or essentially flat as compared to $364.2 million for the prior-year ended December 31, 2009.
Operating expense variances year-over-year were led primarily by a $9.1 million reduction in
general and administrative costs which was offset by a rise of $8.8 million in selling and
marketing costs associated with more robust sales during 2010. Maintenance and services expense
rose $4.2 million year-over-year primarily due to higher personnel costs and the release of
deferred costs associated with project implementations whereas research and development expenses
decreased $3.4 million over prior-year, largely due to lower contractor and personnel costs.
Operating Income
Operating income was $42.8 million in the December 2010 quarter, an increase of approximately $7.8
million or 22%, as compared to operating income of $35.0 million in the December 2009 quarter.
Operating income for the fiscal year ended December 31, 2010 was $53.6 million, an improvement of
$12.0 million or 29%, over $41.6 million of operating income for the fiscal year ended December 31, 2009.
Liquidity
We had $171.3 million in cash on hand at December 31, 2010. Cash on hand increased $27.4 million as
compared to September 30, 2010 primarily as a result of strong cash
collections. As of December 31, 2010, we also had $75.0 million in unused borrowings under our
credit facility.
Operating Free Cash Flow
Operating free cash flow (“OFCF”) for the quarter was $28.0 million as compared to $29.8 million
for the December 2009 quarter. OFCF for the twelve months ended December 31, 2010 was $62.8
million, a rise of $32.5 million over the twelve months ended December
31, 2009. The improvement in
OFCF was driven by higher operating income as well as by continued strong accounts receivable
collections year-over-year.
Other Expense
Other expense for the quarter was $0.4 million, compared to other expense of $2.8 million in the
December 2009 quarter. The improvement in other expense versus the prior-year quarter resulted
primarily from a $1.1 million positive variance in foreign exchange losses and $0.6 million
positive variance in interest expense.
On an annual basis, other expense for the twelve months ended December 31, 2010 was $4.9 million as
compared to other expense of $8.5 million for the twelve months ended December 31, 2009. The
improvement was led by $2.1 million positive variance in foreign exchange losses as well as the
expiration of the fair value interest rate swap which resulted in an improvement of $1.5 million in
the non-cash loss attributed to the swap.
Taxes
Income tax expense in the quarter was $15.3 million, or a 36% effective tax rate, compared to $12.6
million, or a 39% effective tax rate, in the prior year quarter. Furthermore, as mentioned in
previous quarters, the company continues to incur a fixed amortization charge of $0.6 million per
quarter related to the transfer of certain intellectual property rights outside the United States.
Income tax expense for the year ended December 2010 was $21.5 million or a 44% effective tax rate,
as compared to $13.5 million, or a 41% effective tax rate, for the prior year ended December 2009.
The effective tax rate for both years was higher than the U.S. effective tax rate of 35% due to the
inability to recognize income tax benefits during the period resulting from losses sustained in
certain tax jurisdictions. The year-over-year
increase in the effective tax rate was largely due to a 2009 beneficial release of a $1.6 million
tax reserve which did not recur in calendar 2010.
Net Income and Diluted Earnings Per Share
Net income for the quarter and year ended December 31, 2010 was $27.1 million, compared to net
income of $19.6 million during the same periods last year, an increase of $7.5 million or 39%.
Earnings per share for the quarter and year ended December 2010 was $0.80 per diluted share, a rise
of 40% compared to $0.57 per diluted share during the same period last year. The improvement was
largely due to stronger revenue, flat expenses, a reduction in foreign exchange losses and the
expiration of the interest rate swap.
Weighted Average Shares Outstanding
Total diluted weighted average shares outstanding were 33.7 million for the quarter and 33.9
million for the year ended December 31, 2010 as compared to 34.2 million shares outstanding for the
quarter and 34.6 million for the year ended December 31, 2009.
2011 Guidance
ACI is guiding on three metrics for calendar year 2011. We currently expect Revenue to achieve a
range of $440-450 million, Operating Income of $62-65 million and Operating EBITDA of $98-101
million. We further anticipate sales bookings in the high $400s million during calendar 2011 and
expect OFCF to trend higher with Operating EBITDA growth.
-End-
About ACI Worldwide
ACI Worldwide powers electronic payments for more than 750 financial institutions, retailers and
processors around the world. The company has a broad, integrated suite of electronic payment
software in the market. More than 75 billion times each year, ACI’s solutions process consumer
payments. On an average day, ACI software manages more than US$12 trillion in wholesale payments.
And for more than 150 organizations worldwide, ACI software helps to protect their customers from
financial crime. To learn more about ACI and understand why we are trusted globally, please visit
www.aciworldwide.com. You can also find us on www.paymentsinsights.com or on Twitter
@ACI_Worldwide.
For more information contact:
Tamar Gerber, Vice President, Investor Relations & Financial Communications
ACI Worldwide
+1 646 348 6706
invrel@aciworldwide.com
Tamar Gerber, Vice President, Investor Relations & Financial Communications
ACI Worldwide
+1 646 348 6706
invrel@aciworldwide.com
Non-GAAP Financial Measures —
ACI is presenting operating free cash flow, which is defined as net cash provided (used) by
operating activities, less net after-tax payments associated with employee-related actions, net
after-tax payments associated with IBM IT outsourcing transition and severance, capital
expenditures and plus or minus net proceeds from IBM. Operating free cash flow is considered a
non-GAAP financial measure as defined by SEC Regulation G. We utilize this non-GAAP financial
measure, and believe it is useful to investors, as an indicator of cash flow available for debt
repayment and other investing activities, such as capital investments and acquisitions. We utilize
operating free cash flow as a further indicator of operating performance and for planning investing
activities. Operating free cash flow should be considered in addition to, rather than as a
substitute for, net cash provided (used) by operating activities. A limitation of operating free
cash flow is that it does not represent the total increase or decrease in the cash balance for the
period. This measure also does not exclude mandatory debt service obligations and, therefore, does
not represent the residual cash flow available for discretionary expenditures. We believe that
operating free cash flow is useful to investors to provide disclosures of our operating results on
the same basis as that used by our management. We also believe that this measure can assist
investors in comparing our performance to that of other companies on a consistent basis without
regard to certain items, which do not directly affect our ongoing cash flow.
Reconciliation of Operating Free Cash Flow
| Year Ended | Quarter Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net cash provided by operating activities |
$ | 81.3 | $ | 44.2 | $ | 32.2 | $ | 32.8 | ||||||||
Net after-tax payments associated with employee-
related actions |
— | 3.2 | — | 1.3 | ||||||||||||
Net after-tax payments associated with IBM IT
Outsourcing |
||||||||||||||||
Transition and Severance |
0.9 | 0.3 | 0.2 | — | ||||||||||||
Less capital expenditures |
(13.2 | ) | (10.5 | ) | (2.6 | ) | (3.4 | ) | ||||||||
Less alliance technical enablement expenditures |
(6.2 | ) | (6.9 | ) | (1.8 | ) | (0.9 | ) | ||||||||
Operating Free Cash Flow |
$ | 62.8 | $ | 30.3 | $ | 28.0 | $ | 29.8 | ||||||||
ACI also includes backlog estimates which are all software license fees, maintenance fees and
services specified in executed contracts, as well as revenues from assumed contract renewals to the
extent that 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.
Backlog is considered a non-GAAP financial measure as defined by SEC Regulation G. Our 60-month
backlog estimate represents expected revenues from existing customers using the following key
assumptions:
| • | 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. | ||
| • | License and facilities management arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences. | ||
| • | Non-recurring license arrangements are assumed to renew as recurring revenue streams. | ||
| • | 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. |
Estimates of future financial results are inherently unreliable. Our backlog estimates require
substantial judgment and are based on a number of assumptions as described above. These assumptions
may turn out to be inaccurate or wrong, including for reasons outside of management’s control. For
example, our customers 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 in the customer’s industry or geographic location, or we may 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 actually recognized in future
periods. Accordingly, there can be no assurance that contracts included in backlog estimates will
actually generate the specified revenues or that the actual revenues will be generated within the
corresponding 60-month period.
Backlog should be considered in addition to, rather than as a substitute for, reported revenue and
deferred revenue.
ACI also includes Operating EBITDA, which is defined as operating income plus depreciation,
amortization and non-cash compensation. Operating EBITDA is considered a non-GAAP financial
measure as defined by SEC Regulation G. Operating EBITDA should be considered in addition to,
rather than as a substitute for, operating income.
Operating EBITDA
| Year Ended | Quarter Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Operating income |
$ | 53.6 | $ | 41.6 | $ | 42.8 | $ | 35.0 | ||||||||
Depreciation expense |
6.7 | 6.3 | 1.6 | 1.6 | ||||||||||||
Amortization expense |
19.7 | 17.4 | 5.0 | 4.7 | ||||||||||||
Non-cash compensation expense |
7.8 | 7.6 | 2.3 | 1.0 | ||||||||||||
Operating EBIDTA |
$ | 87.8 | $ | 72.9 | $ | 51.7 | $ | 42.3 | ||||||||
The presentation of these non-GAAP financial measures should be considered in addition to our
GAAP results and is not intended to be considered in isolation or as a substitute for the financial
information prepared and presented in accordance with GAAP.
Management generally compensates for limitations in the use of non-GAAP financial measures by
relying on comparable GAAP financial measures and providing investors with a reconciliation of
non-GAAP financial measures only in addition to and in conjunction with results presented in
accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way
of viewing aspects of our operations that, when viewed with our GAAP results, provide a more
complete understanding of factors and trends affecting our business.
Forward-Looking Statements
This press release 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.
Forward-looking statements in this press release include, but are not limited to, statements
regarding: (i) our expectations related to continued growth of our 60-month committed and renewable
client bookings, (ii) our belief that 2011 will be another good year characterized by continued
progress on global account deals, better products with faster and improved services
implementations, and more incremental growth in profitability and EBITDA margin, (iii) our 12-month
and 60-month backlog estimates and assumptions, (iv) expectations and assumptions regarding 2011
financial guidance related to revenue, operating income and operating EBITDA; and (v) expectations
and assumptions related to other factors impacting our 2011 guidance, including sales and operating
free cash flow during 2011.
All of the foregoing forward-looking statements are expressly qualified by the risk factors
discussed in our filings with the Securities and Exchange Commission. Such factors include but are
not limited to, risks related to the global financial crisis and the continuing decline in the
global economy, restrictions and other financial covenants in our credit facility, volatility and
disruption of the capital and credit markets and adverse changes in the global economy, the
maturation of our current credit facility, the restatement of our financial statements,
consolidations and failures in the financial services industry, the accuracy of management’s
backlog estimates, the cyclical nature of our revenue and earnings and the accuracy of forecasts
due to the concentration of revenue generating activity during the final weeks of each quarter,
impairment of our goodwill or intangible assets,
exposure to unknown tax liabilities, volatility in
our stock price, risks from operating internationally, including fluctuations in currency exchange
rates, increased competition, our offshore software development activities, customer reluctance to
switch to a new vendor, the performance of our strategic product, BASE24-eps, the maturity of
certain products, our strategy to migrate customers to our next generation products, ratable or
deferred recognition of certain revenue associated with customer migrations and the maturity of
certain of our products, demand for our products, failure to obtain renewals of customer contracts
or to obtain such renewals on favorable terms, delay or cancellation of customer projects or
inaccurate project completion estimates, business interruptions or failure of our information
technology and communication systems, our alliance with International Business Machines Corporation
(“IBM”), our outsourcing agreement with IBM, the complexity of our products and services and the
risk that they may contain hidden defects or be subjected to security breaches or viruses,
compliance of our products with applicable legislation, governmental regulations and industry
standards, our compliance with privacy regulations, the protection of our intellectual property in
intellectual property litigation, future acquisitions, strategic partnerships and investments and
litigation. For a detailed discussion of these risk factors, parties that are relying on the
forward-looking statements should review our filings with the Securities and Exchange Commission,
including our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q
and 8-K.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share amounts)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share amounts)
| December 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 171,310 | $ | 125,917 | ||||
Billed receivables, net of allowances of $5,738 and $2,732, respectively |
77,773 | 98,915 | ||||||
Accrued receivables |
9,578 | 9,468 | ||||||
Deferred income taxes, net |
12,317 | 17,459 | ||||||
Prepaid expenses |
13,369 | 12,079 | ||||||
Other current assets |
10,462 | 10,224 | ||||||
Total current assets |
294,809 | 274,062 | ||||||
Property and equipment, net |
18,539 | 17,570 | ||||||
Software, net |
25,366 | 30,037 | ||||||
Goodwill |
203,935 | 204,850 | ||||||
Other intangible assets, net |
20,448 | 26,906 | ||||||
Deferred income taxes, net |
28,143 | 26,024 | ||||||
Other assets |
10,289 | 10,594 | ||||||
TOTAL ASSETS |
$ | 601,529 | $ | 590,043 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 15,263 | $ | 17,591 | ||||
Accrued employee compensation |
26,174 | 24,492 | ||||||
Deferred revenue |
121,936 | 106,349 | ||||||
Income taxes payable |
6,181 | 10,681 | ||||||
Alliance agreement liability |
1,917 | 10,507 | ||||||
Note payable under credit facility |
75,000 | — | ||||||
Accrued and other current liabilities |
24,293 | 25,780 | ||||||
Total current liabilities |
270,764 | 195,400 | ||||||
Deferred revenue |
31,045 | 31,533 | ||||||
Note payable under credit facility |
— | 75,000 | ||||||
Alliance agreement noncurrent liability |
20,667 | 21,980 | ||||||
Other noncurrent liabilities |
23,430 | 30,067 | ||||||
Total liabilities |
345,906 | 353,980 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ equity |
||||||||
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued
and outstanding at December 31, 2010 and 2009 |
— | — | ||||||
Common stock; $0.005 par value; 70,000,000 shares authorized; 40,821,516
shares issued at December 31, 2010 and 2009 |
204 | 204 | ||||||
Common stock warrants |
24,003 | 24,003 | ||||||
Treasury stock, at cost, 7,548,752 and 6,784,932 shares outstanding at
December 31, 2010 and 2009 |
(171,676 | ) | (158,652 | ) | ||||
Additional paid-in capital |
312,947 | 307,279 | ||||||
Retained earnings |
105,289 | 78,094 | ||||||
Accumulated other comprehensive loss |
(15,144 | ) | (14,865 | ) | ||||
Total stockholders’ equity |
255,623 | 236,063 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 601,529 | $ | 590,043 | ||||
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
| Three Months Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Revenues: |
||||||||
Software license fees |
$ | 66,039 | $ | 56,868 | ||||
Maintenance fees |
35,414 | 35,754 | ||||||
Services |
26,745 | 23,724 | ||||||
Software hosting fees |
13,043 | 9,565 | ||||||
Total revenues |
141,241 | 125,911 | ||||||
Expenses: |
||||||||
Cost of software license fees (1) |
3,322 | 3,818 | ||||||
Cost of maintenance, services, and hosting fees (1) |
30,981 | 29,757 | ||||||
Research and development |
18,717 | 18,530 | ||||||
Selling and marketing |
19,786 | 16,269 | ||||||
General and administrative |
20,558 | 17,811 | ||||||
Depreciation and amortization |
5,078 | 4,756 | ||||||
Total expenses |
98,442 | 90,941 | ||||||
Operating income |
42,799 | 34,970 | ||||||
Other income (expense): |
||||||||
Interest income |
230 | 178 | ||||||
Interest expense |
(514 | ) | (1,073 | ) | ||||
Other, net |
(163 | ) | (1,929 | ) | ||||
Total other income (expense) |
(447 | ) | (2,824 | ) | ||||
Income before income taxes |
42,352 | 32,146 | ||||||
Income tax expense |
15,254 | 12,585 | ||||||
Net income |
$ | 27,098 | $ | 19,561 | ||||
Income per share information |
||||||||
Weighted average shares outstanding |
||||||||
Basic |
33,233 | 34,011 | ||||||
Diluted |
33,722 | 34,205 | ||||||
Income per share |
||||||||
Basic |
$ | 0.82 | $ | 0.58 | ||||
Diluted |
$ | 0.80 | $ | 0.57 | ||||
| (1) | The cost of software license fees excludes charges for depreciation but includes amortization of purchased and developed software for resale. The cost of maintenance, services, and hosting fees excludes charges for depreciation. |
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
| For the Three Months | ||||||||
| Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 27,098 | $ | 19,561 | ||||
Adjustments to reconcile net income to net cash flows
from operating activities |
||||||||
Depreciation |
1,544 | 1,577 | ||||||
Amortization |
5,025 | 4,673 | ||||||
Tax expense of intellectual property shift |
550 | 549 | ||||||
Deferred income taxes |
8,988 | (2,700 | ) | |||||
Stock-based compensation expense |
2,335 | 977 | ||||||
Tax benefit of stock options exercised |
(415 | ) | 3 | |||||
Other |
451 | 292 | ||||||
Changes in operating assets and liabilities, net: |
||||||||
Billed and accrued receivables, net |
(8,449 | ) | (13,301 | ) | ||||
Other current assets |
1,178 | 1,746 | ||||||
Other non-current assets |
1,196 | 423 | ||||||
Accounts payable |
5,883 | 231 | ||||||
Accrued employee compensation |
(51 | ) | 118 | |||||
Accrued liabilities |
(2,377 | ) | 3,217 | |||||
Current income taxes |
6,695 | 8,847 | ||||||
Deferred revenue |
(13,989 | ) | 5,007 | |||||
Other current and noncurrent liabilities |
(3,487 | ) | 1,570 | |||||
Net cash flows from operating activities |
32,175 | 32,790 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(800 | ) | (696 | ) | ||||
Purchases of software and distribution rights |
(1,834 | ) | (2,672 | ) | ||||
Alliance technical enablement expenditures |
(1,760 | ) | (932 | ) | ||||
Acquisition of businesses, net of cash acquired |
— | (6,574 | ) | |||||
Net cash flows from investing activities |
(4,394 | ) | (10,874 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
266 | 278 | ||||||
Proceeds from exercises of stock options |
639 | 267 | ||||||
Excess tax benefit of stock options exercised |
(19 | ) | 9 | |||||
Repurchases of restricted stock for tax withholdings |
(45 | ) | — | |||||
Payments on debt and capital leases |
(270 | ) | (305 | ) | ||||
Net cash flows from financing activities |
571 | 249 | ||||||
Effect of exchange rate fluctuations on cash |
(944 | ) | 766 | |||||
Net increase in cash and cash equivalents |
27,408 | 22,931 | ||||||
Cash and cash equivalents, beginning of period |
143,902 | 102,986 | ||||||
Cash and cash equivalents, end of period |
$ | 171,310 | $ | 125,917 | ||||
Exhibit 99.2
| February 15, 2011 December 31, 2010 Quarterly Results Presentation 1 ACI's software underpins electronic payments throughout retail and wholesale banking, and commerce all the time. |
| This presentation contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. The forward- looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. A discussion of these forward- looking statements and risk factors that may affect them is set forth at the end of this presentation. The Company assumes no obligation to update any forward-looking statement in this presentation, except as required by law. Private Securities Litigation Reform Act of 1995 Safe Harbor For Forward-Looking Statements |
| Quarterly Overview 19 of the world's top 20 banks, 5 of the top 10 U.S. retailers and 6 of the leading 25 global retailers, rely on ACI payments software. Phil Heasley Chief Executive Officer |
| 4 2010 Year in Review Record sales year with global account contracts and strong retail signings Strong Operating Free Cash Flow generation Continued expense management Growth in operating income margin Met or exceeded all full year guidance metrics Good visibility into forward revenue and profitability attainment |
| Business Overview Ralph Dangelmaier President, Global Markets |
| 2010 Year in Review- Markets Americas New regulatory regime impacting our clients through banks and card interchange fees in US resulting in more interest in our efficiency solutions Latin America seeing higher demand for card usage which is leading to more regulatory scrutiny and, therefore, need for EMV-type solutions Asia Southeast Asian countries showing strong demand for retail payment systems Japanese corporations looking to grow internationally Australian banks, buoyed by robust balance sheets, are looking to expand further into Asia EMEA European financial crisis resulted in bank consolidation and pressure to repay governments via efficiency gains and purchase of payments products Middle East/South Africa strong impetus to purchase system for efficiency gains |
| 2010 Year in Review- Sales Global Enterprise license agreement with First Data and Worldpay, the former RBS processor Americas Migrations gaining steam- several Networks First migrations as well as a top ten US bank committed to a migration from BASE24(r) to BASE24-eps (r) as did a key switch in South America Really strong business with renewals and add-ons across the region New wins with ACI Proactive Risk Manager(tm), ACI Money Transfer System (tm), ACI Enterprise Banker (tm) Asia Large Japanese card processor multi-country payments hub Solid BASE24 renewal and add-on deals around the region EMEA Financials and processor customer deals in central and western Europe Robust Middle East and South Africa business: Central Bank of Oman, Al Inma, Central Bank of UAE, ABSA and Standard Sizable UK capacity and renewal deals |
| Q4 2010 Characterized by Sales Expansion in Renewals and Add-on Products Total quarterly sales remained constant over prior year driven by large UK and Japan sales Quarter characterized by new application sales as well as renewals with add-on sales - Major add-on PRM sale at a Southern European processor - Term extension with major Swiss credit card issuer - BASE24-eps migration sold to key Latin American customer - New BASE24-eps solution sold to large Middle East customer Two new North American accounts purchasing ACI On-Demand offerings BASE 24-eps migrations sales beginning to positively impact retail payments sales BASE24 renewals across Australia, Thailand, Philippines, South Korea and Sri Lanka 8 |
| 9 Product Mix of Q4 and FY Sales Comprised More Heavily by Retail as well as Back Office systems Retail sales growth driven by key BASE24-eps migration sales as well as a large UK merchant acquirer Strong year with retailers/big box stores on both ACI Retail Commerce ServerTM and BASE24 ACI Enterprise BankerTM sales decline driven by renewal of a top 5 account in 2009 and timing of new business between Q3 and Q4 2010 Continued focus on current wholesale customers resulted in strong sales of services but significantly lower bookings driven mostly by lack of large term extension in the quarter Risk flat on a quarterly and annual basis as we continue to invest in product Infrastructure tools sales increase over prior-year period due variation in term extension/ add- on sales timing |
| 2011 Market Opportunities Cross selling new applications to current customers based on integrated payments solutions portfolio Investing in resources to accelerate our growth in emerging markets (Brazil, China, etc) Multi-region wholesale market payment hubs Driving BASE24-eps(r) migrations Tools solutions in demand for monitoring, transaction testing and ensuring availability New ACI IssuerTM /ACI AcquirerTM/ ACI InterchangeTM sales to banks, processors, ISOs Global Account deals Continuing renewal of long-term customer relationships |
| Financial Review Scott Behrens Chief Financial Officer |
| Key Takeaways from the Quarter Record revenue quarter Led by strong growth in recurring revenue, up $16.7 million, or 26%, over prior-year quarter Balanced Sales Growth Strong sales growth in the EMEA and Asia regions as compared to Q4-09 Led by sales of new applications Another Strong Cash Quarter OFCF of $28.0 million compared to $29.8 million in Q4 2009 12 |
| 13 Key Takeaways from the Quarter (cont) Strong Growth in Operating Income Up $7.8 million, or 22%, over prior-year quarter Strong Growth in Operating EBITDA Up $9.4 million, or 22%, over prior-year quarter FX loss moderated to $0.1 million compared to an FX loss of $1.2 million in prior-year quarter Interest rate swap expired as of October 2010 |
| Key Takeaways from the Year Strong growth of $40.3 million in recurring revenue Comprised 68% of total revenue in 2010 compared to 60% of revenue in 2009 Sales rise of $100 million led by major account signings during 2010 First Data Corporation global deal as well as several significant UK renewals & capacity events and a significant Japanese deal closure Very strong Operating Free Cash Flow of $62.8 million Up $32.5 million over prior year Led by higher operating income as well as by continued strong cash receipts from accounts receivable collections 60-Month Backlog growth of $54 million to $1,566 million over prior year |
| Backlog as a Contributor of Quarterly Revenue Backlog from monthly recurring revenues and project go-lives continues to drive current quarter GAAP revenue, leading to predictable quarterly performance We expect backlog to contribute a similar percentage of 2011 revenue led by recurring revenue and project go-live events 15 |
| 2010 Performance Exceeded Guidance Revenue came within guidance expectations despite FX headwinds for calendar 2010 Operating Income and Operating EBITDA outperformed due to good expense discipline |
| 2011 Guidance 17 Revenue Revenue growth range higher than last year Revenue and margin phasing consistent with prior-year Operating Income Operating income improves from on-going growth in recurring revenue and continued expense management 15%-20% growth range Operating EBITDA Depreciation and amortization flat over prior year Non-cash compensation expense of approximately $9 million Operating EBITDA = operating income + Depreciation and Amortization + non-cash compensation expense |
| Other Factors Impacting Guidance Sales to be in the high $400s million OFCF growth consistent with Operating EBITDA growth Cash taxes expected to be lower than in 2010 Capex flat over prior-year 18 |
| Appendix |
| 20 Historic Sales By Quarter 2009-2010 |
| 21 Strong Q4 led by BASE24 Renewals & New Application Sales; Annual Sales driven by robust term/adds in Base24 & Tools |
| Sales By Region by Quarter and Year |
| Operating Free Cash Flow ($ millions) 23 Quarter Ended December 31, Quarter Ended December 31, 2010 2009 Net cash provided by operating activities $32.2 $ 32.8 Adjustments: Net after-tax payments associated with employee-related actions - 1.3 Net after-tax payments associated with IBM IT Outsourcing Transition and Severance 0.2 - Less capital expenditures (2.6) (3.4) Less Alliance technical enablement expenditures (1.8) (0.9) Operating Free Cash Flow* $28.0 $29.8 *OFCF is defined as net cash provided (used) by operating activities, less net after-tax payments associated with employee-related actions and IBM IT outsourcing transition and severance, capital expenditures and plus or minus net proceeds from IBM. |
| 60-Month Backlog ($ millions) 24 Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2010 2010 2009 Americas $871 $887 $845 EMEA 506 525 510 Asia/Pacific 189 180 157 Backlog 60-Month $1,566 $1,592 $1,512 Deferred Revenue $151 $167 $138 Other 1,415 1,425 1,374 Backlog 60-Month $1,566 $1,592 $1,512 |
| Revenues by Channel ($ millions) 25 Quarter Ended December 31, Quarter Ended December 31, 2010 2009 Revenues: United States $54.8 $ 55.7 Americas International 20.3 12.3 Americas $75.1 $68.0 EMEA 53.1 43.2 Asia/Pacific 13.0 14.7 Revenues $141.2 $125.9 |
| Monthly Recurring Revenue ($ millions) 26 Quarter Ended December 31, Quarter Ended December 31, 2010 2009 Monthly Software License Fees $32.5 $17.9 Maintenance Fees 34.4 35.8 Processing Services 13.7 10.2 Monthly Recurring Revenue $80.6 $63.9 |
| Deferred Revenue and Expense ($ millions) 27 Quarter Ended Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, September 30, 2010 2010 2009 2009 Short Term Deferred Revenue $121.9 $131.5 $106.3 $103.4 Long Term Deferred Revenue 31.0 35.7 31.5 28.7 Total Deferred Revenue $152.9 $167.2 $137.8 $132.1 Total Deferred Expense $11.1 $14.6 $12.1 $13.0 |
| Non-Cash Compensation, Acquisition Intangibles and Software 28 Quarter ended December 31, 2010 Quarter ended December 31, 2010 Quarter ended December 31, 2009 Quarter ended December 31, 2009 EPS Impact* $ in Millions EPS Impact* $ in Millions Amortization of acquisition-related intangibles $0.03 $1.0 $0.03 $1.0 Amortization of acquisition-related software 0.03 0.9 0.03 0.9 Non-cash equity-based compensation 0.04 1.5 0.02 0.6 Total: $0.10 $3.4 $0.07 $2.5 * Tax Effected at 35% |
| Other Income / Expense ($ millions) 29 Quarter Ended Quarter Ended Quarter Ended Quarter Ended December 31, 2010 September 30, 2010 December 31, 2009 September 30, 2009 Interest Income $0.2 $0.2 $0.2 $0.1 Interest Expense ($0.5) ($0.4) ($1.1) ($0.5) FX Gain / Loss ($0.1) ($1.5) ($1.2) $1.1 Interest Rate Swap Loss $0.0 $0.0 ($0.2) ($0.7) Other $0.0 ($0.1) ($0.5) ($0.4) Total Other Income (Expense) ($0.4) ($1.8) ($2.8) ($0.4) |
| Operating EBITDA Quarter Ended December 31, 2010 Quarter Ended December 31, 2009 Operating Income $42.8 $35.0 Depreciation Expense 1.6 1.6 Amortization Expense 5.0 4.7 Non-Cash Compensation Expense 2.3 1.0 Operating EBITDA $51.7 $42.3 30 Operating EBITDA is defined as operating income plus depreciation, amortization and non-cash compensation. |
| Non-GAAP Financial Measures ACI is presenting operating free cash flow, which is defined as net cash provided (used) by operating activities, less net after-tax payments associated with employee related activities, net after-tax payments associated with IBM IT outsourcing transition and severance, and capital expenditures and plus or minus net proceeds from IBM. Operating free cash flow is considered a non- GAAP financial measure as defined by SEC Regulation G. We utilize this non- GAAP financial measure, and believe it is useful to investors, as an indicator of cash flow available for debt repayment and other investing activities, such as capital investments and acquisitions. We utilize operating free cash flow as a further indicator of operating performance and for planning investing activities. Operating free cash flow should be considered in addition to, rather than as a substitute for, net cash provided (used) by operating activities. A limitation of operating free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. This measure also does not exclude mandatory debt service obligations and, therefore, does not represent the residual cash flow available for discretionary expenditures. We believe that operating free cash flow is useful to investors to provide disclosures of our operating results on the same basis as that used by our management. We also believe that this measure can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items, which do not directly affect our ongoing cash flow. 31 |
| Non-GAAP Financial Measures ACI also includes backlog estimates which are all software license fees, maintenance fees and services specified in executed contracts, as well as revenues from assumed contract renewals to the extent that 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. Backlog is considered a non-GAAP financial measure as defined by SEC Regulation G. Our 60-month backlog estimate represents expected revenues from existing customers using the following key assumptions: 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. License and facilities management arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences. Non-recurring license arrangements are assumed to renew as recurring revenue streams. 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. 32 |
| Non-GAAP Financial Measures Estimates of future financial results are inherently unreliable. Our backlog estimates require substantial judgment and are based on a number of assumptions as described above. These assumptions may turn out to be inaccurate or wrong, including for reasons outside of management's control. For example, our customers 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 in the customer's industry or geographic location, or we may 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 actually recognized in future periods. Accordingly, there can be no assurance that contracts included in backlog estimates will actually generate the specified revenues or that the actual revenues will be generated within the corresponding 60-month period. Backlog should be considered in addition to, rather than as a substitute for, reported revenue and deferred revenue. ACI also includes Operating EBITDA, which is defined as operating income (loss) plus depreciation and amortization and non-cash compensation. Operating EBITDA is considered a non-GAAP financial measure as defined by SEC Regulation G. Operating EBITDA should be considered in addition to, rather than as a substitute for, operating income (loss). 33 |
| Non-GAAP Financial Measures The presentation of these non-GAAP financial measures should be considered in addition to our GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management generally compensates for limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. 34 |
| Forward-Looking Statements This presentation 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. Forward-looking statements in this presentation include, but are not limited to, statements regarding: • Our belief that we have good visibility into forward revenue and profitability attainment; • Assumptions regarding our markets including expectations and assumptions relating to (i) the new regulatory regime impacting our clients through bank and card interchange fees in the US and resulting in more interest in our efficiency solutions, (ii) a higher demand for card usage in Latin America leading to more regulatory scrutiny and the need for EMV-type solutions, (iii) a strong demand for retail payments systems in Southeast Asia, (iv) the desire of Japanese corporations to grow internationally, (v) the desire of Australian banks to expand further into Asia, (vi) banks impacted by the European financial crisis feeling pressure to repay governments via efficiency gains and purchase of payments products, and (vii) a strong impetus in the Middle East/South Africa to purchase systems for efficiency gains; • Our belief that BASE24-eps migrations are gaining steam; • Our belief that BASE24-eps migrations sales are beginning to positively impact retail payment sales; • Expectations related to 2011 market opportunities including expectations and assumptions regarding (i) cross selling new applications to current customers based on an integrated payments solutions portfolio, (ii) investment in resources to accelerate growth in emerging markets including Brazil and China, (iii) multi-region wholesale market payment hubs, (iv) driving BASE24-eps migrations, (v) tools solutions in demand for monitoring, transaction testing and ensuring availability, (vi) new sales of ACI Issuer, ACI Acquirer and ACI Interchange to banks, processors and ISOs, (vii) global account deals, and (viii) continuing renewal of long-term customer relationships; •The company's 12-month and 60-month backlog estimates and assumptions, including (i) our belief that backlog from monthly recurring revenues and project go-lives will continue to drive current quarter GAAP revenue and lead to predictable quarterly performance, and (ii) expectations for backlog to contribute a similar percentage of 2011 revenue led by recurring revenue and project go-live events as it did in 2010; and • Expectations regarding 2011 financial guidance related to revenue, operating income and operating EBITDA and assumptions regarding other factors impacting our 2011 financial guidance, including sales and operating free cash flow. 35 |
| Forward-Looking Statements All of the foregoing forward-looking statements are expressly qualified by the risk factors discussed in our filings with the Securities and Exchange Commission. Such factors include but are not limited to, risks related to the global financial crisis and the continuing decline in the global economy, restrictions and other financial covenants in our credit facility, volatility and disruption of the capital and credit markets and adverse changes in the global economy, the maturation of our current credit facility, the restatement of our financial statements, consolidations and failures in the financial services industry, the accuracy of management's backlog estimates, the cyclical nature of our revenue and earnings and the accuracy of forecasts due to the concentration of revenue generating activity during the final weeks of each quarter, impairment of our goodwill or intangible assets, exposure to unknown tax liabilities, volatility in our stock price, risks from operating internationally, including fluctuations in currency exchange rates, increased competition, our offshore software development activities, customer reluctance to switch to a new vendor, the performance of our strategic product, BASE24-eps, the maturity of certain products, our strategy to migrate customers to our next generation products, ratable or deferred recognition of certain revenue associated with customer migrations and the maturity of certain of our products, demand for our products, failure to obtain renewals of customer contracts or to obtain such renewals on favorable terms, delay or cancellation of customer projects or inaccurate project completion estimates, business interruptions or failure of our information technology and communication systems, our alliance with International Business Machines Corporation ("IBM"), our outsourcing agreement with IBM, the complexity of our products and services and the risk that they may contain hidden defects or be subjected to security breaches or viruses, compliance of our products with applicable legislation, governmental regulations and industry standards, our compliance with privacy regulations, the protection of our intellectual property in intellectual property litigation, future acquisitions, strategic partnerships and investments and litigation. For a detailed discussion of these risk factors, parties that are relying on the forward-looking statements should review our filings with the Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. 36 |
| ACI's software underpins electronic payments throughout retail and wholesale banking, and commerce all the time, without fail. www.aciworldwide.com |