SEC Filing | ACI Worldwide

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aciw-20230930

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 September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-25346

___________________________

ACI WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

___________________________

Delaware

47-0772104

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2811 Ponce de Leon Blvd

PH 1

Coral Gables,

Florida

33134

(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):


Large accelerated filer	☒	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 October 31, 2023, there were 108,722,535 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

Common Stock, $0.005 par value

ACIW

Nasdaq Global Select Market

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	TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2023, and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	8
	Notes to Condensed Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	Controls and Procedures	39

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	40
Item 1A	Risk Factors	40
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3	Defaults Upon Senior Securities	41
Item 4	Mine Safety Disclosures	42
Item 5	Other Information	42
Item 6	Exhibits	43

Signature		45

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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)


	September 30, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	139,520	$	124,981
Receivables, net of allowances of $4,900 and $3,779, respectively	370,766		403,781
Settlement assets	649,494		540,667
Prepaid expenses	32,176		28,010
Other current assets	34,754		17,366
Total current assets	1,226,710		1,114,805
Noncurrent assets
Accrued receivables, net	279,303		297,818
Property and equipment, net	41,098		52,499
Operating lease right-of-use assets	33,609		40,031
Software, net	105,324		129,109
Goodwill	1,226,026		1,226,026
Intangible assets, net	203,137		228,698
Deferred income taxes, net	75,448		53,738
Other noncurrent assets	64,173		67,171
TOTAL ASSETS	$	3,254,828	$	3,209,895
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	40,951	$	47,997
Settlement liabilities	648,956		539,087
Employee compensation	42,025		45,289
Current portion of long-term debt	74,350		65,521
Deferred revenue	61,438		58,303
Other current liabilities	77,910		102,645
Total current liabilities	945,630		858,842
Noncurrent liabilities
Deferred revenue	23,107		23,233
Long-term debt	987,221		1,024,351
Deferred income taxes, net	33,687		40,371
Operating lease liabilities	28,657		33,910
Other noncurrent liabilities	25,491		36,001
Total liabilities	2,043,793		2,016,708
Commitments and contingencies
Stockholders’ equity
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at September 30, 2023, and December 31, 2022	—		—
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at September 30, 2023, and December 31, 2022	702		702
Additional paid-in capital	708,506		702,458
Retained earnings	1,272,351		1,273,458
Treasury stock, at cost, 31,802,520 and 32,456,227 shares at September 30, 2023, and December 31, 2022, respectively	(653,162)		(665,771)
Accumulated other comprehensive loss	(117,362)		(117,660)
Total stockholders’ equity	1,211,035		1,193,187
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,254,828	$	3,209,895

The accompanying notes are an integral part of the condensed consolidated financial statements.

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ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Software as a service and platform as a service	$	211,369	$	195,540	$	625,975	$	597,080
License	79,679		43,661		142,681		168,260
Maintenance	51,942		49,163		153,436		151,143
Services	20,025		18,227		53,924		53,613
Total revenues	363,015		306,591		976,016		970,096
Operating expenses
Cost of revenue (1)	177,625		171,753		537,522		517,372
Research and development	33,739		35,899		106,122		114,348
Selling and marketing	29,442		32,794		98,166		102,793
General and administrative	29,821		30,516		92,675		84,753
Depreciation and amortization	30,464		32,140		93,439		95,218
Total operating expenses	301,091		303,102		927,924		914,484
Operating income	61,924		3,489		48,092		55,612
Other income (expense)
Interest expense	(19,840)		(14,336)		(58,641)		(37,014)
Interest income	3,495		2,995		10,458		9,205
Other, net	1,084		41,545		(6,403)		45,801
Total other income (expense)	(15,261)		30,204		(54,586)		17,992
Income (loss) before income taxes	46,663		33,693		(6,494)		73,604
Income tax expense (benefit)	8,752		10,576		(5,387)		21,655
Net income (loss)	$	37,911	$	23,117	$	(1,107)	$	51,949
Income (loss) per common share
Basic	$	0.35	$	0.20	$	(0.01)	$	0.45
Diluted	$	0.35	$	0.20	$	(0.01)	$	0.45
Weighted average common shares outstanding
Basic	108,667		113,812		108,428		114,584
Diluted	108,933		114,348		108,428		115,211

(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.

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ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	37,911	$	23,117	$	(1,107)	$	51,949
Other comprehensive income (loss):
Foreign currency translation adjustments	(6,310)		(13,459)		298		(28,179)
Total other comprehensive income (loss)	(6,310)		(13,459)		298		(28,179)
Comprehensive income (loss)	$	31,601	$	9,658	$	(809)	$	23,770

The accompanying notes are an integral part of the condensed consolidated financial statements.

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ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands, except share amounts)


	Three Months Ended September 30, 2023
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of June 30, 2023	$	702	$	704,096	$	1,234,440	$	(655,660)	$	(111,052)	$	1,172,526
Net income	—		—		37,911		—		—		37,911
Other comprehensive loss	—		—		—		—		(6,310)		(6,310)
Stock-based compensation	—		6,822		—		—		—		6,822
Shares issued and forfeited, net, under stock plans	—		(2,412)		—		3,381		—		969

Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(883)		—		(883)
Balance as of September 30, 2023	$	702	$	708,506	$	1,272,351	$	(653,162)	$	(117,362)	$	1,211,035


	Three Months Ended September 30, 2022
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of June 30, 2022	$	702	$	690,574	$	1,160,113	$	(528,758)	$	(114,267)	$	1,208,364
Net income	—		—		23,117		—		—		23,117
Other comprehensive loss	—		—		—		—		(13,459)		(13,459)
Stock-based compensation	—		7,126		—		—		—		7,126
Shares issued and forfeited, net, under stock plans	—		63		—		1,250		—		1,313
Repurchase of 1,154,825 shares of common stock	—		—		—		(28,227)		—		(28,227)
Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(18)		—		(18)
Balance as of September 30, 2022	$	702	$	697,763	$	1,183,230	$	(555,753)	$	(127,726)	$	1,198,216

The accompanying notes are an integral part of the condensed consolidated financial statements.

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ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands, except share amounts)


	Nine Months Ended September 30, 2023
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of December 31, 2022	$	702	$	702,458	$	1,273,458	$	(665,771)	$	(117,660)	$	1,193,187
Net loss	—		—		(1,107)		—				(1,107)
Other comprehensive income	—		—		—		—		298		298
Stock-based compensation	—		17,537		—		—		—		17,537
Shares issued and forfeited, net, under stock plans	—		(11,489)		—		16,812		—		5,323

Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(4,203)		—		(4,203)
Balance as of September 30, 2023	$	702	$	708,506	$	1,272,351	$	(653,162)	$	(117,362)	$	1,211,035


	Nine Months Ended September 30, 2022
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of December 31, 2021	$	702	$	688,313	$	1,131,281	$	(475,972)	$	(99,547)	$	1,244,777
Net income	—		—		51,949		—		—		51,949
Other comprehensive loss	—		—		—		—		(28,179)		(28,179)
Stock-based compensation	—		21,884		—		—		—		21,884
Shares issued and forfeited, net, under stock plans	—		(12,434)		—		16,973		—		4,539
Repurchase of 3,210,313 shares of common stock	—		—		—		(90,934)		—		(90,934)
Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(5,820)		—		(5,820)
Balance as of September 30, 2022	$	702	$	697,763	$	1,183,230	$	(555,753)	$	(127,726)	$	1,198,216

The accompanying notes are an integral part of the condensed consolidated financial statements.

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ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(1,107)	$	51,949
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation	18,722		17,052
Amortization	74,716		78,817
Amortization of operating lease right-of-use assets	9,190		8,296
Amortization of deferred debt issuance costs	3,415		3,435
Deferred income taxes	(25,207)		(9,059)
Stock-based compensation expense	17,537		21,884
Gain on divestiture	—		(38,452)
Other	2,168		2,483
Changes in operating assets and liabilities:
Receivables	42,012		5,767
Accounts payable	(7,198)		(3,047)
Accrued employee compensation	(2,879)		(3,872)
Deferred revenue	4,404		(6,367)
Other current and noncurrent assets and liabilities	(52,999)		(26,920)
Net cash flows from operating activities	82,774		101,966
Cash flows from investing activities:
Purchases of property and equipment	(7,956)		(8,123)
Purchases of software and distribution rights	(22,571)		(18,394)
Proceeds from divestiture	—		100,139

Net cash flows from investing activities	(30,527)		73,622
Cash flows from financing activities:
Proceeds from issuance of common stock	2,122		2,801
Proceeds from exercises of stock options	3,132		1,792
Repurchase of stock-based compensation awards for tax withholdings	(4,203)		(5,820)
Repurchases of common stock	—		(90,934)
Proceeds from revolving credit facility	75,000		85,000
Repayment of revolving credit facility	(51,000)		(75,000)

Repayment of term portion of credit agreement	(53,556)		(70,825)
Payments on or proceeds from other debt, net	(12,473)		(10,106)
Payments for debt issuance costs	(2,160)		—
Net increase (decrease) in settlement assets and liabilities	(4,635)		20,084
Net cash flows from financing activities	(47,773)		(143,008)
Effect of exchange rate fluctuations on cash	4,388		(60)
Net increase in cash and cash equivalents	8,862		32,520
Cash and cash equivalents, including settlement deposits, beginning of period	214,672		184,142
Cash and cash equivalents, including settlement deposits, end of period	$	223,534	$	216,662
Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	139,520	$	134,799
Settlement deposits	84,014		81,863
Total cash and cash equivalents, including settlement deposits	$	223,534	$	216,662
Supplemental cash flow information
Income taxes paid	$	43,915	$	24,987
Interest paid	$	60,597	$	39,217

The accompanying notes are an integral part of the condensed consolidated financial statements.

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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 September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022, 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, 2022, 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, 2022, filed on March 1, 2023. Results for the three and nine months ended September 30, 2023, are not necessarily indicative of results that may be attained in the future.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies, as well as uncertainty in the current economic environment. Actual results could differ from those estimates.

Other Current Liabilities

The components of other current liabilities are included in the following table (in thousands):


	September 30, 2023		December 31, 2022
Operating lease liabilities	$	9,659	$	11,218
Vendor financed licenses	8,378		13,525
Accrued interest	3,498		9,067
Royalties payable	2,536		3,726
Other	53,839		65,109
Total other current liabilities	$	77,910	$	102,645

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.

Off Balance Sheet Settlement Accounts

The Company also enters into agreements with certain Biller clients to process payment funds on their behalf. When an ACH or automated teller machine network payment transaction is processed, a transaction is initiated to withdraw funds from the designated source account and deposit them into a settlement account, which is a trust account maintained for the benefit of the Company’s clients. A simultaneous transaction is initiated to transfer funds from the settlement account to the intended destination account. These “back to back” transactions are designed to settle at the same time, usually overnight, such that the Company receives the funds from the source at the same time as it sends the funds to their destination. However, due to the transactions being with various financial institutions there may be timing differences that result in float balances. These funds are maintained in accounts for the benefit of the client, which is separate from the Company’s corporate assets. As the Company does not take ownership of the funds, these settlement accounts are not included in the Company’s balance sheet. The Company is entitled to interest earned on the fund balances. The collection of interest on these settlement accounts is

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considered in the Company’s determination of its fee structure for clients and represents a portion of the payment for services performed by the Company. The amount of settlement funds as of September 30, 2023, and December 31, 2022, was $278.4 million and $328.7 million, respectively.

Fair Value

The fair value of the Company’s Credit Agreement approximates the carrying value due to the floating interest rate (Level 2 of the fair value hierarchy). The Company measures the fair value of its Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities. The fair value of the Company’s 5.750% Senior Notes due 2026 (“2026 Notes”) was $388.0 million and $390.0 million as of September 30, 2023, and December 31, 2022, respectively.

The fair values of cash and cash equivalents approximate the carrying values due to the short period of time to maturity (Level 2 of the fair value hierarchy).

Goodwill

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 September 30, 2023, the Company's goodwill balance of $1.2 billion was allocated $671.7 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, 2022, 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 $18.3 million and $17.9 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of September 30, 2023, and December 31, 2022, 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 10, 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.

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Total receivables, net is comprised of the following (in thousands):


	September 30, 2023		December 31, 2022
Billed receivables	$	177,512	$	218,611
Allowance for doubtful accounts	(4,900)		(3,779)
Billed receivables, net	172,612		214,832
Current accrued receivables, net	198,154		188,949
Long-term accrued receivables, net	279,303		297,818
Total accrued receivables, net	477,457		486,767
Total receivables, net	$	650,069	$	701,599

No customer accounted for more than 10% of the Company’s consolidated receivables balance as of September 30, 2023. One customer accounted for 10.1% of the Company's consolidated receivables balance as of December 31, 2022.

Deferred revenue includes amounts due or received from customers for software licenses, maintenance, services, and/or SaaS and PaaS services in advance of recording the related revenue.

Changes in deferred revenue were as follows (in thousands):


Balance, December 31, 2022	$	81,536
Deferral of revenue	87,130
Recognition of deferred revenue	(83,066)
Foreign currency translation	(1,055)
Balance, September 30, 2023	$	84,545

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 $627.6 million as of September 30, 2023, of which the Company expects to recognize approximately 41% over the next 12 months and the remainder thereafter.

During the three and nine months ended September 30, 2023, revenue recognized by the Company from performance obligations satisfied in previous periods was $23.3 million and $43.7 million, respectively.

3. Divestiture

Corporate Online Banking Solutions

On June 7, 2022, the Company announced a definitive agreement to divest its corporate online banking solutions related assets and liabilities to One Equity Partners ("OEP") for $100.0 million, including a net working capital adjustment. The sale included employees and customer contracts as well as technology assets and intellectual property and closed on September 1, 2022.

The Company recognized a gain of $38.5 million on the sale during the three and nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company recognized a loss for the final post-closing adjustment pursuant to the definitive agreement of $0.5 million.

The Company and OEP have also entered into a Transition Services Agreement ("TSA"), whereby the Company will continue to perform certain functions on OEP's behalf during a migration period not expected to exceed 18 months. The TSA is meant to reimburse the Company for direct costs in order to provide such functions, which are no longer generating revenue for the Company.

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4. Debt

As of September 30, 2023, the Company had $129.0 million, $539.2 million, and $400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $368.2 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $2.8 million of unused borrowings under the Letter of Credit agreements. 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.

On May 5, 2022, the Company and Bank of America entered into the LIBOR Transition Amendment (the "Amendment") that replaced the LIBOR reference rate with the Secured Overnight Financing Rate ("SOFR") reference rate. No other terms or conditions of the Credit Agreement were changed as a result of the Amendment.

On April 28, 2023, the Company and Bank of America entered into the 2023 Extension Amendment to extend the term of the Credit Facility one year to April 5, 2025. All other terms remained the same.

The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans, (b) a five-year $279.0 million senior secured term loan facility (the "Initial Term Loan") and (c) a five-year $500.0 million Delayed Draw Term Loan (together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility, the “Credit Facility”). The Credit Agreement also allows the Company to request optional incremental term loans and increases in the revolving commitment.

At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to, either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, or (3) SOFR 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 SOFR 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 SOFR rate borrowings. Interest is due and payable monthly. The interest rate in effect for the Credit Facility as of September 30, 2023, was 7.42%.

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 SOFR 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.

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.

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Maturities on debt outstanding as of September 30, 2023, are as follows (in thousands):


Fiscal Year Ending December 31,
Remainder of 2023	$	19,475
2024	77,900
2025	570,798
2026	400,000
2027	—
Thereafter	—
Total	$	1,068,173

As of September 30, 2023, and at all times during the period, the Company was in compliance with its financial debt covenants.

Total debt is comprised of the following (in thousands):


	September 30, 2023		December 31, 2022
Term loans	$	539,173	$	592,729
Revolving credit facility	129,000		105,000
5.750% Senior notes, due August 2026	400,000		400,000
Debt issuance costs	(6,602)		(7,857)
Total debt	1,061,571		1,089,872
Less: current portion of term loans	77,900		69,906
Less: current portion of debt issuance costs	(3,550)		(4,385)
Total long-term debt	$	987,221	$	1,024,351

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 September 30, 2023, there was $75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2022, 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 September 30, 2023, $3.6 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, 2022, $9.3 million was outstanding on these agreements, of which $5.8 million and $3.5 million is included in other current liabilities and other noncurrent liabilities, respectively.

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5. Software and Other Intangible Assets

The carrying amount and accumulated amortization of the Company's software assets subject to amortization at each balance sheet date are as follows (in thousands):


	September 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
Software for internal use	$	456,840	$	(351,516)	$	105,324	$	454,171	$	(325,062)	$	129,109

Amortization of software for internal use is computed using the straight-line method over an estimated useful life of generally three to eight years. Software for internal use amortization expense recorded during the three months ended September 30, 2023 and 2022, totaled $16.3 million and $17.3 million, respectively. Software for internal use amortization expense recorded during the nine months ended September 30, 2023 and 2022, totaled $49.3 million and $51.1 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 was computed using the greater of (a) the ratio of current gross revenues to the total of current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining estimated useful life of generally five to ten years. Software for resale amortization expense recorded during the nine months ended September 30, 2022 totaled $0.7 million. Software for resale was fully amortized during the first quarter of 2022 and, therefore, there was no amortization expense recorded during the three months ended September 30, 2022, or the three and nine months ended September 30, 2023. The software amortization expense amount was reflected in cost of revenue in the condensed consolidated statements of operations.

The carrying amount and accumulated amortization of the Company’s other intangible assets subject to amortization at each balance sheet date are as follows (in thousands):


	September 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
Customer relationships	$	444,046	$	(242,276)	$	201,770	$	444,749	$	(219,057)	$	225,692
Trademarks and trade names	21,667		(20,300)		1,367		21,678		(18,672)		3,006
Total other intangible assets	$	465,713	$	(262,576)	$	203,137	$	466,427	$	(237,729)	$	228,698

Other intangible assets amortization expense recorded during the three months ended September 30, 2023 and 2022, totaled $8.5 million and $8.8 million, respectively. Other intangible assets amortization expense recorded during the nine months ended September 30, 2023 and 2022, totaled $25.4 million and $27.1 million, respectively.

Based on capitalized intangible assets as of September 30, 2023, estimated amortization expense amounts in future fiscal years are as follows (in thousands):


Fiscal Year Ending December 31,	Software Amortization		Other Intangible Assets Amortization
Remainder of 2023	$	14,853	$	8,423
2024	44,330		29,311
2025	30,212		20,916
2026	12,752		20,916
2027	2,063		20,652
Thereafter	1,114		102,919
Total	$	105,324	$	203,137

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6. Stock-Based Compensation Plans

Employee Stock Purchase Plan

Shares issued under the 2017 Employee Stock Purchase Plan during the nine months ended September 30, 2023 and 2022, totaled 101,565 and 108,149, respectively.

Stock Options

A summary of stock option activity is as follows:


	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, 2022	1,221,219	$	19.00
Exercised	(164,092)	19.09

Expired	(4,614)	19.63
Outstanding as of September 30, 2023	1,052,513	$	18.98	1.90	$	8,419,789
Exercisable as of September 30, 2023	1,052,513	$	18.98	1.90	$	8,419,789

The total intrinsic value of stock options exercised during the nine months ended September 30, 2023 and 2022, was $0.9 million and $1.1 million, respectively. There were no stock options granted during the nine months ended September 30, 2023 or 2022.

Performance Share Awards

During the nine months ended September 30, 2023, pursuant to the Company's 2020 Equity and Incentive Compensation Plan, the Company granted performance share awards with a total shareholder return multiplier. These performance awards are earned based upon achievement, over a specified period that must not be less than one year and is typically a three-year performance period, of performance goals related to (i) net revenue growth and (ii) net adjusted EBITDA margin over the performance period as determined by the Company with a TSR multiplier up to plus or minus 20%. Up to 200% of the performance shares could be earned upon achievement of the performance goals, including the multiplier. On a quarterly basis, management evaluates the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the consolidated financial statements.

A summary of nonvested total shareholder return awards ("TSRs") is as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2022	1,011,881	$	39.21
Granted	233,404	26.94

Forfeited	(135,452)	40.06
Change in payout rate	(427,685)	30.01
Nonvested as of September 30, 2023	682,148	$	40.62

In the first quarter of 2023, the TSRs granted in 2020 were earned by the employees. However, the performance goals were not met and no shares were issued.

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The fair value of TSRs granted during the nine months ended September 30, 2023 and 2022, were estimated on the date of grant using the Monte Carlo simulation model, acceptable under ASC 718, Compensation - Stock Compensation, using the following weighted average assumptions:


	Nine Months Ended September 30,
	2023		2022
Expected life (years)	2.9		3.1
Risk-free interest rate	3.6	%	1.5	%
Expected volatility	37.1	%	40.0	%
Expected dividend yield	—		—

Restricted Share Units

A summary of nonvested restricted share unit awards ("RSUs") is as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2022	1,184,024	$	30.73
Granted	1,457,471	24.75
Vested	(553,490)	29.04
Forfeited	(433,528)	28.34
Nonvested as of September 30, 2023	1,654,477	$	26.66

During the nine months ended September 30, 2023, a total of 553,490 RSUs vested. The Company withheld 165,440 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

As of September 30, 2023, there were unrecognized compensation costs of $36.4 million and $10.0 million related to nonvested RSUs and TSRs, respectively, which the Company expects to recognize over weighted average periods of 2.3 years and 1.8 years, respectively.

The Company recorded stock-based compensation expense recognized under ASC 718 for the three months ended September 30, 2023 and 2022, of $6.8 million and $7.1 million, respectively, with corresponding tax benefits of $1.2 million and $1.0 million, respectively. The Company recorded stock-based compensation expense recognized under ASC 718 for the nine months ended September 30, 2023 and 2022, of $17.5 million and $21.9 million, respectively, with corresponding tax benefits of $3.2 million and $3.0 million, respectively.

7. Common Stock and Treasury Stock

In 2005, the board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorize additional funds for the program. On February 24, 2023, the board approved the repurchase of the Company's common stock of up to $200.0 million, in place of the remaining purchase amounts previously authorized.

The Company did not repurchase any shares under the program during the nine months ended September 30, 2023. Under the program to date, the Company has repurchased 57,981,733 shares for approximately $926.2 million. As of September 30, 2023, the maximum remaining amount authorized for purchase under the stock repurchase program was $200.0 million.

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8. 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.

The following table reconciles the weighted average share amounts used to compute both basic and diluted earnings per share (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Weighted average shares outstanding:
Basic weighted average shares outstanding	108,667	113,812	108,428	114,584
Add: Dilutive effect of stock options and RSUs	266	536	—	627
Diluted weighted average shares outstanding	108,933	114,348	108,428	115,211

The diluted earnings (loss) per share computation excludes 2.0 million options to purchase shares, RSUs, and contingently issuable shares during both the three months ended September 30, 2023 and 2022, as their effect would be anti-dilutive. The diluted earnings (loss) per share computation excludes 3.2 million and 2.0 million options to purchase shares, RSUs, and contingently issuable shares during the nine months ended September 30, 2023 and 2022, respectively, as their effect would be anti-dilutive.

Common stock outstanding as of September 30, 2023, and December 31, 2022, was 108,722,535 and 108,068,828, respectively.

9. Other, Net

Other, net is primarily comprised of foreign currency transaction gains and losses and, for the three and nine months ended September 30, 2022, the $38.5 million gain on the divestiture. Other, net was $1.1 million and $41.5 million of income for the three months ended September 30, 2023 and 2022, respectively. Other, net was $6.4 million of expense and $45.8 million of income for the nine months ended September 30, 2023 and 2022, respectively.

10. 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.

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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.

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.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
Banks	$	155,684	$	117,439	$	361,231	$	391,583
Merchants	36,267		35,609		107,556		113,145
Billers	171,064		153,543		507,229		465,368
Total revenue	$	363,015	$	306,591	$	976,016	$	970,096
Segment Adjusted EBITDA
Banks	$	91,010	$	49,793	$	167,313	$	184,667
Merchants	10,296		9,781		26,751		32,243
Billers	39,186		26,348		100,056		81,029
Depreciation and amortization	(30,463)		(32,140)		(93,438)		(95,869)
Stock-based compensation expense	(6,822)		(7,126)		(17,537)		(21,884)
Corporate and unallocated expenses	(41,283)		(43,167)		(135,053)		(124,574)
Interest, net	(16,345)		(11,341)		(48,183)		(27,809)
Other, net	1,084		41,545		(6,403)		45,801
Income (loss) before income taxes	$	46,663	$	33,693	$	(6,494)	$	73,604

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 September 30, 2023
	Banks		Merchants		Billers		Total
Primary Solution Categories
Bill Payments	$	—	$	—	$	171,064	$	171,064
Digital Business Banking	702		—		—		702
Merchant Payments	—		36,267		—		36,267
Fraud Management	16,543		—		—		16,543
Real-Time Payments	26,374		—		—		26,374
Issuing and Acquiring	112,065		—		—		112,065
Total	$	155,684	$	36,267	$	171,064	$	363,015

	Three Months Ended September 30, 2022
	Banks		Merchants		Billers		Total
Primary Solution Categories
Bill Payments	$	—	$	—	$	153,543	$	153,543
Digital Business Banking	9,001		—		—		9,001
Merchant Payments	—		35,609		—		35,609
Fraud Management	14,840		—		—		14,840
Real-Time Payments	24,904		—		—		24,904
Issuing and Acquiring	68,694		—		—		68,694
Total	$	117,439	$	35,609	$	153,543	$	306,591

	Nine Months Ended September 30, 2023
	Banks		Merchants		Billers		Total
Primary Solution Categories
Bill Payments	$	—	$	—	$	507,229	$	507,229
Digital Business Banking	2,293		—		—		2,293
Merchant Payments	—		107,556		—		107,556
Fraud Management	38,051		—		—		38,051
Real-Time Payments	72,271		—		—		72,271
Issuing and Acquiring	248,616		—		—		248,616
Total	$	361,231	$	107,556	$	507,229	$	976,016

	Nine Months Ended September 30, 2022
	Banks		Merchants		Billers		Total
Primary Solution Categories
Bill Payments	$	—	$	—	$	465,368	$	465,368
Digital Business Banking	34,586		—		—		34,586
Merchant Payments	—		113,145		—		113,145
Fraud Management	30,169		—		—		30,169
Real-Time Payments	71,043		—		—		71,043
Issuing and Acquiring	255,785		—		—		255,785
Total	$	391,583	$	113,145	$	465,368	$	970,096

As discussed in Note 3, Divestiture, the Company divested its corporate online banking solution assets, which were included in

the Digital Business Banking solution category.

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Banks
Software as a service and platform as a service	$	10,167	$	12,394	$	29,158	$	40,331
License	77,779		42,188		136,980		159,569
Maintenance	48,084		44,896		142,050		138,983
Services	19,654		17,961		53,043		52,700
Total	$	155,684	$	117,439	$	361,231	$	391,583
Merchants
Software as a service and platform as a service	$	30,162	$	29,626	$	89,660	$	91,451
License	1,900		1,473		5,701		8,691
Maintenance	3,834		4,244		11,314		12,090
Services	371		266		881		913
Total	$	36,267	$	35,609	$	107,556	$	113,145
Billers
Software as a service and platform as a service	$	171,040	$	153,520	$	507,157	$	465,298
License	—		—		—		—
Maintenance	24		23		72		70
Services	—		—		—		—
Total	$	171,064	$	153,543	$	507,229	$	465,368

The following is the Company's revenue by geographic location for the periods indicated (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
United States	$	226,911	$	195,571	$	633,379	$	604,345
Other	136,104		111,020		342,637		365,751
Total	$	363,015	$	306,591