ACI WORLDWIDE, INC. [ACIW] Filings

10-Q 1 aciw-20210930.htm 10-Q aciw-20210930

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, 2021


☐			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.)

600 Brickell Avenue

Suite 1500, PMB #11

Miami,

Florida

33131

(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 November 2, 2021, there were 117,566,450 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, 2021, and December 31, 2020	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	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	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	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, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	141,482	$	165,374
Receivables, net of allowances of $2,544 and $3,912, respectively	299,336		342,879
Settlement assets	510,477		605,008
Prepaid expenses	29,820		24,288
Other current assets	30,420		17,365
Total current assets	1,011,535		1,154,914
Noncurrent assets
Accrued receivables, net	196,676		215,772
Property and equipment, net	61,689		64,734
Operating lease right-of-use assets	49,438		41,243
Software, net	166,936		196,456
Goodwill	1,280,226		1,280,226
Intangible assets, net	292,659		321,983
Deferred income taxes, net	64,775		57,476
Other noncurrent assets	60,556		54,099
TOTAL ASSETS	$	3,184,490	$	3,386,903
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	35,318	$	41,223
Settlement liabilities	512,980		604,096
Employee compensation	46,689		48,560
Current portion of long-term debt	40,967		34,265
Deferred revenue	105,725		95,849
Other current liabilities	61,806		81,612
Total current liabilities	803,485		905,605
Noncurrent liabilities
Deferred revenue	32,912		33,564
Long-term debt	1,033,353		1,120,742
Deferred income taxes, net	31,951		40,504
Operating lease liabilities	45,354		39,958
Other noncurrent liabilities	41,881		39,933
Total liabilities	1,988,936		2,180,306
Commitments and contingencies
Stockholders’ equity
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at September 30, 2021, and December 31, 2020	—		—
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at September 30, 2021, and December 31, 2020	702		702
Additional paid-in capital	683,044		682,431
Retained earnings	1,021,810		1,003,490
Treasury stock, at cost, 22,994,595 and 23,412,870 shares at September 30, 2021, and December 31, 2020, respectively	(411,684)		(387,581)
Accumulated other comprehensive loss	(98,318)		(92,445)
Total stockholders’ equity	1,195,554		1,206,597
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,184,490	$	3,386,903

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,
	2021		2020		2021		2020
Revenues
Software as a service and platform as a service	$	191,456	$	190,369	$	583,530	$	563,892
License	54,454		56,773		110,383		135,038
Maintenance	53,519		53,049		159,037		159,078
Services	17,485		15,692		50,819		49,270
Total revenues	316,914		315,883		903,769		907,278
Operating expenses
Cost of revenue (1)	158,712		158,579		476,811		471,762
Research and development	35,248		33,573		104,791		108,175
Selling and marketing	33,413		22,154		90,211		76,692
General and administrative	29,717		37,000		89,429		102,684
Depreciation and amortization	31,845		33,395		95,434		98,928
Total operating expenses	288,935		284,701		856,676		858,241
Operating income	27,979		31,182		47,093		49,037
Other income (expense)
Interest expense	(11,208)		(12,925)		(33,943)		(44,238)
Interest income	2,834		2,927		8,553		8,781
Other, net	(1,088)		1,356		(1,036)		(6,361)
Total other income (expense)	(9,462)		(8,642)		(26,426)		(41,818)
Income before income taxes	18,517		22,540		20,667		7,219
Income tax expense	4,753		6,674		2,347		1,705
Net income	$	13,764	$	15,866	$	18,320	$	5,514
Income per common share
Basic	$	0.12	$	0.14	$	0.16	$	0.05
Diluted	$	0.12	$	0.13	$	0.15	$	0.05
Weighted average common shares outstanding
Basic	117,512		116,558		117,574		116,217
Diluted	118,540		117,804		118,817		117,644

(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,
	2021		2020		2021		2020
Net income	$	13,764	$	15,866	$	18,320	$	5,514
Other comprehensive income (loss):
Foreign currency translation adjustments	(4,223)		1,842		(5,873)		(4,909)
Total other comprehensive income (loss)	(4,223)		1,842		(5,873)		(4,909)
Comprehensive income	$	9,541	$	17,708	$	12,447	$	605

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)


	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


	Three Months Ended September 30, 2020
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of June 30, 2020	$	702	$	667,554	$	920,478	$	(399,663)	$	(98,334)	$	1,090,737
Net income	—		—		15,866		—		—		15,866
Other comprehensive income	—		—		—		—		1,842		1,842
Stock-based compensation	—		8,061		—		—		—		8,061
Shares issued and forfeited, net, under stock plans	—		326		—		6,038		—		6,364

Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(26)		—		(26)
Balance as of September 30, 2020	$	702	$	675,941	$	936,344	$	(393,651)	$	(96,492)	$	1,122,844

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, 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


	Nine Months Ended September 30, 2020
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of December 31, 2019	$	702	$	667,658	$	930,830	$	(377,639)	$	(91,583)	$	1,129,968
Net income	—		—		5,514		—		—		5,514
Other comprehensive loss	—		—		—		—		(4,909)		(4,909)
Stock-based compensation	—		22,943		—		—		—		22,943
Shares issued and forfeited, net, under stock plans	—		(14,660)		—		24,019		—		9,359
Repurchase of 1,000,000 shares of common stock	—		—		—		(28,881)		—		(28,881)
Repurchase of stock-based compensation awards for tax withholdings	—		—		—		(11,150)		—		(11,150)
Balance as of September 30, 2020	$	702	$	675,941	$	936,344	$	(393,651)	$	(96,492)	$	1,122,844

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,
	2021		2020
Cash flows from operating activities:
Net income	$	18,320	$	5,514
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	15,838		18,012
Amortization	84,528		86,992
Amortization of operating lease right-of-use assets	7,752		14,145
Amortization of deferred debt issuance costs	3,525		3,613
Deferred income taxes	(11,742)		(10,540)
Stock-based compensation expense	20,790		22,943
Other	(27)		4,339
Changes in operating assets and liabilities:
Receivables	55,953		41,261
Accounts payable	(5,080)		1,680
Accrued employee compensation	(1,140)		13,585
Deferred revenue	10,339		14,361
Other current and noncurrent assets and liabilities	(51,158)		(23,847)
Net cash flows from operating activities	147,898		192,058
Cash flows from investing activities:
Purchases of property and equipment	(12,968)		(14,091)
Purchases of software and distribution rights	(20,041)		(21,556)


Net cash flows from investing activities	(33,009)		(35,647)
Cash flows from financing activities:
Proceeds from issuance of common stock	2,526		2,853
Proceeds from exercises of stock options	7,252		6,518
Repurchase of stock-based compensation awards for tax withholdings	(14,833)		(11,150)
Repurchases of common stock	(39,411)		(28,881)
Proceeds from revolving credit facility	—		30,000
Repayment of revolving credit facility	(55,000)		(109,000)

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

Payments on or proceeds from other debt, net	(10,187)		(10,044)
Net cash flows from financing activities	(138,865)		(148,916)
Effect of exchange rate fluctuations on cash	84		4,952
Net increase (decrease) in cash and cash equivalents	(23,892)		12,447
Cash and cash equivalents, beginning of period	165,374		121,398
Cash and cash equivalents, end of period	$	141,482	$	133,845
Supplemental cash flow information
Income taxes paid	$	28,131	$	19,733
Interest paid	$	35,966	$	46,489

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, 2021, and for the three and nine months ended September 30, 2021 and 2020, 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, 2020, 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, 2020, filed on February 25, 2021. Results for the three and nine months ended September 30, 2021, 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. Actual results could differ from those estimates.

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic that began in early 2020. The COVID-19 pandemic, and the measures imposed by the governments of various countries, states, cities, and other geographic regions to prevent its spread, have negatively impacted global economic and market conditions, including levels of consumer and business spending. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as vaccination rates vary by geography, new variants spread, and the response to the pandemic and available information continues to be evolving. The Company has experienced changes in volumes for certain Merchant and Biller customers and has received limited requests for extended payment terms under existing contracts. Continuing economic disruptions could have a material adverse effect on our business as our customers curtail and reduce capital and overall spending.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Other Current Liabilities

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


	September 30, 2021		December 31, 2020
Vendor financed licenses	$	9,776	$	12,901
Operating lease liabilities	11,214		13,438
Royalties payable	4,897		3,959
Accrued interest	2,983		8,745
Other	32,936		42,569
Total other current liabilities	$	61,806	$	81,612

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Leases

The Company’s operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities. During the nine months ended September 30, 2021, the new corporate headquarters operating lease commenced. In recognition of this lease, an operating lease right of use asset of $12.9 million and an operating lease liability of $15.2 million was incurred. These amounts, less amortization and payments to date, are included within operating lease right-of-use assets and other current liabilities and operating lease liabilities in the condensed consolidated balance sheet as of September 30, 2021.

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, 2021, and December 31, 2020, was $196.0 million and $246.8 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 $420.0 million and $424.5 million as of September 30, 2021, and December 31, 2020, 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 had previously identified ACI On Demand and ACI On Premise, the operating segments at the time, as the reporting units.As of September 30, 2021, the Company's goodwill balance of $1.3 billion was allocated to these two reporting units, with $554.3 million allocated to ACI On Demand and $725.9 million allocated to ACI On Premise.

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Recoverability of goodwill is measured using a discounted cash flow valuation 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, 2020, annual impairment test. Given the adverse economic and market conditions caused by the COVID-19 pandemic, the Company considered a variety of qualitative factors to determine if an additional quantitative impairment test was required subsequent to our annual impairment test. Based on a variety of factors, including the excess of the fair value over the carrying amount in the most recent impairment test, we determined that an additional quantitative impairment test was not required.

As discussed in Note 9, Segment Information, during the first quarter of 2021, the Company made a change in organizational structure to better align with its strategic direction. This change in the Company’s operating segments will also result in a change in reporting units. The Company is currently in the process of calculating the allocation of goodwill for the new reporting units, which are expected to coincide with the new operating segments - Banks, Merchants, and Billers, and will be completed prior to year-end.

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 $19.0 million and $19.3 million, which is included in other noncurrent assets in the condensed consolidated balance sheet as of September 30, 2021, and December 31, 2020, respectively.

New Accounting Standards Recently Adopted

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions within ASC 740, Income Taxes, as well as clarify and simplify other aspects of the accounting for income taxes to promote consistency among reporting entities. ASU 2019-12 was effective for annual and interim periods beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

2. Revenue

In accordance with ASC 606, Revenue From Contracts With Customers, revenue is recognized upon transfer of control of promised products and/or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. See Note 9, Segment Information, for additional information, including disaggregation of revenue based on primary solution category.

Total receivables represent amounts billed and amounts earned that are to be billed in the future (i.e., accrued receivables). Included in accrued receivables are services, software as a service ("SaaS"), and platform as a service ("PaaS") revenues earned in the current period but billed in the following period, and amounts due under multi-year software license arrangements with extended payment terms for which the Company has an unconditional right to invoice and receive payment subsequent to invoicing.

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


	September 30, 2021		December 31, 2020
Billed receivables	$	147,247	$	179,177
Allowance for doubtful accounts	(2,544)		(3,912)
Billed receivables, net	144,703		175,265
Current accrued receivables, net	154,633		167,614
Long-term accrued receivables, net	196,676		215,772
Total accrued receivables, net	351,309		383,386
Total receivables, net	$	496,012	$	558,651

No customer accounted for more than 10% of the Company’s consolidated receivables balance as of September 30, 2021, or December 31, 2020.

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, 2020	$	129,413
Deferral of revenue	112,008
Recognition of deferred revenue	(101,306)
Foreign currency translation	(1,478)
Balance, September 30, 2021	$	138,637

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 $871.2 million as of September 30, 2021, of which the Company expects to recognize approximately 55% over the next 12 months and the remainder thereafter.

During the three and nine months ended September 30, 2021 and 2020, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant.

3. Debt

As of September 30, 2021, the Company had $687.9 million and $400.0 million outstanding under its Term Loans and Senior Notes, respectively, with up to $498.5 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.

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

At the Company’s option, borrowings under the Credit Facility bear interest at an annual rate equal to, either (a) a base rate determined by reference to the highest of (1) the annual interest rate publicly announced by the administrative agent as its Prime Rate, (2) the federal funds effective rate plus 1/2 of 1%, or (3) a London Interbank Offered Rate (“LIBOR”) rate determined by reference to the costs of funds for U.S. dollar deposits for a one-month interest period, adjusted for certain additional costs, plus 1% or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, plus an applicable margin. Based on the calculation of the applicable consolidated total leverage ratio, the applicable margin for borrowings under the Credit Facility is between 0.25% to 1.25% with respect to base rate borrowings and between 1.25% and 2.25% with respect to LIBOR rate borrowings. Interest is due and payable monthly. The interest rate in effect for the Credit Facility as of September 30, 2021, was 2.08%.

The Company is also required to pay (a) a commitment fee related to the unutilized commitments under the Revolving Credit Facility, payable quarterly in arrears, (b) letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBOR rate borrowings under the Revolving Credit Facility on an annual basis, payable quarterly in arrears, and (c) customary fronting fees for the issuance of letters of credit fees and agency fees.

Expected Discontinuation of LIBOR

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced it will no longer compel banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the first publication of SOFR rates was released in April 2018.

The Company is evaluating the potential impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including SOFR. The Company's Credit Agreement is currently indexed to LIBOR and the maturity date of the Credit Agreement extends beyond 2021. The Credit Agreement contemplates the discontinuation of LIBOR and provides options for the Company in such an event. The Company will continue to actively assess the related opportunities and risks involved in this transition.

Senior Notes

On August 21, 2018, the Company completed a $400.0 million offering of the 2026 Notes at an issue price of 100% of the principal amount in a private placement for resale to qualified institutional buyers. The 2026 Notes bear interest at an annual rate of 5.750%, payable semi-annually in arrears on February 15 and August 15 of each year. The 2026 Notes will mature on August 15, 2026.

Maturities on debt outstanding as of September 30, 2021, are as follows (in thousands):


Fiscal Year Ending December 31,
Remainder of 2021	$	9,738
2022	50,431
2023	69,906
2024	557,823
2025	—
Thereafter	400,000
Total	$	1,087,898

As of September 30, 2021, and at all times during the period, the Company was in compliance with its financial debt covenants.

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


	September 30, 2021		December 31, 2020
Term loans	$	687,898	$	717,110
Revolving credit facility	—		55,000
5.750% Senior notes, due August 2026	400,000		400,000
Debt issuance costs	(13,578)		(17,103)
Total debt	1,074,320		1,155,007
Less: current portion of term loans	45,563		38,950
Less: current portion of debt issuance costs	(4,596)		(4,685)
Total long-term debt	$	1,033,353	$	1,120,742

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, 2021, there was $75.0 million available and no amount outstanding on the overdraft facility. As of December 31, 2020, 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, 2021, $5.1 million was outstanding on these agreements, of which $2.9 million and $2.2 million are included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet. As of December 31, 2020, $7.8 million was outstanding on these agreements, of which $5.6 million and $2.2 million are included in other current liabilities and other noncurrent liabilities, respectively, in the condensed consolidated balance sheet.

4. 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, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
Software for resale	$	129,771	$	(127,842)	$	1,929	$	130,261	$	(123,418)	$	6,843
Software for internal use	435,706		(270,699)		165,007		430,330		(240,717)		189,613
Total software	$	565,477	$	(398,541)	$	166,936	$	560,591	$	(364,135)	$	196,456

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 and 2020, totaled $1.5 million and $2.1 million, respectively. Software for resale amortization expense recorded during the nine months ended September 30, 2021 and 2020, totaled $4.9 million and $6.1 million, respectively. These software amortization expense amounts are reflected in cost of revenue in the condensed consolidated statements of operations.

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, 2021 and 2020, totaled $17.5 million and $17.9 million, respectively. Software for internal use amortization expense recorded during the nine months ended September 30, 2021 and 2020, totaled $51.8 million and $53.1 million, respectively. These software amortization expense amounts are reflected in depreciation and amortization in the condensed consolidated statements of operations.

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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, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Balance		Gross Carrying Amount		Accumulated Amortization		Net Balance
Customer relationships	$	508,808	$	(221,889)	$	286,919	$	512,389	$	(197,787)	$	314,602
Trademarks and trade names	23,895		(18,155)		5,740		24,115		(16,734)		7,381
Total other intangible assets	$	532,703	$	(240,044)	$	292,659	$	536,504	$	(214,521)	$	321,983

Other intangible assets amortization expense recorded during both the three months ended September 30, 2021 and 2020, totaled $9.3 million. Other intangible assets amortization expense recorded during both the nine months ended September 30, 2021 and 2020, totaled $27.8 million.

Based on capitalized intangible assets as of September 30, 2021, 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 2021	$	17,995	$	9,208
2022	57,903		36,681
2023	39,950		36,364
2024	24,135		31,860
2025	19,171		23,293
Thereafter	7,782		155,253
Total	$	166,936	$	292,659

5. Stock-Based Compensation Plans

Employee Stock Purchase Plan

Shares issued under the 2017 Employee Stock Purchase Plan during the nine months ended September 30, 2021 and 2020, totaled 86,877 and 114,709, 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, 2020	2,186,511	$	17.87
Exercised	(380,676)	19.05


Outstanding as of September 30, 2021	1,805,835	$	17.63	3.27	$	23,662,370
Exercisable as of September 30, 2021	1,805,835	$	17.63	3.27	$	23,662,370

The total intrinsic value of stock options exercised during the nine months ended September 30, 2021 and 2020, was $7.8 million and $14.3 million, respectively. There were no stock options granted during the nine months ended September 30, 2021 or 2020.

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Long-term Incentive Program Performance Share Awards

During the nine months ended September 30, 2021, the Company modified the performance target for the remaining outstanding long-term incentive program performance shares ("LTIP performance shares") in consideration of the impact of the COVID-19 pandemic, resulting in additional stock-based compensation expense of approximately $0.4 million. During the nine months ended September 30, 2021, a total of 10,457 LTIP performance shares vested. The Company withheld 4,527 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

Total Shareholder Return Awards

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, 2020	1,367,728	$	34.59
Granted	367,317	50.60
Vested	(782,588)	31.31
Forfeited	(153,681)	38.57
Change in payout rate	391,294	31.31
Nonvested as of September 30, 2021	1,190,070	$	40.10

During the nine months ended September 30, 2021, a total of 782,588 TSRs awards granted in fiscal 2018 vested and achieved a payout rate of 200% based on the Company's total shareholder return as compared to a group of peer companies over a three-year performance period. The Company withheld 205,373 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

The fair value of TSRs granted during the nine months ended September 30, 2021 and 2020, 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,
	2021		2020
Expected life (years)	2.8		2.8
Risk-free interest rate	0.3	%	0.5	%
Expected volatility	41.2	%	31.4	%
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, 2020	1,118,182	$	27.34
Granted	578,220	39.27
Vested	(522,608)	27.69
Forfeited	(232,734)	30.54
Nonvested as of September 30, 2021	941,060	$	33.69

During the nine months ended September 30, 2021, a total of 522,608 RSUs vested. The Company withheld 155,031 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

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As of September 30, 2021, there were unrecognized compensation costs of $