UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-Q
____________________________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number 0-25346
___________________________
(Exact name of registrant as specified in its charter)
___________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||||||||
(305 ) 894-2200
(Registrant’s telephone number, including area code)
______________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 2, 2022, there were 114,786,563 shares of the registrant’s common stock outstanding.
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
| Item 1 | ||||||||
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share amounts)
| March 31, 2022 | December 31, 2021 | ||||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Receivables, net of allowances of $ | |||||||||||
Settlement assets | |||||||||||
Prepaid expenses | |||||||||||
Other current assets | |||||||||||
| Total current assets | |||||||||||
| Noncurrent assets | |||||||||||
Accrued receivables, net | |||||||||||
Property and equipment, net | |||||||||||
Operating lease right-of-use assets | |||||||||||
Software, net | |||||||||||
Goodwill | |||||||||||
Intangible assets, net | |||||||||||
Deferred income taxes, net | |||||||||||
Other noncurrent assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | $ | |||||||||
Settlement liabilities | |||||||||||
Employee compensation | |||||||||||
| Current portion of long-term debt | |||||||||||
Deferred revenue | |||||||||||
Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
Noncurrent liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes, net | |||||||||||
| Operating lease liabilities | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies | |||||||||||
Stockholders’ equity | |||||||||||
Preferred stock; $ | |||||||||||
Common stock; $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues | |||||||||||
Software as a service and platform as a service | $ | $ | |||||||||
License | |||||||||||
Maintenance | |||||||||||
Services | |||||||||||
Total revenues | |||||||||||
| Operating expenses | |||||||||||
Cost of revenue (1) | |||||||||||
Research and development | |||||||||||
Selling and marketing | |||||||||||
General and administrative | |||||||||||
Depreciation and amortization | |||||||||||
Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Other income (expense) | |||||||||||
Interest expense | ( | ( | |||||||||
Interest income | |||||||||||
Other, net | ( | ||||||||||
| Total other income (expense) | ( | ( | |||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Income tax expense (benefit) | ( | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Income (loss) per common share | |||||||||||
Basic | $ | $ | ( | ||||||||
Diluted | $ | $ | ( | ||||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
(1) The cost of revenue excludes charges for depreciation but includes amortization of purchased and developed software for resale.
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Other comprehensive loss: | |||||||||||
Foreign currency translation adjustments | ( | ( | |||||||||
| Total other comprehensive loss | ( | ( | |||||||||
| Comprehensive income (loss) | $ | $ | ( | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited and in thousands, except share amounts)
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Shares issued and forfeited, net, under stock plans | — | ( | — | — | |||||||||||||||||||||||||||||||
Repurchase of | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
Repurchase of stock-based compensation awards for tax withholdings | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net loss | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Shares issued and forfeited, net, under stock plans | — | ( | — | — | |||||||||||||||||||||||||||||||
Repurchase of stock-based compensation awards for tax withholdings | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||
Depreciation | |||||||||||
Amortization | |||||||||||
Amortization of operating lease right-of-use assets | |||||||||||
Amortization of deferred debt issuance costs | |||||||||||
Deferred income taxes | ( | ( | |||||||||
Stock-based compensation expense | |||||||||||
Other | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
Receivables | |||||||||||
Accounts payable | ( | ( | |||||||||
Accrued employee compensation | ( | ( | |||||||||
Deferred revenue | |||||||||||
Other current and noncurrent assets and liabilities | ( | ( | |||||||||
Net cash flows from operating activities | |||||||||||
Cash flows from investing activities: | |||||||||||
Purchases of property and equipment | ( | ( | |||||||||
Purchases of software and distribution rights | ( | ( | |||||||||
Net cash flows from investing activities | ( | ( | |||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from issuance of common stock | |||||||||||
Proceeds from exercises of stock options | |||||||||||
| Repurchase of stock-based compensation awards for tax withholdings | ( | ( | |||||||||
Repurchases of common stock | ( | ||||||||||
Proceeds from revolving credit facility | |||||||||||
Repayment of revolving credit facility | ( | ( | |||||||||
Repayment of term portion of credit agreement | ( | ( | |||||||||
| Payments on or proceeds from other debt, net | ( | ( | |||||||||
| Net decrease in settlement assets and liabilities | ( | ( | |||||||||
Net cash flows from financing activities | ( | ( | |||||||||
| Effect of exchange rate fluctuations on cash | ( | ( | |||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents, including settlement deposits, beginning of period | |||||||||||
| Cash and cash equivalents, including settlement deposits, end of period | $ | $ | |||||||||
| Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Settlement deposits | |||||||||||
| Total cash and cash equivalents, including settlement deposits | $ | $ | |||||||||
| Supplemental cash flow information | |||||||||||
Income taxes paid | $ | $ | |||||||||
Interest paid | $ | $ | |||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
ACI WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements include the accounts of ACI Worldwide, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 2021, is derived from the audited financial statements.
The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 24, 2022. Results for the three months ended March 31, 2022, are not necessarily indicative of results that may be attained in the future.
Revision of Prior Period Financial Statements
As of December 31, 2021, the Company revised the previously reported consolidated statements of cash flows to include settlement deposits in total cash and cash equivalents and settlement receivables and settlement liabilities net activity in cash flows from financing activities, both of which were previously included in cash flows from operating activities. This immaterial revision did not have an effect on its previously reported consolidated balance sheets, statements of operations, statements of comprehensive income, or statements of stockholders' equity.
A summary of the revisions to the previously reported balances are presented in the table below for comparative purposes (in thousands):
| Three Months Ended March 31, 2021 | |||||||||||||||||
| As reported | Revision adjustment | As revised | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Other current and noncurrent assets and liabilities | $ | ( | $ | ( | $ | ( | |||||||||||
| Net cash flows from operating activities | ( | ||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Net decrease in settlement assets and liabilities | $ | $ | ( | $ | ( | ||||||||||||
| Net cash flows from financing activities | ( | ( | ( | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | $ | ( | $ | ( | ||||||||||||
| Cash and cash equivalents, including settlement deposits, beginning of period | |||||||||||||||||
| Cash and cash equivalents, including settlement deposits, end of period | |||||||||||||||||
8
Other Current Liabilities
| March 31, 2022 | December 31, 2021 | ||||||||||
| Operating lease liabilities | $ | $ | |||||||||
| Vendor financed licenses | |||||||||||
| Accrued interest | |||||||||||
| Royalties payable | |||||||||||
| Other | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
Settlement Assets and Liabilities
Individuals and businesses settle their obligations to the Company’s various Biller clients using credit or debit cards or via automated clearing house (“ACH”) payments. The Company creates a receivable for the amount due from the credit or debit card processor and an offsetting payable to the client. Upon confirmation that the funds have been received, the Company settles the obligation to the client. Due to timing, in some instances, the Company may (1) receive the funds into bank accounts controlled by and in the Company’s name that are not disbursed to its clients by the end of the day, resulting in a settlement deposit on the Company’s books and (2) disburse funds to its clients in advance of receiving funds from the credit or debit card processor, resulting in a net settlement receivable position.
The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy).
9
Goodwill
In accordance with the Accounting Standards Codification ("ASC") 350, Intangibles – Goodwill and Other, the Company assesses goodwill for impairment annually during the fourth quarter of its fiscal year using October 1 balances or when there is evidence that events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company evaluates goodwill at the reporting unit level and has identified its operating segments, Banks, Merchants, and Billers, as the reporting units. As of March 31, 2022, the Company's goodwill balance of $1.3 billion was allocated $725.9 million to Banks, $137.3 million to Merchants, and $417.0 million to Billers.
Recoverability of goodwill is measured using a discounted cash flow model incorporating discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in impairment testing in the absence of available transactional market evidence to determine the fair value. The calculated fair value was substantially in excess of the current carrying value for all reporting units based upon the October 1, 2021, annual impairment test and there have been no indications of impairment in the subsequent periods.
Equity Method Investment
In July 2019, the Company invested $18.3 million for a 30 % non-controlling financial interest in a payment technology and services company in India. The Company accounted for this investment using the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures. The Company records its share of earnings and losses in the investment on a one-quarter lag basis. Accordingly, the Company recorded an investment of $18.9 million and $19.3 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of March 31, 2022, and December 31, 2021, respectively.
2. Revenue
In accordance with ASC 606, Revenue From Contracts With Customers, revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. See Note 9, Segment Information, for additional information, including disaggregation of revenue based on primary solution category.
Total receivables represent amounts billed and amounts earned that are to be billed in the future (i.e., accrued receivables). Included in accrued receivables are services, software as a service ("SaaS"), and platform as a service ("PaaS") revenues earned in the current period but billed in the following period, and amounts due under multi-year software license arrangements with extended payment terms for which the Company has an unconditional right to invoice and receive payment subsequent to invoicing.
| March 31, 2022 | December 31, 2021 | ||||||||||
| Billed receivables | $ | $ | |||||||||
| Allowance for doubtful accounts | ( | ( | |||||||||
| Billed receivables, net | |||||||||||
| Current accrued receivables, net | |||||||||||
| Long-term accrued receivables, net | |||||||||||
| Total accrued receivables, net | |||||||||||
| Total receivables, net | $ | $ | |||||||||
One customer accounted for 13.8
10
Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and PaaS services in advance of recording the related revenue.
Balance, December 31, 2021 | $ | ||||
| Deferral of revenue | |||||
| Recognition of deferred revenue | ( | ||||
| Foreign currency translation | ( | ||||
Balance, March 31, 2022 | $ | ||||
Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include:
•Revenue that will be recognized in future periods from capacity overages that are accounted for as a usage-based royalty.
•SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the ‘right to invoice’ practical expedient or meets the allocation objective.
Revenue allocated to remaining performance obligations was $788.8 million as of March 31, 2022, of which the Company expects to recognize approximately 45 % over the next 12 months and the remainder thereafter.
During the three months ended March 31, 2022 and 2021, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant.
3. Debt
As of March 31, 2022, the Company had $30.0 million, $668.4 million, and $400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $468.5 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement. The amount of unused borrowings actually available varies in accordance with the terms of the agreement.
Credit Agreement
On April 5, 2019, the Company and its wholly-owned subsidiaries, ACI Worldwide Corp. and ACI Payments, Inc. entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with the lenders, and Bank of America, N.A., as administrative agent for the lenders, to amend and restate the Company's existing agreement, as amended, dated February 24, 2017.
The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans, (b) a five-year $279.0 million senior secured term loan facility (the "Initial Term Loan") and (c) a five-year $500.0 million Delayed Draw Term Loan (together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility, the “Credit Facility”). The Credit Agreement also allows the Company to request optional incremental term loans and increases in the revolving commitment. The Credit Facility will mature on April 5, 2024.
At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to, either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, or (3) a London Interbank Offered Rate (“LIBOR”) rate determined by reference to the costs of funds for U.S. dollar deposits for a one-month interest period, adjusted for certain additional costs, plus 1 % or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, plus an applicable margin. Based on the calculation of the applicable consolidated total leverage ratio, the applicable margin for borrowings under the Credit Facility is between 0.25 % to 1.25 % with respect to base rate borrowings and between 1.25 % and 2.25 % with respect to LIBOR rate borrowings. Interest is due and payable monthly. The interest rate in effect for the Credit Facility as of March 31, 2022, was 2.20 %.
11
The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees.
Expected Discontinuation of LIBOR
The administrator of LIBOR announced it would cease publication of the U.S. dollar LIBOR settings immediately following the LIBOR publication on June 30, 2023. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the first publication of SOFR rates was released in April 2018.
The Company is evaluating the potential impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including SOFR. The Company's Credit Agreement is currently indexed to U.S dollar LIBOR and the maturity date of the Credit Agreement extends beyond June 30, 2023. The Credit Agreement contemplates the discontinuation of LIBOR and provides options for the Company in such an event. The Company will continue to actively assess the related opportunities and risks involved in this transition.
Senior Notes
On August 21, 2018, the Company completed a $400.0 million offering of the 2026 Notes at an issue price of 100 % of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750 %, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes will mature on August 15, 2026.
| Fiscal Year Ending December 31, | |||||
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
As of March 31, 2022, and at all times during the period, the Company was in compliance with its financial debt covenants.
| March 31, 2022 | December 31, 2021 | ||||||||||
| Term loans | $ | $ | |||||||||
| Revolving credit facility | |||||||||||
| Debt issuance costs | ( | ( | |||||||||
| Total debt | |||||||||||
| Less: current portion of term loans | |||||||||||
| Less: current portion of debt issuance costs | ( | ( | |||||||||
| Total long-term debt | $ | $ | |||||||||
12
Overdraft Facility
In 2019, the Company and ACI Payments, Inc. entered in to an uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at the federal funds effective rate plus 2.250 % based on the Company’s average outstanding balance and the frequency in which overdrafts occur. The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process. Amounts outstanding on the overdraft facility are included in other current liabilities in the condensed consolidated balance sheet. As of March 31, 2022, there was $75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2021, there was no amount outstanding on the overdraft facility.
Other
The Company finances certain multi-year license agreements for internal-use software. Upon execution, these arrangements have been treated as a non-cash investing and financing activity for purposes of the condensed consolidated statements of cash flows. As of March 31, 2022, $2.3 million was outstanding on these agreements, all of which is included in other current liabilities in the condensed consolidated balance sheet. As of December 31, 2021, $2.9 million was outstanding on these agreements, all of which is included in other current liabilities in the condensed consolidated balance sheet.
4. Software and Other Intangible Assets
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Balance | Gross Carrying Amount | Accumulated Amortization | Net Balance | ||||||||||||||||||||||||||||||
| Software for internal use | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Software for resale | ( | ( | |||||||||||||||||||||||||||||||||
| Total software | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Amortization of software for internal use is computed using the straight-line method over an estimated useful life of generally to eight years . Software for internal use amortization expense recorded during the three months ended March 31, 2022 and 2021, totaled $16.7 million and $16.9 million, respectively. These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations.
Amortization of software for resale is computed using the greater of (a) the ratio of current gross revenues to the total of current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining estimated useful life of generally to ten years . Software for resale amortization expense recorded during the three months ended March 31, 2022 and 2021, totaled $0.7 million and $2.0 million, respectively. These software amortization expense amounts are reflected in cost of revenue in the condensed consolidated statements of operations.
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Balance | Gross Carrying Amount | Accumulated Amortization | Net Balance | ||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||||||||
| Total other intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Other intangible assets amortization expense recorded during both the three months ended March 31, 2022 and 2021, totaled $9.2 million and $9.3 million, respectively.
13
| Fiscal Year Ending December 31, | Software Amortization | Other Intangible Assets Amortization | ||||||||||||
| Remainder of 2022 | $ | $ | ||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total | $ | $ | ||||||||||||
5. Stock-Based Compensation Plans
Employee Stock Purchase Plan
Shares issued under the 2017 Employee Stock Purchase Plan during the three months ended March 31, 2022 and 2021, totaled 31,406 and 27,117 , respectively.
Stock Options
| Number of Shares | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value of In-the-Money Options ($) | ||||||||||||||||||||
| Outstanding as of December 31, 2021 | $ | ||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Outstanding as of March 31, 2022 | $ | $ | |||||||||||||||||||||
| Exercisable as of March 31, 2022 | $ | $ | |||||||||||||||||||||
The total intrinsic value of stock options exercised during the three months ended March 31, 2022 and 2021, was $0.9 million and $3.1 million, respectively. There were no
Total Shareholder Return Awards
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Nonvested as of December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Change in payout rate | ( | ||||||||||
| Nonvested as of March 31, 2022 | $ | ||||||||||
During the three months ended March 31, 2022, a total of 212,210 TSRs awards granted in fiscal 2019 vested and achieved a payout rate of 65 % based on the Company's total shareholder return as compared to a group of peer companies over a three-
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| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Expected life (years) | |||||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Expected dividend yield | |||||||||||
Restricted Share Units
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Nonvested as of December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Nonvested as of March 31, 2022 | $ | ||||||||||
During the three months ended March 31, 2022, a total of 356,079 RSUs vested. The Company withheld 122,337 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
As of March 31, 2022, there were unrecognized compensation costs of $39.6 million and $36.1 million related to nonvested RSUs and TSRs, respectively, which the Company expects to recognize over weighted average periods of 2.4
6. Common Stock and Treasury Stock
In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program. In December 2021, the board approved the repurchase of the Company's common stock of up to $250.0 million, in place of the remaining purchase amounts previously authorized.
The Company repurchased 1,131,248 shares for $37.9 million during the three months ended March 31, 2022. Under the program to date, the Company has repurchased 50,488,743 shares for approximately $757.6 million. As of March 31, 2022, the maximum remaining amount authorized for purchase under the stock repurchase program was $178.4 million.
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7. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed in accordance with ASC 260, Earnings Per Share, based on weighted average outstanding common shares. Diluted earnings (loss) per share is computed based on basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs, and certain contingently issuable shares for which performance targets have been achieved.
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Weighted average shares outstanding: | |||||||||||
| Basic weighted average shares outstanding | |||||||||||
| Add: Dilutive effect of stock options and RSUs | |||||||||||
| Diluted weighted average shares outstanding | |||||||||||
The diluted earnings (loss) per share computation excludes 1.8 million and 4.5 million options to purchase shares, RSUs, and contingently issuable shares during the three months ended March 31, 2022 and 2021, respectively, as their effect would be anti-dilutive.
Common stock outstanding as of March 31, 2022, and December 31, 2021, was 115,085,627 and 115,730,046 , respectively.
8. Other, Net
9. Segment Information
The Company reports financial performance based on its operating segments, Banks, Merchants, and Billers, and analyzes Segment Adjusted EBITDA as a measure of segment profitability.
The Company’s Chief Executive Officer is also the chief operating decision maker ("CODM"). The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from Corporate operations. No operating segments have been aggregated to form the reportable segments.
Banks. ACI provides payment solutions to large and mid-size banks globally for retail banking, real time, digital, and other payment services. These solutions transform banks’ complex payment environments to speed time to market, reduce costs, and deliver a consistent experience to customers across channels while enabling them to prevent and rapidly react to fraudulent activity. In addition, they enable banks to meet the requirements of different real-time payments schemes and to quickly create differentiated products to meet consumer, business, and merchant demands.
Merchants. ACI’s support of merchants globally includes Tier 1 and Tier 2 merchants, online-only merchants and the payment service providers, independent selling organizations, value-added resellers, and acquirers who service them. These customers operate in a variety of verticals, including general merchandise, grocery, hospitality, dining, transportation, and others. The Company's solutions provide merchants with a secure, omni-channel payments platform that gives them independence from third-party payment providers. They also offer secure solutions to online-only merchants that provide consumers with a convenient and seamless way to shop.
Billers. Within the billers segment, ACI provides electronic bill presentment and payment (“EBPP”) services to companies operating in the consumer finance, insurance, healthcare, higher education, utility, government, and mortgage categories. The solutions enable these customers to support a wide range of payment options and provide a convenient consumer payments experience that drives consumer loyalty and increases revenue.
Revenue is attributed to the reportable segments based upon the customer. Expenses are attributed to the reportable segments in one of three methods: (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual projects, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities.
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Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of the Company’s segments, and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting. Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude net other income (expense).
Corporate and unallocated expenses includes global facilities and information technology costs and long-term product roadmap expenses in addition to corporate overhead costs that are not allocated to reportable segments. The overhead costs relate to human resources, finance, legal, accounting, and merger and acquisition activity. These costs along with depreciation and amortization and stock-based compensation are not considered when management evaluates segment performance.
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenue | |||||||||||
| Banks | $ | $ | |||||||||
| Merchants | |||||||||||
| Billers | |||||||||||
| Total revenue | $ | $ | |||||||||
| Segment Adjusted EBITDA | |||||||||||
| Banks | $ | $ | |||||||||
| Merchants | |||||||||||
| Billers | |||||||||||
| Depreciation and amortization | ( | ( | |||||||||
| Stock-based compensation expense | ( | ( | |||||||||
| Corporate and unallocated expenses | ( | ( | |||||||||
| Interest, net | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Income (loss) before income taxes | $ | $ | ( | ||||||||
Assets are not allocated to segments, and the Company’s CODM does not evaluate operating segments using discrete asset information.
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The following is revenue by primary solution category for the Company’s reportable segments for the periods indicated (in thousands):
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Banks | Merchants | Billers | Total | ||||||||||||||||||||
| Primary Solution Categories | |||||||||||||||||||||||
| Bill Payments | $ | $ | $ | $ | |||||||||||||||||||
| Digital Business Banking | |||||||||||||||||||||||
| Merchant Payments | |||||||||||||||||||||||
| Fraud Management | |||||||||||||||||||||||
| Real-Time Payments | |||||||||||||||||||||||
| Issuing and Acquiring | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Banks | Merchants | Billers | Total | ||||||||||||||||||||
| Primary Solution Categories | |||||||||||||||||||||||
| Bill Payments | $ | $ | $ | $ | |||||||||||||||||||
| Digital Business Banking | |||||||||||||||||||||||
| Merchant Payments | |||||||||||||||||||||||
| Fraud Management | |||||||||||||||||||||||
| Real-Time Payments | |||||||||||||||||||||||
| Issuing and Acquiring | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Banks | |||||||||||
| Software as a service and platform as a service | $ | $ | |||||||||
| License | |||||||||||
| Maintenance | |||||||||||
| Services | |||||||||||
| Total | $ | $ | |||||||||
| Merchants | |||||||||||
| Software as a service and platform as a service | $ | $ | |||||||||
| License | |||||||||||
| Maintenance | |||||||||||