UNITED STATES
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
Date of Report (Date of earliest event reported): November 3, 2016 (November 3, 2016)
ACI WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 0-25346 | 47-0772104 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
3520 Kraft Rd, Suite 300
Naples, FL 34105
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (239) 403-4600
(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:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | 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 November 3, 2016, ACI Worldwide, Inc. (“the Company”) issued a press release announcing its financial results for the three months ended September 30, 2016. 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 Operation and Financial Condition” above.
| Item 9.01. | Financial Statements and Exhibits. |
| 99.1 | Press Release dated November 3, 2016 | |
| 99.2 | Investor presentation materials dated November 3, 2016 | |
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 Executive Vice President, Chief Financial Officer, and Chief Accounting Officer |
Date: November 3, 2016
3
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press Release dated November 3, 2016 | |
| 99.2 | Investor presentation materials dated November 3, 2016 | |
4
Exhibit 99.1
|
News Release |
ACI Worldwide, Inc. Reports Financial Results for the
Quarter Ended September 30, 2016
QUARTER HIGHLIGHTS
| • | Net new bookings grew 9%, adjusted for CFS divestiture |
| • | 60-month backlog up $42 million sequentially, adjusted for FX |
| • | Recurring revenue grew 8% to nearly 80% of total revenue, adjusted for CFS |
| • | SaaS revenue grew 13%, adjusted for CFS |
| • | Timing drives reduction in 2016 guidance |
NAPLES, FLA — November 3, 2016 — ACI Worldwide (NASDAQ: ACIW), a leading global provider of real-time electronic payment and banking solutions, today announced financial results for the quarter ended September 30, 2016.
“ACI is seeing growing interest in our Universal Payments solution and significant momentum in our SaaS and platform delivery. With success booking net new customers, our new bookings in Q3 grew 9% and our SaaS-specific bookings grew 24%. Also in the quarter we went live with our new state-of-the-art data center in Europe and signed an important partnership with VocaLink,” commented Phil Heasley, President and CEO, ACI Worldwide. “With our renewal business, we believe our plan to bundle Universal Payments has the potential to double our large customer average contract size with compelling value to both customers and ACI. However, it has caused our renewal negotiations to take longer than they have in the past and is impacting our forecast. This is simply a timing issue and we are making the conscious decision to realize economic value to ACI and our long-term shareholders. Overall, I believe our positioning is as exciting as it ever has been.”
Q3 FINANCIAL SUMMARY
Net new bookings grew 9% compared to Q3 2015, bolstered by SaaS-specific bookings that grew 24%. These numbers are adjusted for the Community Financial Services (CFS) divestiture.
Excluding the impact of foreign currency movements, our 12-month backlog declined $2 million to $850 million and our 60-month backlog grew $42 million to $4 billion during the quarter.
GAAP revenue of $217 million decreased 9% from last year and was below our guidance given the timing of certain renewals. After adjusting for the CFS divestiture and foreign currency fluctuations, revenue grew 2%. Recurring revenue increased $13 million, or 8%, and SaaS-based revenue grew $13 million, or 13%, compared to Q3 2015, after adjusting for CFS. This growth was offset by a decline in non-recurring license revenue.
Q3 2016 adjusted EBITDA was $35 million down from $46 million in the prior year period, excluding CFS contribution and related costs. The decline in adjusted EBITDA was primarily due to timing of non-recurring license revenue compared to Q3 last year. Net adjusted EBITDA margin in Q3 2016 was 18%, versus 24% in Q3 2015, after adjusting for pass through interchange fees of $31 million and $27 million in Q3 2016 and Q3 2015, respectively.
ACI ended Q3 2016 with $51 million in cash on hand, roughly flat with Q2, and a debt balance of $753 million, a decrease of $186 million from a debt balance of $939 million at year end 2015. Excluding the impact of our previously announced one-time capital investments in our European data center and cyber security, operating free cash flow (OFCF) for the quarter was negative $1 million.
UPDATING GUIDANCE
We are updating our full-year 2016 guidance expectations given the delayed timing of certain larger renewals. We now expect to generate revenue from ongoing operations in a range of $960 million to $990 million in 2016, down from a range of $990 million to $1.02 billion, which represents up to 4% organic growth after adjusting for the PAY.ON acquisition and foreign currency fluctuations. Adjusted EBITDA in 2016 is now expected to be in a range of $235 million to $245 million, down from a range of $265 million to $275 million. These ranges exclude the partial quarter contribution from the recently divested CFS operations of $15 million in revenue and $1 million in adjusted EBITDA in Q1 2016 and exclude $7 million of CFS-related indirect overhead costs and approximately $18 million in one-time integration related expenses for PAY.ON, the CFS divestiture, data center and facilities consolidation, and bill payment platform rationalization. We continue to expect full-year 2016 net new bookings to grow in the upper single digit range.
CONFERENCE CALL TO DISCUSS FINANCIAL RESULTS AND OUTLOOK
Management will host a conference call at 8:30 am ET to discuss these results as well as 2016 guidance. Interested persons may access a real-time audio broadcast of the teleconference at http://investor.aciworldwide.com/ or use the following numbers for dial-in participation: US/Canada: (866) 914-7436, international: +1 (817) 385-9117. Please provide your name, the conference name ACI Worldwide, Inc. and conference code 3269222. There will be a replay of the call available for two weeks on (855) 859-2056 for US/Canada callers and +1 (404) 537-3406 for international participants.
About ACI Worldwide
ACI Worldwide, the Universal Payments (UP) company, powers electronic payments for more than 5,000 organizations around the world. More than 1,000 of the largest financial institutions and intermediaries as well as 300 of the leading global retailers rely on ACI to execute $14 trillion each day in payments. In addition, thousands of organizations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software and SaaS-based solutions, we deliver real-time, any-to-any payments capabilities and enable the industry’s most complete omni-channel payments experience. To learn more about ACI, please visit www.aciworldwide.com. You can also find us on Twitter @ACI_Worldwide.
© Copyright ACI Worldwide, Inc. 2016.
For more information contact:
John Kraft, Vice President, Investor Relations & Strategic Analysis
ACI Worldwide
239-403-4627
john.kraft@aciworldwide.com
To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the tables, which exclude certain business combination accounting entries related to the acquisition of Online Resources Corporation, and significant transaction-related expenses, as well as other significant non-cash expenses such as depreciation, amortization and stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. The presentation of these non-GAAP financial measures should be considered in addition to our GAAP results and are 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 to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. Certain non-GAAP measures include:
| • | Non-GAAP revenue: revenue plus deferred revenue that would have been recognized in the normal course of business by Online Resources if not for GAAP purchase accounting requirements. Non-GAAP revenue should be considered in addition to, rather than as a substitute for, revenue. |
| • | Non-GAAP operating income: operating income plus deferred revenue that would have been recognized in the normal course of business by Online Resources if not for GAAP purchase accounting requirements and significant transaction-related expenses. Non-GAAP operating income should be considered in addition to, rather than as a substitute for, operating income. |
| • | Adjusted EBITDA: net income plus income tax expense (benefit), net interest income (expense), net other income (expense), depreciation, amortization and stock-based compensation, as well as deferred revenue that would have been recognized in the normal course of business by Online Resources if not for GAAP purchase accounting requirements and significant transaction-related expenses. Adjusted EBITDA should be considered in addition to, rather than as a substitute for, operating income. |
ACI is also presenting operating free cash flow, which is defined as net cash provided by operating activities, net after-tax payments associated with employee-related actions and facility closures, net after-tax payments associated with significant transaction-related expenses, and less capital expenditures plus European data center and cybersecurity capital expenditures. 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 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.
ACI also includes backlog estimates, which include all license, maintenance, 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, facilities management, and software hosting 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, but not limited to, 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.
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) expectations regarding growing interest in our Universal Payments solution and significant momentum in our SaaS and platform delivery options; (ii) expectations that our plan to bundle Universal Payments has the potential to double our large customer average contract size with compelling value to both customers and ACI; (iii) expectations regarding decisions to realize economic value to ACI; (iv) belief that our positioning is as exciting as it has ever been; and (v) expectations regarding revenue, adjusted EBITDA, and net new bookings in 2016.
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, increased competition, the success of our Universal Payments strategy, demand for our products, restrictions and other financial covenants in our credit facility, consolidations and failures in the financial services industry, customer reluctance to switch to a new vendor, the accuracy of management’s backlog estimates, 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, 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, volatility and disruption of the capital and credit markets and adverse changes in the global economy, our existing levels of debt, impairment of our goodwill or intangible assets, litigation, future acquisitions, strategic partnerships and investments, risks related to the expected benefits to be achieved in the transaction with PAY.ON, 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 ability to protect customer information from security breaches or attacks, our compliance with privacy regulations, the protection of our intellectual property in intellectual property litigation, exposure to credit or operating risks arising from certain payment funding methods, 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, business interruptions or failure of our information technology and communication systems, our offshore software development activities, risks from operating internationally, including fluctuations in currency exchange rates, exposure to unknown tax liabilities, volatility in our stock price, our pending appeal of the $43 million judgement, plus $2.7 million of attorney fees and costs awarded against us in the BHMI litigation, and potential claims associated with our sale and transition of our CFS assets and liabilities. 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 our Quarterly Reports on Form 10-Q.
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
| September 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 50,912 | $ | 102,239 | ||||
| Receivables, net of allowances of $3,829 and $5,045, respectively |
159,409 | 219,116 | ||||||
| Recoverable income taxes |
5,318 | 12,048 | ||||||
| Prepaid expenses |
28,825 | 27,461 | ||||||
| Other current assets |
18,304 | 21,637 | ||||||
|
|
|
|
|
|||||
| Total current assets |
262,768 | 382,501 | ||||||
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|
|
|||||
| Noncurrent assets |
||||||||
| Property and equipment, net |
78,894 | 60,630 | ||||||
| Software, net |
188,743 | 237,941 | ||||||
| Goodwill |
915,857 | 913,261 | ||||||
| Intangible assets, net |
212,393 | 256,925 | ||||||
| Deferred income taxes, net |
99,365 | 90,872 | ||||||
| Other noncurrent assets |
44,166 | 33,658 | ||||||
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|
|||||
| TOTAL ASSETS |
$ | 1,802,186 | $ | 1,975,788 | ||||
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|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 38,124 | $ | 55,420 | ||||
| Employee compensation |
48,647 | 31,213 | ||||||
| Current portion of long-term debt |
90,270 | 89,710 | ||||||
| Deferred revenue |
116,990 | 128,559 | ||||||
| Income taxes payable |
3,113 | 4,734 | ||||||
| Other current liabilities |
55,079 | 75,225 | ||||||
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|
|
|||||
| Total current liabilities |
352,223 | 384,861 | ||||||
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|
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| Noncurrent liabilities |
||||||||
| Deferred revenue |
40,720 | 42,081 | ||||||
| Long-term debt |
652,387 | 834,449 | ||||||
| Deferred income taxes, net |
24,055 | 28,067 | ||||||
| Other noncurrent liabilities |
38,039 | 31,930 | ||||||
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| Total liabilities |
1,107,424 | 1,321,388 | ||||||
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| Commitments and contingencies |
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| Stockholders’ equity |
||||||||
| Preferred stock |
— | — | ||||||
| Common stock |
702 | 702 | ||||||
| Additional paid-in capital |
590,009 | 561,379 | ||||||
| Retained earnings |
479,040 | 416,851 | ||||||
| Treasury stock |
(298,526 | ) | (252,956 | ) | ||||
| Accumulated other comprehensive loss |
(76,463 | ) | (71,576 | ) | ||||
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| Total stockholders’ equity |
694,762 | 654,400 | ||||||
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| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 1,802,186 | $ | 1,975,788 | ||||
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ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
| For the Three Months Ended September 30, |
||||||||
| 2016 | 2015 | |||||||
| Revenues |
||||||||
| License |
$ | 43,256 | $ | 50,237 | ||||
| Maintenance |
57,741 | 59,262 | ||||||
| Services |
19,809 | 25,842 | ||||||
| Hosting |
96,169 | 103,360 | ||||||
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| Total revenues |
216,975 | 238,701 | ||||||
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| Operating expenses |
||||||||
| Cost of license (1) |
5,253 | 5,387 | ||||||
| Cost of maintenance, services and hosting (1) |
95,014 | 104,272 | ||||||
| Research and development |
42,210 | 36,123 | ||||||
| Selling and marketing |
29,874 | 28,451 | ||||||
| General and administrative |
31,390 | 20,284 | ||||||
| Gain on sale of CFS assets |
489 | — | ||||||
| Depreciation and amortization |
22,098 | 20,298 | ||||||
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| Total operating expenses |
226,328 | 214,815 | ||||||
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| Operating income (loss) |
(9,353 | ) | 23,886 | |||||
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| Other income (expense) |
||||||||
| Interest expense |
(9,838 | ) | (9,728 | ) | ||||
| Interest income |
145 | 94 | ||||||
| Other |
2,794 | 4,314 | ||||||
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| Total other income (expense) |
(6,899 | ) | (5,320 | ) | ||||
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| Income (loss) before income taxes |
(16,252 | ) | 18,566 | |||||
| Income tax expense (benefit) |
(6,426 | ) | 3,786 | |||||
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| Net income (loss) |
$ | (9,826 | ) | $ | 14,780 | |||
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| Earnings (loss) per common share |
||||||||
| Basic |
$ | (0.08 | ) | $ | 0.13 | |||
| Diluted |
$ | (0.08 | ) | $ | 0.12 | |||
| Weighted average common shares outstanding |
||||||||
| Basic |
116,118 | 117,922 | ||||||
| Diluted |
116,118 | 119,304 | ||||||
| (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)
| For the Three Months Ended September 30, |
||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (9,826 | ) | $ | 14,780 | |||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: |
|
|||||||
| Depreciation |
5,547 | 5,331 | ||||||
| Amortization |
19,436 | 18,324 | ||||||
| Amortization of deferred debt issuance costs |
1,372 | 1,542 | ||||||
| Deferred income taxes |
(5,139 | ) | 7,734 | |||||
| Stock-based compensation expense |
10,793 | 759 | ||||||
| Gain on sale of CFS assets |
489 | — | ||||||
| Other |
355 | 1,011 | ||||||
| Changes in operating assets and liabilities, net of impact of acquisitions and divestiture: |
|
|||||||
| Receivables |
5,459 | 34,977 | ||||||
| Accounts payable |
(12,651 | ) | 1,575 | |||||
| Accrued employee compensation |
6,314 | (99 | ) | |||||
| Current income taxes |
(4,790 | ) | (4,445 | ) | ||||
| Deferred revenue |
(5,256 | ) | (7,466 | ) | ||||
| Other current and noncurrent assets and liabilities |
(4,816 | ) | (4,520 | ) | ||||
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| Net cash flows from operating activities |
7,287 | 69,503 | ||||||
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| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(13,701 | ) | (6,138 | ) | ||||
| Purchases of software and distribution rights |
(6,827 | ) | (3,521 | ) | ||||
| Proceeds from sale of CFS assets |
(519 | ) | — | |||||
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| Net cash flows from investing activities |
(21,047 | ) | (9,659 | ) | ||||
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| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
863 | 774 | ||||||
| Proceeds from exercises of stock options |
763 | 920 | ||||||
| Repurchase of restricted stock and performance shares for tax withholdings |
(1,529 | ) | (506 | ) | ||||
| Proceeds from revolving credit facility |
52,000 | 47,000 | ||||||
| Repayment of revolving credit facility |
(10,000 | ) | (47,000 | ) | ||||
| Repayment of term portion of credit agreement |
(23,824 | ) | (23,824 | ) | ||||
| Payments on other debt |
(3,328 | ) | (1,665 | ) | ||||
| Payments for debt issuance costs |
(370 | ) | — | |||||
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| Net cash flows from financing activities |
14,575 | (24,301 | ) | |||||
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| Effect of exchange rate fluctuations on cash |
(2,366 | ) | (5,083 | ) | ||||
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| Net increase (decrease) in cash and cash equivalents |
(1,551 | ) | 30,460 | |||||
| Cash and cash equivalents, beginning of period |
52,463 | 50,397 | ||||||
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| Cash and cash equivalents, end of period |
$ | 50,912 | $ | 80,857 | ||||
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ACI Worldwide, Inc.
Reconciliation of Selected GAAP Measures to Non-GAAP Measures (1)
(unaudited and in thousands, except per share data)
| FOR THE THREE MONTHS ENDED September 30, | ||||||||||||||||||||||||||||||||
| 2016 | 2016 | 2015 | 2015 | |||||||||||||||||||||||||||||
| Selected Non-GAAP Financial Data | GAAP | Adj | Non-GAAP | GAAP | Adj | Non-GAAP | $ Diff | % Diff | ||||||||||||||||||||||||
| Total revenues (2) |
$ | 216,975 | $ | — | $ | 216,975 | $ | 238,701 | $ | 177 | $ | 238,878 | $ | (21,903 | ) | -9 | % | |||||||||||||||
| Total expenses (3) |
226,328 | (6,868 | ) | 219,460 | 214,815 | (1,520 | ) | $ | 213,295 | 6,165 | 3 | % | ||||||||||||||||||||
| Operating income (loss) |
(9,353 | ) | 6,868 | (2,485 | ) | 23,886 | 1,697 | $ | 25,583 | (28,068 | ) | -110 | % | |||||||||||||||||||
| Income (loss) before income taxes |
(16,252 | ) | 6,868 | (9,384 | ) | 18,566 | 1,697 | $ | 20,263 | (29,647 | ) | -146 | % | |||||||||||||||||||
| Income tax expense (benefit) (4) |
(6,426 | ) | 2,217 | (4,209 | ) | 3,786 | 594 | $ | 4,380 | (8,589 | ) | -196 | % | |||||||||||||||||||
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| Net income (loss) |
$ | (9,826 | ) | $ | 4,651 | $ | (5,175 | ) | $ | 14,780 | $ | 1,103 | $ | 15,883 | $ | (21,058 | ) | -133 | % | |||||||||||||
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| Depreciation |
5,547 | — | 5,547 | 5,331 | — | 5,331 | 216 | 4 | % | |||||||||||||||||||||||
| Amortization - acquisition related intangibles |
5,248 | — | 5,248 | 5,601 | — | 5,601 | (353 | ) | -6 | % | ||||||||||||||||||||||
| Amortization - acquisition related software |
6,857 | — | 6,857 | 5,940 | — | 5,940 | 917 | 15 | % | |||||||||||||||||||||||
| Amortization - other |
7,331 | — | 7,331 | 6,783 | — | 6,783 | 548 | 8 | % | |||||||||||||||||||||||
| Stock-based compensation |
10,793 | — | 10,793 | 759 | — | 759 | 10,034 | 1322 | % | |||||||||||||||||||||||
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| Adjusted EBITDA |
$ | 26,423 | $ | 6,868 | $ | 33,291 | $ | 48,300 | $ | 1,697 | $ | 49,997 | $ | (16,706 | ) | -33 | % | |||||||||||||||
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| Earnings per share information |
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| Weighted average shares outstanding |
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| Basic |
116,118 | 116,118 | 116,118 | 117,922 | 117,922 | 117,922 | ||||||||||||||||||||||||||
| Diluted |
116,118 | 116,118 | 116,118 | 119,304 | 119,304 | 119,304 | ||||||||||||||||||||||||||
| Earnings per share |
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| Basic |
$ | (0.08 | ) | $ | 0.04 | $ | (0.04 | ) | $ | 0.13 | $ | 0.01 | $ | 0.13 | $ | (0.17 | ) | -130 | % | |||||||||||||
| Diluted |
$ | (0.08 | ) | $ | 0.04 | $ | (0.04 | ) | $ | 0.12 | $ | 0.01 | $ | 0.13 | $ | (0.17 | ) | -130 | % | |||||||||||||
| (1) | This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. |
| (2) | Adjustment for ORCC deferred revenue that would have been recognized in the normal course of business but was not recognized due to GAAP purchase accounting requirements. |
| (3) | Adjustment in 2016 include facility closure expenses of $2.9 million, employee related expenses of $1.5 million, and $1.9 million for professional and other fees as well as a $0.5 million reduction in the gain recognized on the sale of CFS assets. In 2015, we had adjustments for significant transaction related expenses, including, $0.9 million for employee related actions and $0.6 million for professional and other fees. |
| (4) | Tax effect of revenue and significant transaction related adjustments. |
| Quarter Ended | ||||||||
| September 30, | ||||||||
| Reconciliation of Operating Free Cash Flow (millions) | 2016 | 2015 | ||||||
| Net cash provided by operating activities |
$ | 7.3 | $ | 69.5 | ||||
| Net after-tax payments associated with employee-related actions |
0.8 | 1.0 | ||||||
| Net after-tax payments associated with facility closures |
0.2 | — | ||||||
| Net after-tax payments associated with significant transaction related expenses |
2.6 | 0.4 | ||||||
| Less capital expenditures |
(20.5 | ) | (9.7 | ) | ||||
| Plus capital expenditures for European datacenter and cyber security |
8.5 | — | ||||||
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| Operating Free Cash Flow |
$ | (1.1 | ) | $ | 61.2 | |||
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| Quarter Ended | ||||||||
| September 30, | ||||||||
| Reconciliation excluding CFS impact (millions) | 2016 | 2015 | ||||||
| Total non-GAAP revenue |
$ | 217.0 | $ | 238.9 | ||||
| CFS product revenue |
— | (23.3 | ) | |||||
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| Total non-GAAP revenue excluding CFS |
$ | 217.0 | $ | 215.6 | ||||
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| Total adjusted EBITDA |
$ | 33.3 | $ | 50.0 | ||||
| CFS adjusted EBITDA |
— | (3.6 | ) | |||||
| Retained indirect costs during TSA period |
1.8 | — | ||||||
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| Total adjusted EBITDA excluding CFS impact |
$ | 35.1 | $ | 46.4 | ||||
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ACI Worldwide September 30, 2016 Quarterly Results November 3, 2016 Exhibit 99.2
Private Securities Litigation Reform Act of 1995 Safe Harbor For Forward-Looking Statements 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.
QUARTER IN REVIEW Phil Heasley Chief Executive Officer
Q3 2016 in Review Continued traction with Universal Payments SaaS bookings grew 24%, adjusted for CFS Overall recurring revenue grew 8%, adjusted for CFS New European data center now live Renewal timing driving reduction in 2016 guidance
FINANCIAL REVIEW Scott Behrens Chief Financial Officer
Key Takeaways from the Quarter Bookings Net new bookings grew 9% and SaaS bookings grew 24% compared to Q3 last year, excluding CFS We continue to expect full year net new bookings growth to be in the high single digits Backlog 12-month backlog of $850 million, down $2 million from Q2 2016 60-month backlog of $4 billion, up $42 million from Q2 2016 Both numbers adjusted for FX Revenue Growth Recurring revenue grew 8% and SaaS revenues grew 13% over last year’s Q3, after adjusting for CFS Debt and Liquidity Operating free cash flow was negative $1 million, down from $61 million in Q3 last year Ended the quarter with $51 million in cash and $753 million in debt $78 million remaining on share repurchase authorization
Updating Guidance Guidance Revenue and adjusted EBITDA range excludes the contribution of CFS for January 1 through March 3, 2016 Guidance excludes approximately $7 million of indirect overhead costs expected to be incurred in 2016 during the Transition Services Agreement (TSA) period Amounts exclude approximately $18 million in one-time integration related expenses for PAY.ON, the CFS divestiture, data center and facilities consolidation and bill payment platform rationalization Net new bookings growth in 2016 expected to be in the upper single digits Low High Revenue - excluding CFS 960 990 Adjusted EBITDA - excluding CFS 235 245 $'s in millions Revised 2016 Guidance
APPENDIX
Monthly Recurring Revenue
Historic Bookings By Quarter New Accounts / New Applications 3/31/2014 $170,212 $36,928 $84,974 $48,311 22% 50% 28% 6/30/2014 $234,346 $44,321 $106,056 $83,969 19% 45% 36% 9/30/2014 $250,802 $63,396 $94,071 $93,336 25% 38% 37% 12/31/2014 $391,120 $99,972 $172,387 $118,761 26% 44% 30% 3/31/2015 $210,200 $38,555 $72,977 $98,668 18% 35% 47% 6/30/2015 $291,657 $32,919 $144,054 $114,683 11% 49% 39% 9/30/2015 $294,270 $22,916 $143,933 $127,420 8% 49% 43% 12/31/2015 $443,547 $173,206 $124,224 $146,118 39% 28% 33% 3/31/2016 $230,178 $67,680 $85,501 $76,997 29% 37% 33% 6/30/2016 $198,174 $26,050 $99,306 $72,818 13% 50% 37% 9/30/2016 $268,949 $88,047 $86,631 $94,271 33% 32% 35% Total Bookings New Accounts / New Applications Add-on Business inc. Capacity Upgrades & Services Term Extension SEP YTD 16 $697,301 $181,777 $271,438 $244,085 SEP YTD 15 $796,126 $94,390 $360,964 $340,772 Variance ($98,825) $87,387 ($89,526) ($96,686) Quarter-End Add-on Business inc. Capacity Upgrades & Services Term Extension Total Bookings Bookings Mix by Category
Net New Bookings Channel Qtr Ended Sep 16 Qtr Ended Sep 15 % Growth or Decline Americas $107,643 $95,578 13% EMEA 44,737 39,054 15% Asia-Pacific 22,298 32,217 -31% Total Net New $174,678 $166,849 5% CFS contribution - 6,021 Total Net New (ex CFS) $174,678 $160,828 9% New Bookings
Non-GAAP Operating Income (Loss) Non-GAAP Operating Income (loss) (millions) 2016 2015 Operating income (loss) ($9.4) $23.9 Plus: Deferred revenue fair value adjustment - 0.2 Employee related actions 1.6 0.9 Facilities related actions 2.9 - Adjustment to gain on sale of CFS assets 0.5 Significant transaction related expenses 1.9 0.6 Non-GAAP Operating income (loss) $ (2.5) $ 25.6 September 30, Quarter Ended
Adjusted EBITDA Adjusted EBITDA (millions) 2016 2015 Net income (loss) ($9.8) $14.8 Plus: Income tax expense (benefit) (6.4) 3.8 Net interest expense, net 9.7 9.6 Net other expense (income) (2.8) (4.3) Depreciation expense 5.5 5.3 Amortization expense 19.4 18.3 Non-cash compensation expense 10.8 0.8 Adjusted EBITDA $26.4 $48.3 Deferred revenue fair value adjustment - 0.2 Employee related actions 1.6 0.9 Facilities related actions 2.9 - Adjustment to gain on sale of CFS assets 0.5 - Significant transaction related expenses 1.9 0.6 Adjusted EBITDA excluding significant transaction related expenses $ 33.3 $ 50.0 Adjusted EBITDA excluding CFS impact (millions) 2016 2015 Total Adjusted EBITDA $33.3 $50.0 CFS Adjusted EBITDA - (3.6) Retained indirect costs during TSA period 1.8 - Total Adjusted EBITDA excluding CFS impact $ 35.1 $ 46.4 Quarter Ended September 30, Quarter Ended September 30,
Operating Free Cash Flow * Tax effected at 35%
60-Month Backlog
Backlog as a Contributor of Quarterly Revenue Backlog from monthly recurring revenues and project go-lives continues to drive current quarter GAAP revenue Revenue from current quarter sales consistent with prior quarters Revenue Qtr Ended Sep 16 Qtr Ended Sep 15 % Growth or Decline Revenue from Backlog $212,175 $228,561 -7.2% Revenue from Bookings 4,800 10,140 -52.7% Total Revenue $216,975 $238,701 -9.1% Revenue from Backlog 98% 96% Revenue from Bookings 2% 4% Revenue
EPS Impact of Non-Cash and Significant Transaction Related Items
Contract Duration Metric Represents dollar average remaining contract life (in years) for term license software contracts Excludes perpetual contracts (primarily heritage S1 licensed software contracts) Excludes all hosted contracts as both cash and revenue are ratable over the contract term
Non-GAAP Financial Measures To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the tables, which exclude certain business combination accounting entries related to the acquisition of Online Resources Corporation and significant transaction related expenses, as well as other significant non-cash expenses such as depreciation, amortization, and non-cash compensation, that we believe are helpful in understanding our past financial performance and our future results. The presentation of these non-GAAP financial measures should be considered in addition to our GAAP results and are 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 to view aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. Certain non-GAAP measures include: Non-GAAP revenue: revenue plus deferred revenue that would have been recognized in the normal course of business by Online Resources if not for GAAP purchase accounting requirements. Non-GAAP revenue should be considered in addition to, rather than as a substitute for, revenue. Non-GAAP operating income: operating income plus deferred revenue that would have been recognized in the normal course of business by Online Resources if not for GAAP purchase accounting requirements and significant transaction related expenses and less the pre-tax gain on the divestiture of CFS. Non-GAAP operating income should be considered in addition to, rather than as a substitute for, operating income. Adjusted EBITDA: net income plus income tax expense, net interest income (expense), net other income (expense), depreciation, amortization, and non-cash compensation, as well as deferred revenue that would have been recognized in the normal course of business by Online Resources if not for GAAP purchase accounting requirements and significant transaction related expenses. Adjusted EBITDA should be considered in addition to, rather than as a substitute for, operating income.
Non-GAAP Financial Measures ACI is also presenting operating free cash flow, which is defined as net cash provided by operating activities, plus payments associated with acquired opening balance sheet liabilities, net after-tax payments associated with employee-related actions and facility closures, net after-tax payments associated with significant transaction related expenses and less capital expenditures plus capital expenditures for European data center and cyber security. 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 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. ACI also includes backlog estimates, which include all license, maintenance, services, and hosting 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.
Non-GAAP Financial Measures 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, facilities management, and software hosting 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, but not limited to, 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.
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: Continued traction with Universal Payments; Expectations regarding 2016 financial guidance related to revenue and adjusted EBITDA; and Expectations regarding full year net new bookings growth
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, increased competition, the success of our Universal Payments strategy, demand for our products, restrictions and other financial covenants in our credit facility, consolidations and failures in the financial services industry, customer reluctance to switch to a new vendor, the accuracy of management’s backlog estimates, 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, 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, volatility and disruption of the capital and credit markets and adverse changes in the global economy, our existing levels of debt, impairment of our goodwill or intangible assets, litigation, future acquisitions, strategic partnerships and investments, risks related to the expected benefits to be achieved in the transaction with PAY.ON, 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 ability to protect customer information from security breaches or attacks, our compliance with privacy regulations, the protection of our intellectual property in intellectual property litigation, exposure to credit or operating risks arising from certain payment funding methods, 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, business interruptions or failure of our information technology and communication systems, our offshore software development activities, risks from operating internationally, including fluctuations in currency exchange rates, exposure to unknown tax liabilities, volatility in our stock price, our pending appeal of the $43 million judgement, plus $2.7 million of attorney fees and costs awarded against us in the BHMI litigation, and potential claims associated with our sale and transition of our CFS assets and liabilities. 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 our Quarterly Reports on Form 10-Q.