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Table of contents
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
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-25346
___________________________
ACI WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware47-0772104
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2811 Ponce de Leon BlvdPH 1Coral Gables,Florida33134
(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 filerAccelerated filer
Non-accelerated filerSmaller 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.005 par valueACIWNasdaq Global Select Market



Table of contents
TABLE OF CONTENTS
Page
Item 1

2

Table of contents
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, 2023December 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 assets1,226,710 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 debt74,350 65,521 
Deferred revenue
61,438 58,303 
Other current liabilities
77,910 102,645 
Total current liabilities945,630 858,842 
Noncurrent liabilities
Deferred revenue23,107 23,233 
Long-term debt987,221 1,024,351 
Deferred income taxes, net33,687 40,371 
Operating lease liabilities28,657 33,910 
Other noncurrent liabilities25,491 36,001 
Total liabilities2,043,793 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 capital708,506 702,458 
Retained earnings1,272,351 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’ equity1,211,035 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,
2023202220232022
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 taxes46,663 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
Basic108,667 113,812 108,428 114,584 
Diluted108,933 114,348 108,428 115,211 

(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,
2023202220232022
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 StockAdditional
Paid-in Capital
Retained EarningsTreasury StockAccumulated 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 StockAdditional
Paid-in Capital
Retained EarningsTreasury StockAccumulated 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 EarningsTreasury 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)$1,198,216 
The accompanying notes are an integral part of the condensed consolidated financial statements.
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ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine Months Ended
September 30,
20232022
Cash flows from operating activities:
Net income (loss)$(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 cash4,388 (60)
Net increase in cash and cash equivalents
8,862 32,520 
Cash and cash equivalents, including settlement deposits, beginning of period214,672 184,142 
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 deposits84,014 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, 2023December 31, 2022
Operating lease liabilities$9,659 $11,218 
Vendor financed licenses8,378 13,525 
Accrued interest3,498 9,067 
Royalties payable2,536 3,726 
Other53,839 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, 2023December 31, 2022
Billed receivables$177,512 $218,611 
Allowance for doubtful accounts(4,900)(3,779)
Billed receivables, net172,612 214,832 
Current accrued receivables, net198,154 188,949 
Long-term accrued receivables, net279,303 297,818 
Total accrued receivables, net477,457 486,767 
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 revenue87,130 
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 
202477,900 
2025570,798 
2026400,000 
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, 2023December 31, 2022
Term loans$539,173 $592,729 
Revolving credit facility129,000 105,000 
5.750% Senior notes, due August 2026
400,000 400,000 
Debt issuance costs(6,602)(7,857)
Total debt1,061,571 1,089,872 
Less: current portion of term loans77,900 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, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet BalanceGross Carrying AmountAccumulated AmortizationNet 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, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet BalanceGross Carrying AmountAccumulated AmortizationNet Balance
Customer relationships$444,046 $(242,276)$201,770 $444,749 $(219,057)$225,692 
Trademarks and trade names21,667 (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 AmortizationOther Intangible Assets Amortization
Remainder of 2023$14,853 $8,423 
202444,330 29,311 
202530,212 20,916 
202612,752 20,916 
20272,063 20,652 
Thereafter1,114 102,919 
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, 20221,221,219 $19.00 
Exercised(164,092)19.09 
Expired(4,614)19.63 
Outstanding as of September 30, 20231,052,513 $18.98 1.90$8,419,789 
Exercisable as of September 30, 20231,052,513 $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, 20221,011,881 $39.21 
Granted233,404 26.94 
Forfeited(135,452)40.06 
Change in payout rate(427,685)30.01 
Nonvested as of September 30, 2023682,148 $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,
20232022
Expected life (years)2.93.1
Risk-free interest rate3.6 %1.5 %
Expected volatility37.1 %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, 20221,184,024 $30.73 
Granted1,457,471 24.75 
Vested(553,490)29.04 
Forfeited(433,528)28.34 
Nonvested as of September 30, 20231,654,477 $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,
2023202220232022
Weighted average shares outstanding:
Basic weighted average shares outstanding108,667 113,812 108,428 114,584 
Add: Dilutive effect of stock options and RSUs266 536  627 
Diluted weighted average shares outstanding108,933 114,348 108,428 115,211 

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,
2023202220232022
Revenue
Banks$155,684 $117,439 $361,231 $391,583 
Merchants36,267 35,609 107,556 113,145 
Billers171,064 153,543 507,229 465,368 
Total revenue$363,015 $306,591 $976,016 $970,096 
Segment Adjusted EBITDA
Banks$91,010 $49,793 $167,313 $184,667 
Merchants10,296 9,781 26,751 32,243 
Billers39,186 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, net1,084 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
BanksMerchantsBillersTotal
Primary Solution Categories
Bill Payments$ $ $171,064 $171,064 
Digital Business Banking702   702 
Merchant Payments 36,267  36,267 
Fraud Management16,543   16,543 
Real-Time Payments26,374   26,374 
Issuing and Acquiring112,065   112,065 
Total$155,684 $36,267 $171,064 $363,015 
Three Months Ended September 30, 2022
BanksMerchantsBillersTotal
Primary Solution Categories
Bill Payments$ $ $153,543 $153,543 
Digital Business Banking9,001   9,001 
Merchant Payments 35,609  35,609 
Fraud Management14,840   14,840 
Real-Time Payments24,904   24,904 
Issuing and Acquiring68,694   68,694 
Total$117,439 $35,609 $153,543 $306,591 
Nine Months Ended September 30, 2023
BanksMerchantsBillersTotal
Primary Solution Categories
Bill Payments$ $ $507,229 $507,229 
Digital Business Banking2,293   2,293 
Merchant Payments 107,556  107,556 
Fraud Management38,051   38,051 
Real-Time Payments72,271   72,271 
Issuing and Acquiring248,616   248,616 
Total$361,231 $107,556 $507,229 $976,016 
Nine Months Ended September 30, 2022
BanksMerchantsBillersTotal
Primary Solution Categories
Bill Payments$ $ $465,368 $465,368 
Digital Business Banking34,586   34,586 
Merchant Payments 113,145  113,145 
Fraud Management30,169   30,169 
Real-Time Payments71,043   71,043 
Issuing and Acquiring255,785   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,
2023202220232022
Banks
Software as a service and platform as a service$10,167 $12,394 $29,158 $40,331 
License77,779 42,188 136,980 159,569 
Maintenance48,084 44,896 142,050 138,983 
Services19,654 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 
License1,900 1,473 5,701 8,691 
Maintenance3,834 4,244 11,314 12,090 
Services371 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    
Maintenance24 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,
2023202220232022
Revenue
United States$226,911 $195,571 $633,379 $604,345 
Other136,104 111,020 342,637 365,751 
Total$363,015 $