ACI WORLDWIDE, INC. [ACIW] Filings

10-Q 1 aciw-20220930.htm 10-Q aciw-20220930

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, 2022


☐			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, 2022, there were 112,374,133 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, 2022, and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	Controls and Procedures	40

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	41
Item 5	Other Information	41
Item 6	Exhibits	42

Signature		43

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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, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	134,799	$	122,059
Receivables, net of allowances of $3,851 and $2,861, respectively	302,301		320,405
Settlement assets	727,754		452,396
Prepaid expenses	29,766		24,698
Other current assets	16,342		17,876
Total current assets	1,210,962		937,434
Noncurrent assets
Accrued receivables, net	248,285		276,164
Property and equipment, net	54,328		63,050
Operating lease right-of-use assets	37,916		47,825
Software, net	134,942		157,782
Goodwill	1,226,026		1,280,226
Intangible assets, net	235,053		283,004
Deferred income taxes, net	55,454		50,778
Other noncurrent assets	60,174		62,478
TOTAL ASSETS	$	3,263,140	$	3,158,741
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	38,227	$	41,312
Settlement liabilities	727,237		451,575
Employee compensation	43,637		51,379
Current portion of long-term debt	60,603		45,870
Deferred revenue	53,163		84,425
Other current liabilities	75,107		79,594
Total current liabilities	997,974		754,155
Noncurrent liabilities
Deferred revenue	22,440		25,925
Long-term debt	947,750		1,019,872
Deferred income taxes, net	30,465		36,122
Operating lease liabilities	32,235		43,346
Other noncurrent liabilities	34,060		34,544
Total liabilities	2,064,924		1,913,964
Commitments and contingencies
Stockholders’ equity
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at September 30, 2022, and December 31, 2021	—		—
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at September 30, 2022, and December 31, 2021	702		702
Additional paid-in capital	697,763		688,313
Retained earnings	1,183,230		1,131,281
Treasury stock, at cost, 27,323,712 and 24,795,009 shares at September 30, 2022, and December 31, 2021, respectively	(555,753)		(475,972)
Accumulated other comprehensive loss	(127,726)		(99,547)
Total stockholders’ equity	1,198,216		1,244,777
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,263,140	$	3,158,741

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,
	2022		2021		2022		2021
Revenues
Software as a service and platform as a service	$	195,540	$	191,456	$	597,080	$	583,530
License	43,661		54,454		168,260		110,383
Maintenance	49,163		53,519		151,143		159,037
Services	18,227		17,485		53,613		50,819
Total revenues	306,591		316,914		970,096		903,769
Operating expenses
Cost of revenue (1)	171,753		158,712		517,372		476,811
Research and development	35,899		35,248		114,348		104,791
Selling and marketing	32,794		33,413		102,793		90,211
General and administrative	30,516		29,717		84,753		89,429
Depreciation and amortization	32,140		31,845		95,218		95,434
Total operating expenses	303,102		288,935		914,484		856,676
Operating income	3,489		27,979		55,612		47,093
Other income (expense)
Interest expense	(14,336)		(11,208)		(37,014)		(33,943)
Interest income	2,995		2,834		9,205		8,553
Other, net	41,545		(1,088)		45,801		(1,036)
Total other income (expense)	30,204		(9,462)		17,992		(26,426)
Income before income taxes	33,693		18,517		73,604		20,667
Income tax expense	10,576		4,753		21,655		2,347
Net income	$	23,117	$	13,764	$	51,949	$	18,320
Income per common share
Basic	$	0.20	$	0.12	$	0.45	$	0.16
Diluted	$	0.20	$	0.12	$	0.45	$	0.15
Weighted average common shares outstanding
Basic	113,812		117,512		114,584		117,574
Diluted	114,348		118,540		115,211		118,817

(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,
	2022		2021		2022		2021
Net income	$	23,117	$	13,764	$	51,949	$	18,320
Other comprehensive loss:
Foreign currency translation adjustments	(13,459)		(4,223)		(28,179)		(5,873)
Total other comprehensive loss	(13,459)		(4,223)		(28,179)		(5,873)
Comprehensive income	$	9,658	$	9,541	$	23,770	$	12,447

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, 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


	Three Months Ended September 30, 2021
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of June 30, 2021	$	702	$	676,399	$	1,008,046	$	(412,492)	$	(94,095)	$	1,178,560
Net income	—		—		13,764		—		—		13,764
Other comprehensive loss	—		—		—		—		(4,223)		(4,223)
Stock-based compensation	—		6,367		—		—		—		6,367
Shares issued and forfeited, net, under stock plans	—		278		—		845		—		1,123

Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(37)		—		(37)
Balance as of September 30, 2021	$	702	$	683,044	$	1,021,810	$	(411,684)	$	(98,318)	$	1,195,554

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, 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


	Nine Months Ended September 30, 2021
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of December 31, 2020	$	702	$	682,431	$	1,003,490	$	(387,581)	$	(92,445)	$	1,206,597
Net income	—		—		18,320		—		—		18,320
Other comprehensive loss	—		—		—		—		(5,873)		(5,873)
Stock-based compensation	—		20,790		—		—		—		20,790
Shares issued and forfeited, net, under stock plans	—		(20,177)		—		30,141		—		9,964
Repurchase of 1,000,000 shares of common stock	—		—		—		(39,411)		—		(39,411)
Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(14,833)		—		(14,833)
Balance as of September 30, 2021	$	702	$	683,044	$	1,021,810	$	(411,684)	$	(98,318)	$	1,195,554

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,
	2022		2021
Cash flows from operating activities:
Net income	$	51,949	$	18,320
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	17,052		15,838
Amortization	78,817		84,528
Amortization of operating lease right-of-use assets	8,296		7,752
Amortization of deferred debt issuance costs	3,435		3,525
Deferred income taxes	(9,059)		(11,742)
Stock-based compensation expense	21,884		20,790
Gain on divestiture	(38,452)		—
Other	2,483		(27)
Changes in operating assets and liabilities:
Receivables	5,767		55,953
Accounts payable	(3,047)		(5,080)
Accrued employee compensation	(3,872)		(1,140)
Deferred revenue	(6,367)		10,339
Other current and noncurrent assets and liabilities	(26,920)		(54,573)
Net cash flows from operating activities	101,966		144,483
Cash flows from investing activities:
Purchases of property and equipment	(8,123)		(12,968)
Purchases of software and distribution rights	(18,394)		(20,041)
Proceeds from divestiture	100,139		—

Net cash flows from investing activities	73,622		(33,009)
Cash flows from financing activities:
Proceeds from issuance of common stock	2,801		2,526
Proceeds from exercises of stock options	1,792		7,252
Repurchase of stock-based compensation awards for tax withholdings	(5,820)		(14,833)
Repurchases of common stock	(90,934)		(39,411)
Proceeds from revolving credit facility	85,000		—
Repayment of revolving credit facility	(75,000)		(55,000)

Repayment of term portion of credit agreement	(70,825)		(29,212)

Payments on or proceeds from other debt, net	(10,106)		(10,187)
Net increase (decrease) in settlement assets and liabilities	20,084		(55,470)
Net cash flows from financing activities	(143,008)		(194,335)
Effect of exchange rate fluctuations on cash	(60)		84
Net increase (decrease) in cash and cash equivalents	32,520		(82,777)
Cash and cash equivalents, including settlement deposits, beginning of period	184,142		265,382
Cash and cash equivalents, including settlement deposits, end of period	$	216,662	$	182,605
Reconciliation of cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	134,799	$	141,482
Settlement deposits	81,863		41,123
Total cash and cash equivalents, including settlement deposits	$	216,662	$	182,605
Supplemental cash flow information
Income taxes paid	$	24,987	$	28,131
Interest paid	$	39,217	$	35,966

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, 2022, and for the three and nine months ended September 30, 2022 and 2021, are unaudited and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 2021, is derived from the audited financial statements.

The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 24, 2022. Results for the three and nine months ended September 30, 2022, 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.

Revision of Prior Period Financial Statements

As of December 31, 2021, the Company revised the previously reported consolidated statements of cash flows to include settlement deposits in total cash and cash equivalents and settlement receivables and settlement liabilities net activity in cash flows from financing activities, both of which were previously included in cash flows from operating activities. This immaterial revision did not have an effect on its previously reported consolidated balance sheets, statements of operations, statements of comprehensive income, or statements of stockholders' equity.

A summary of the revisions to the previously reported balances are presented in the table below for comparative purposes (in thousands):


	Nine Months Ended September 30, 2021
	As reported		Revision adjustment		As revised
Cash flows from operating activities:
Other current and noncurrent assets and liabilities	$	(51,158)	$	(3,415)	$	(54,573)
Net cash flows from operating activities	147,898		(3,415)		144,483

Cash flows from financing activities:
Net decrease in settlement assets and liabilities	$	—	$	(55,470)	$	(55,470)
Net cash flows from financing activities	(138,865)		(55,470)		(194,335)

Net decrease in cash and cash equivalents	$	(23,892)	$	(58,885)	$	(82,777)
Cash and cash equivalents, including settlement deposits, beginning of period	165,374		100,008		265,382
Cash and cash equivalents, including settlement deposits, end of period	141,482		41,123		182,605

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Other Current Liabilities

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


	September 30, 2022		December 31, 2021
Vendor financed licenses	$	12,520	$	12,521
Operating lease liabilities	11,061		11,518
Accrued interest	3,026		8,776
Royalties payable	2,905		4,102
Other	45,595		42,677
Total other current liabilities	$	75,107	$	79,594

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 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, 2022, and December 31, 2021, was $308.7 million and $272.8 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 $379.9 million and $419.0 million as of September 30, 2022, and December 31, 2021, 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).

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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, 2022, 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, 2021, annual impairment test and there have been no indications of impairment in the subsequent periods.

Changes in the carrying amount of goodwill attributable to each reporting unit during the nine months ended September 30, 2022 were as follows (in thousands):


	Banks		Merchants		Billers		Total
Balance, December 31, 2021	$	725,903	$	137,289	$	417,034	$	1,280,226
Divestiture (1)	(54,200)		—		—		(54,200)
Balance, September 30, 2022	$	671,703	$	137,289	$	417,034	$	1,226,026

(1) In connection with the divestiture, $54.2 million of goodwill from the Banks segment was allocated to the net assets sold. See Note 3, Divestiture, for further information on the divestiture.

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 $17.3 million and $19.3 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of September 30, 2022, and December 31, 2021, respectively.

2. Revenue

In accordance with ASC 606, Revenue From Contracts With Customers, revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. See Note 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, 2022		December 31, 2021
Billed receivables	$	137,498	$	162,479
Allowance for doubtful accounts	(3,851)		(2,861)
Billed receivables, net	133,647		159,618
Current accrued receivables, net	168,654		160,787
Long-term accrued receivables, net	248,285		276,164
Total accrued receivables, net	416,939		436,951
Total receivables, net	$	550,586	$	596,569

One customer accounted for 12.7% and 13.8% of the Company's consolidated receivables balance as of September 30, 2022 and December 31, 2021.

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, 2021	$	110,350
Deferral of revenue	89,117
Recognition of deferred revenue	(95,593)
Divestiture	(21,581)
Foreign currency translation	(6,690)
Balance, September 30, 2022	$	75,603

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 $682.0 million as of September 30, 2022, of which the Company expects to recognize approximately 51% over the next 12 months and the remainder thereafter.

During the three and nine months ended September 30, 2022 and 2021, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant.

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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 $100.1 million, including preliminary 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.

For the three and nine months ended September 30, 2022, the Company recognized a gain of $38.5 million on the sale, which is recorded in other, net in the accompanying condensed consolidated statements of operations. This gain is preliminary subject to finalization of post-closing adjustments pursuant to the definitive transaction agreement.

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.

4. Debt

As of September 30, 2022, the Company had $10.0 million, $607.3 million, and $400.0 million outstanding under its Revolving Credit Facility, Term Loans, and Senior Notes, respectively, with up to $488.5 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement. The amount of unused borrowings actually available varies in accordance with the terms of the agreement.

Credit Agreement

On April 5, 2019, the Company and its wholly-owned subsidiaries, ACI Worldwide Corp. and ACI Payments, Inc. entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with the lenders, and Bank of America, N.A., as administrative agent for the lenders, to amend and restate the Company's existing agreement, as amended, dated February 24, 2017.

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.

The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), which includes sublimits for (1) the issuance of standby letters of credit and (2) swingline loans, (b) a five-year $279.0 million senior secured term loan facility (the "Initial Term Loan") and (c) a five-year $500.0 million Delayed Draw Term Loan (together with the Initial Term Loan, the "Term Loans", and together with the Initial Term Loan and the Revolving Credit Facility, the “Credit Facility”). The Credit Agreement also allows the Company to request optional incremental term loans and increases in the revolving commitment. The Credit Facility will mature on April 5, 2024.

At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to, either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, or (3) 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, 2022, was 4.88%.

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.

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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.

Maturities on debt outstanding as of September 30, 2022, are as follows (in thousands):


Fiscal Year Ending December 31,
Remainder of 2022	$	14,607
2023	69,906
2024	532,823
2025	—
2026	400,000
Thereafter	—
Total	$	1,017,336

As of September 30, 2022, 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, 2022		December 31, 2021
Term loans	$	607,336	$	678,160
Revolving credit facility	10,000		—
5.750% Senior notes, due August 2026	400,000		400,000
Debt issuance costs	(8,983)		(12,418)
Total debt	1,008,353		1,065,742
Less: current portion of term loans	65,038		50,431
Less: current portion of debt issuance costs	(4,435)		(4,561)
Total long-term debt	$	947,750	$	1,019,872

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, 2022, there was $75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2021, there was no amount outstanding on the overdraft facility.

Other

The Company finances certain multi-year license agreements for internal-use software. Upon execution, these arrangements have been treated as a non-cash investing and financing activity for purposes of the condensed consolidated statements of cash flows. During the nine months ended September 30, 2022, the Company financed certain multi-year license agreements for internal-use software for $10.7 million, with annual payments through April 2024. As of September 30, 2022, $9.3 million was outstanding on these and other license agreements previously entered into, of which $5.8 million and $3.5 million is included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet. As of December 31, 2021, $2.9 million was outstanding on these agreements, all of which is included in other current liabilities in the condensed consolidated balance sheet.

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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, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
Software for internal use	$	446,394	$	(311,452)	$	134,942	$	440,242	$	(283,109)	$	157,133
Software for resale	121,801		(121,801)		—		127,904		(127,255)		649
Total software	$	568,195	$	(433,253)	$	134,942	$	568,146	$	(410,364)	$	157,782

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, 2022 and 2021, totaled $17.3 million and $17.5 million, respectively. Software for internal use amortization expense recorded during the nine months ended September 30, 2022 and 2021, totaled $51.1 million and $51.8 million, respectively. These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations.

Amortization of software for resale is computed using the greater of (a) the ratio of current gross revenues to the total of current and future gross revenues expected to be derived from the software or (b) the straight-line method over the remaining estimated useful life of generally five to ten years. Software for resale amortization expense recorded during the three months ended September 30, 2021 totaled $1.5 million. There was no software for resale amortization expense recorded during the three months ended September 30, 2022. Software for resale amortization expense recorded during the nine months ended September 30, 2022 and 2021, totaled $0.7 million and $4.9 million, respectively. These software amortization expense amounts are 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, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
Customer relationships	$	457,027	$	(225,527)	$	231,500	$	507,962	$	(230,152)	$	277,810
Trademarks and trade names	22,942		(19,389)		3,553		23,839		(18,645)		5,194
Total other intangible assets	$	479,969	$	(244,916)	$	235,053	$	531,801	$	(248,797)	$	283,004

Other intangible assets amortization expense recorded during the three months ended September 30, 2022 and 2021, totaled $8.8 million and $9.3 million, respectively. Other intangible assets amortization expense recorded during the nine months ended September 30, 2022 and 2021, totaled $27.1 million and $27.8 million, respectively.

Based on capitalized intangible assets as of September 30, 2022, 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 2022	$	16,699	$	8,329
2023	51,782		33,310
2024	34,155		28,997
2025	22,985		20,747
2026	8,450		20,747
Thereafter	871		122,923
Total	$	134,942	$	235,053

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6. Stock-Based Compensation Plans