ACI Worldwide Earnings 2019-06-30

ACIW 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Document

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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 June 30, 2019



☐	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.)

3520 Kraft Rd,	Suite 300	Naples,	Florida	34105
(Address of principal executive offices)				(Zip code)

(239) 403-4660

(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 August 5, 2019, there were 116,714,472 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 June 30, 2019, and December 31, 2018	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	8
	Notes to Condensed Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4	Controls and Procedures	42

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	42
Item 1A	Risk Factors	42
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3	Defaults Upon Senior Securities	43
Item 4	Mine Safety Disclosures	43
Item 5	Other Information	43
Item 6	Exhibits	44

Signature		45

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACI WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands, except share and per share amounts)



	June 30, 2019			December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	139,396		$	148,502
Receivables, net of allowances of $3,781 and $3,912, respectively	286,393			348,182
Settlement assets	613,290			32,256
Prepaid expenses	30,645			23,277
Other current assets	52,259			14,260
Total current assets	1,121,983			566,477
Noncurrent assets
Accrued receivables, net	177,513			189,010
Property and equipment, net	70,805			72,729
Operating lease right-of-use assets	62,316			—
Software, net	246,314			137,228
Goodwill	1,279,472			909,691
Intangible assets, net	374,908			168,127
Deferred income taxes, net	63,569			27,048
Other noncurrent assets	53,440			52,145
TOTAL ASSETS	$	3,450,320		$	2,122,455
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	46,975		$	39,602
Settlement liabilities	589,742			31,605
Employee compensation	38,976			38,115
Current portion of long-term debt	34,089			20,767
Deferred revenue	79,311			104,843
Other current liabilities	81,156			61,688
Total current liabilities	870,249			296,620
Noncurrent liabilities
Deferred revenue	59,122			51,292
Long-term debt	1,352,096			650,989
Deferred income taxes, net	23,243			31,715
Operating lease liabilities	50,550			—
Other noncurrent liabilities	42,483			43,608
Total liabilities	2,397,743			1,074,224
Commitments and contingencies
Stockholders’ equity
Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued at June 30, 2019, and December 31, 2018	—			—
Common stock; $0.005 par value; 280,000,000 shares authorized; 140,525,055 shares issued at June 30, 2019, and December 31, 2018	702			702
Additional paid-in capital	650,797			632,235
Retained earnings	843,530			863,768
Treasury stock, at cost, 23,840,186 and 24,401,694 shares at June 30, 2019, and December 31, 2018, respectively	(349,426		)	(355,857		)
Accumulated other comprehensive loss	(93,026		)	(92,617		)
Total stockholders’ equity	1,052,577			1,048,231
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,450,320		$	2,122,455

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues
Software as a service and platform as a service	$	172,499		$	113,600		$	281,056		$	217,880
License	52,541			45,555			73,619			73,601
Maintenance	51,922			55,048			107,033			111,707
Services	20,656			20,792			41,765			41,117
Total revenues	297,618			234,995			503,473			444,305
Operating expenses
Cost of revenue (1)	155,240			116,261			270,181			223,597
Research and development	39,235			37,862			75,429			74,653
Selling and marketing	32,962			33,160			62,392			65,053
General and administrative	49,319			28,837			80,836			57,486
Depreciation and amortization	26,744			21,033			48,610			42,378
Total operating expenses	303,500			237,153			537,448			463,167
Operating loss	(5,882		)	(2,158		)	(33,975		)	(18,862		)
Other income (expense)
Interest expense	(15,323		)	(9,717		)	(26,937		)	(19,082		)
Interest income	2,997			2,742			6,030			5,486
Other, net	1,402			(1,677		)	(510		)	(1,732		)
Total other income (expense)	(10,924		)	(8,652		)	(21,417		)	(15,328		)
Loss before income taxes	(16,806		)	(10,810		)	(55,392		)	(34,190		)
Income tax expense (benefit)	(22,531		)	3,764			(35,154		)	(188		)
Net income (loss)	$	5,725		$	(14,574	)	$	(20,238	)	$	(34,002	)
Income (loss) per common share
Basic	$	0.05		$	(0.13	)	$	(0.17	)	$	(0.29	)
Diluted	$	0.05		$	(0.13	)	$	(0.17	)	$	(0.29	)
Weighted average common shares outstanding
Basic	116,586			115,548			116,287			115,595
Diluted	118,786			115,548			116,287			115,595

(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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	5,725		$	(14,574	)	$	(20,238	)	$	(34,002	)
Other comprehensive loss:
Foreign currency translation adjustments	(1,730		)	(12,907		)	(409		)	(7,248		)
Total other comprehensive loss	(1,730		)	(12,907		)	(409		)	(7,248		)
Comprehensive income (loss)	$	3,995		$	(27,481	)	$	(20,647	)	$	(41,250	)

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 June 30, 2019
	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of March 31, 2019	$	702	$	636,960		$	837,805		$	(351,587	)	$	(91,296	)	$	1,032,584
Net income	—		—			5,725			—			—			5,725
Other comprehensive loss	—		—			—			—			(1,730		)	(1,730		)
Stock-based compensation	—		14,372			—			—			—			14,372
Shares issued and forfeited, net, under stock plans including income tax benefits	—		(535		)	—			2,346			—			1,811
Repurchase of restricted share awards and restricted share units for tax withholdings	—		—			—			(185		)	—			(185		)
Balance as of June 30, 2019	$	702	$	650,797		$	843,530		$	(349,426	)	$	(93,026	)	$	1,052,577


	Three Months Ended June 30, 2018
	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of March 31, 2018	$	702	$	616,913		$	775,419		$	(342,316	)	$	(71,697	)	$	979,021
Net loss	—		—			(14,574		)	—			—			(14,574		)
Other comprehensive loss	—		—			—			—			(12,907		)	(12,907		)
Stock-based compensation	—		7,705			—			—			—			7,705
Shares issued and forfeited, net, under stock plans including income tax benefits	—		233			—			6,325			—			6,558
Repurchase of 1,000,000 shares of common stock	—		—			—			(23,414		)	—			(23,414		)
Repurchase of restricted share awards for tax withholdings	—		—			—			(1,674		)	—			(1,674		)
Balance as of June 30, 2018	$	702	$	624,851		$	760,845		$	(361,079	)	$	(84,604	)	$	940,715

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)



	Six Months Ended June 30, 2019
	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of December 31, 2018	$	702	$	632,235		$	863,768		$	(355,857	)	$	(92,617	)	$	1,048,231
Net loss	—		—			(20,238		)	—			—			(20,238		)
Other comprehensive loss	—		—			—			—			(409		)	(409		)
Stock-based compensation	—		20,957			—			—			—			20,957
Shares issued and forfeited, net, under stock plans including income tax benefits	—		(2,395		)	—			9,871			—			7,476
Repurchase of 23,802 shares of common stock	—		—			—			(631		)	—			(631		)
Repurchase of restricted share awards and restricted share units for tax withholdings	—		—			—			(2,809		)	—			(2,809		)
Balance as of June 30, 2019	$	702	$	650,797		$	843,530		$	(349,426	)	$	(93,026	)	$	1,052,577


	Six Months Ended June 30, 2018
	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of December 31, 2017	$	702	$	610,345		$	550,866		$	(319,960	)	$	(77,356	)	$	764,597
Net loss	—		—			(34,002		)	—			—			(34,002		)
Other comprehensive loss	—		—			—			—			(7,248		)	(7,248		)
Stock-based compensation	—		14,067			—			—			—			14,067
Shares issued and forfeited, net, under stock plans including income tax benefits	—		439			—			15,996			—			16,435
Repurchase of 2,346,427 shares of common stock	—		—			—			(54,527		)	—			(54,527		)
Repurchase of restricted share awards for tax withholdings	—		—			—			(2,588		)	—			(2,588		)
Cumulative effect of accounting change, ASC 606	—		—			243,981			—			—			243,981
Balance as of June 30, 2018	$	702	$	624,851		$	760,845		$	(361,079	)	$	(84,604	)	$	940,715

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)



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(20,238	)	$	(34,002	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation	11,831			11,875
Amortization	42,799			37,469
Amortization of operating lease right-of-use assets	7,029			—
Amortization of deferred debt issuance costs	1,683			1,445
Deferred income taxes	(41,331		)	(3,044		)
Stock-based compensation expense	20,957			14,067
Other	1,533			(248		)
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables	88,596			67,689
Accounts payable	1,294			(3,658		)
Accrued employee compensation	(1,163		)	(5,805		)
Current income taxes	(5,634		)	(7,243		)
Deferred revenue	(17,981		)	10,142
Other current and noncurrent assets and liabilities	(32,510		)	(17,576		)
Net cash flows from operating activities	56,865			71,111
Cash flows from investing activities:
Purchases of property and equipment	(9,915		)	(11,108		)
Purchases of software and distribution rights	(11,300		)	(16,776		)
Acquisition of businesses, net of cash acquired	(758,546		)	—
Other	—			(1,467		)
Net cash flows from investing activities	(779,761		)	(29,351		)
Cash flows from financing activities:
Proceeds from issuance of common stock	1,753			1,564
Proceeds from exercises of stock options	5,816			14,906
Repurchase of restricted share awards and restricted share units for tax withholdings	(2,809		)	(2,588		)
Repurchases of common stock	(631		)	(54,527		)
Proceeds from revolving credit facility	250,000			85,000
Repayment of revolving credit facility	(15,000		)	(84,000		)
Proceeds from term portion of credit agreement	500,000			—
Repayment of term portion of credit agreement	(9,424		)	(10,375		)
Payments for debt issuance costs	(12,830		)	—
Payments on other debt	(2,220		)	(1,550		)
Net cash flows from financing activities	714,655			(51,570		)
Effect of exchange rate fluctuations on cash	(865		)	(867		)
Net decrease in cash and cash equivalents	(9,106		)	(10,677		)
Cash and cash equivalents, beginning of period	148,502			69,710
Cash and cash equivalents, end of period	$	139,396		$	59,033
Supplemental cash flow information
Income taxes paid	$	15,476		$	20,613
Interest paid	$	23,937		$	17,297

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 June 30, 2019, and for the three and six months ended June 30, 2019 and 2018, 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, 2018, is derived from the audited financial statements. Certain prior period amounts have been reclassified to conform to current year presentation. The Company reclassified $32.3 million from other current assets to settlement assets and $31.6 million from other current liabilities to settlement liabilities in the condensed consolidated balance sheet as of December 31, 2018.

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, 2018, filed on March 1, 2019. Results for the three and six months ended June 30, 2019, 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.

Other Current Liabilities

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



	June 30, 2019		December 31, 2018
Operating lease liabilities	$	15,193	$	—
Vendor financed licenses	13,574		3,551
Accrued interest	9,660		8,407
Royalties payable	5,693		11,318
Other	37,036		38,412
Total other current liabilities	$	81,156	$	61,688

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 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.

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

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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 June 30, 2019, and December 31, 2018, was $203.2 million and $256.5 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”) as of June 30, 2019, and December 31, 2018, was $418.0 million and $395.0 million, 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, ACI On Demand and ACI On Premise, as its reporting units.

Changes in the carrying amount of goodwill attributable to each reporting unit during the six months ended June 30, 2019, were as follows (in thousands):



	ACI On Demand		ACI On Premise			Total
Gross Balance, prior to December 31, 2018	$	183,783	$	773,340		$	957,123
Total impairment prior to December 31, 2018	—		(47,432		)	(47,432		)
Balance, December 31, 2018	183,783		725,908			909,691
Goodwill from acquisitions (1)	369,781		—			369,781
Balance, June 30, 2019	$	553,564	$	725,908		$	1,279,472

(1)

Goodwill from acquisitions relates to the goodwill recorded for the acquisition of E Commerce Group Products, Inc. ("ECG"), along with ECG's subsidiary, Speedpay, Inc. (collectively referred to as "Speedpay") and Walletron, Inc. ("Walletron"), as discussed in Note 3, Acquisitions. The purchase price allocations for Speedpay and Walletron are preliminary as of June 30, 2019, and are subject to future changes during the maximum one-year measurement period.

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, 2018, annual impairment test and there have been no indications of impairment in the subsequent periods.

New Accounting Standards Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-2, Leases (codified as “ASC 842”). ASC 842 requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases unless, as a policy election, a lessee elects not to apply ASC 842 to short-term leases. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. The Company adopted ASC 842 on January 1, 2019 (the effective date), using the optional transition method to not apply the new lease standard in the comparative periods presented and elected the “practical expedient package”, which permits the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs. ASC 842 also provides practical expedients for the Company’s ongoing accounting including the combination of lease and non-lease components into a single lease component which the Company has elected to apply to its facilities leases. As of January 1, 2019, the Company recognized ROU assets and operating lease liabilities of $63.3 million and $68.6 million, respectively. Refer to Note 13, Leases, for further details.

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In February 2018, the FASB issued ASU 2018-2, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU provides an option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 U.S. Tax Cuts and Jobs Act (or portion thereof) is recorded. This ASU requires disclosure of a description of the accounting policy for releasing income tax effects from AOCI; whether election is made to reclassify the stranded income tax effects from the 2017 U.S. Tax Cuts and Jobs Act; and information about the income tax effects that are reclassified. The Company adopted ASU 2018-2 as of January 1, 2019. The adoption of ASU 2018-2 did not have an impact on the condensed consolidated balance sheet, results of operations, and statement of cash flows.

Recently Issued Accounting Standards Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance, ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, and ASU 2019-05 in May 2019. This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019. The Company is currently assessing the impact the adoption of ASU 2016-13 will have on its condensed consolidated balance sheet, results of operations, and statement of cash flows.

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. Refer to Note 11, Segment Information, for further details, including disaggregation of revenue based on primary solution category and geographic location.

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.

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



	June 30, 2019			December 31, 2018
Billed receivables	$	158,052		$	239,275
Allowance for doubtful accounts	(3,781		)	(3,912		)
Billed receivables, net	154,271			235,363
Accrued receivables	341,417			336,858
Significant financing component	(31,782		)	(35,029		)
Total accrued receivables, net	309,635			301,829
Less: current accrued receivables	142,248			123,053
Less: current significant financing component	(10,126		)	(10,234		)
Total long-term accrued receivables, net	177,513			189,010
Total receivables, net	$	463,906		$	537,192

No customer accounted for more than 10% of the Company’s consolidated receivables balance as of June 30, 2019, or December 31, 2018.

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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, 2018	$	156,135
Deferral of revenue	79,147
Recognition of deferred revenue	(97,104		)
Foreign currency translation	255
Balance, June 30, 2019	$	138,433

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.


•	SaaS and PaaS revenue from variable consideration that will be recognized in accordance with the direct allocation method.

Revenue allocated to remaining performance obligations was $647.8 million as of June 30, 2019, of which the Company expects to recognize approximately 45% over the next 12 months and the remainder thereafter.

During the three and six months ended June 30, 2019 and 2018, revenue recognized by the Company from performance obligations satisfied in previous periods was not significant.

3. Acquisition

Speedpay

On May 9, 2019, the Company acquired Speedpay, a subsidiary of The Western Union Company (“Western Union”), for $755.3 million in cash, including working capital adjustments, pursuant to a Stock Purchase Agreement, among the Company, Western Union, and ACI Worldwide Corp., a wholly owned subsidiary of the Company. The Company has included the financial results of Speedpay in the condensed consolidated financial statements from the date of acquisition. The combination of the Company and Speedpay bill pay solutions serves more than 4,000 customers across the U.S., bringing expanded reach in existing and complementary market segments such as consumer finance, insurance, healthcare, higher education, utilities, government, and mortgage. The acquisition of Speedpay increases the scale of the Company’s On Demand platform business and allows the acceleration of platform innovation through increased research and development and investment in ACI On Demand's platform infrastructure.

To fund the acquisition, the Company amended its existing Credit Agreement, dated February 24, 2017, for an additional $500.0 million senior secured term loan (“Delayed Draw Term Loan”), in addition to drawing $250.0 million on the available Revolving Credit Facility. See Note 4, Debt, for terms of the Credit Agreement. The remaining acquisition consideration was funded with cash on hand.

The Company expensed approximately $16.6 million and $21.3 million of costs related to the acquisition of Speedpay for the three and six months ended June 30, 2019, respectively. These costs, which consist primarily of investment bank, consulting, and legal fees, are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

Speedpay contributed approximately $49.3 million in revenue and $7.6 million in operating income for the three and six months ended June 30, 2019.

The consideration paid by the Company to complete the acquisition has been allocated preliminarily to the assets acquired and liabilities assumed based upon estimated fair values as of the date of the acquisition. The allocation of purchase price is based upon external valuation and other analyses that have not been completed as of the date of this filing, including, but not limited to, certain tax matters, software, intangible assets, and accrued liabilities. Accordingly, the purchase price allocations are preliminary and are subject to future adjustments during the maximum one-year allocation period.

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In connection with the acquisition, the Company recorded the following amounts based upon its preliminary purchase price allocation as of June 30, 2019, which are subject to completion of the valuation and other analyses (in thousands, except weighted average useful lives):



	Amount		Weighted Average Useful Lives
Current assets:
Cash and cash equivalents	$	135
Receivables, net of allowances	18,422
Settlement assets	239,604
Prepaid expenses	317
Other current assets	19,585
Total current assets acquired	278,063
Noncurrent assets:
Goodwill	367,142
Software	113,600		7 years
Customer relationships	208,500		15 years
Trademarks	10,900		5 years
Other noncurrent assets	3,745
Total assets acquired	981,950
Current liabilities:
Accounts payable	6,743
Settlement liabilities	212,892
Employee compensation	1,959
Other current liabilities	3,802
Total current liabilities acquired	225,396
Noncurrent liabilities:
Other noncurrent liabilities	1,219
Total liabilities acquired	226,615
Net assets acquired	$	755,335

Factors contributing to the purchase price that resulted in the goodwill (which is tax deductible) include the acquisition of management, sales, and technology personnel with the skills to market new and existing products of the Company, enhanced product capabilities, complementary products and customers.

Unaudited Pro Forma Financial Information

The pro forma financial information in the table below presents the combined results of operations for ACI and Speedpay as if the acquisition had occurred January 1, 2018. The pro forma information is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transaction been in effect for the periods presented. This pro forma information is not intended to represent or be indicative of actual results had the acquisition occurred as of the beginning of each period, and does not reflect potential synergies, integration costs, or other such costs or savings.

Certain pro forma adjustments have been made to net income (loss) for the three and six months ended June 30, 2019 and 2018, to give effect to estimated adjustments that remove the amortization expense on eliminated Speedpay historical identifiable intangible assets, add amortization expense for the value of acquired identified intangible assets (primarily acquired software, customer relationships, and trademarks), and add estimated interest expense on the Company’s additional Delayed Draw Term Loan and Revolving Credit Facility borrowings. Additionally, certain transaction expenses that are a direct result of the acquisition have been excluded from the three and six months ended June 30, 2019 and 2018.

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The following is the unaudited summarized pro forma financial information for the periods presented (in thousands, except per share data):



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Pro forma revenue	$	334,077	$	322,407		$	628,136		$	626,691
Pro forma net income (loss)	15,249		(7,382		)	(5,996		)	(13,595		)
Pro forma income (loss) per share:
Basic	$	0.13	$	(0.06	)	$	(0.05	)	$	(0.12	)
Diluted	0.13		(0.06		)	(0.05		)	(0.12		)

Walletron

On May 9, 2019, the Company also completed the acquisition of Walletron, which delivers patented mobile wallet technology. The Company has included the financial results of Walletron in the condensed consolidated financial statements from the date of acquisition, which were not material.

4. Debt

As of June 30, 2019, the Company had $235.0 million, $775.5 million, and $400.0 million outstanding under its Revolving Credit Facility, Term Loan, and Senior Notes, respectively, with up to $265.0 million of unused borrowings under the Revolving Credit Facility portion of the Credit Agreement, as amended.

Credit Agreement

On April 5, 2019, the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with ACI Worldwide Corp., Official Payments Corporation ("OPAY"), the lenders, and Bank of America, N.A., as administrative agent for the lenders, to amend and restate the Company's existing agreement, as amended, dated February 24, 2017. The amended Credit Agreement: permitted the Company to borrow up to $500.0 million in the form of an additional senior secured term loan; extended the revolver and the existing term loan maturity date from February 24, 2022, to April 5, 2024; increased the maximum consolidated senior secured net leverage ratio covenant from 3.50:1.00 to 3.75:1.00; and increased the maximum consolidated total net leverage ratio covenant from 4.25:1.00 to 5.00:1.00, with subsequent decreases occurring every three quarters thereafter for a specified period of time; among other things. In connection with amending the Credit Agreement, the Company incurred and paid debt issuance costs of $12.8 million as of June 30, 2019.

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) 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 as of June 30, 2019, for the Credit Facility was 4.65%.

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.

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The Company’s obligations under the Credit Facility and cash management arrangements entered into with lenders under the Credit Facility (or affiliates thereof) and the obligations of the subsidiary guarantors are secured by first-priority security interests in substantially all assets of the Company and any guarantor, including 100% of the capital stock of ACI Worldwide Corp. and each domestic subsidiary of the Company, each domestic subsidiary of any guarantor, and 65% of the voting capital stock of each foreign subsidiary of the Company that is directly owned by the Company or a guarantor, in each case subject to certain exclusions set forth in the credit documentation governing the Credit Facility. The collateral agreement of the Credit Agreement, as amended, released the lien on certain assets of OPAY, our electronic bill presentment and payment affiliate, to allow OPAY to comply with certain eligible securities and unencumbered asset requirements related to money transmitter or transfer license rules and regulations.

The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict the Company’s and its subsidiaries' ability to: create, incur, assume or suffer to exist any additional indebtedness; create, incur, assume or suffer to exist any liens; enter into agreements and other arrangements that include negative pledge clauses; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; create restrictions on the payment of dividends or other distributions by subsidiaries; make investments, loans, advances and acquisitions; merge, consolidate or enter into any similar combination or sell assets, including equity interests of the subsidiaries; enter into sale and leaseback transactions; directly or indirectly engage in transactions with affiliates; alter in any material respect the character or conduct of the business; enter into amendments of or waivers under subordinated indebtedness, organizational documents and certain other material agreements; and hold certain assets and incur certain liabilities.

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, commencing on February 15, 2019. Interest accrued from August 21, 2018. The 2026 Notes will mature on August 15, 2026.

Maturities on debt outstanding as of June 30, 2019, are as follows (in thousands):



Fiscal Year Ending December 31,
Remainder of 2019	$	19,475
2020	38,950
2021	38,950
2022	50,431
2023	69,906
Thereafter	1,192,823
Total	$	1,410,535

The Credit Facility will mature on April 5, 2024, and the 2026 Notes will mature on August 15, 2026. The Revolving Credit Facility and 2026 Notes do not amortize. The Term Loans do amortize, with principal payable in consecutive quarterly installments.

The Credit Agreement and 2026 Notes contain certain customary affirmative covenants and negative covenants that limit or restrict, subject to certain exceptions, the incurrence of liens, indebtedness of subsidiaries, mergers, advances, investments, acquisitions, transactions with affiliates, change in nature of business and the sale of the assets. In addition, the Credit Agreement and 2026 Notes contain certain customary mandatory prepayment provisions. The Company is also required to maintain a consolidated leverage ratio at or below a specified amount and an interest coverage ratio at or above a specified amount. As specified in the Credit Agreement and 2026 Notes agreement, if certain events occur and continue, the Company may be required to repay all amounts outstanding under the Credit Facility and 2026 Notes. As of June 30, 2019, 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):



	June 30, 2019			December 31, 2018
Term loans	$	775,535		$	284,959
Revolving credit facility	235,000			—
5.750% Senior notes, due August 2026	400,000			400,000
Debt issuance costs	(24,350		)	(13,203		)
Total debt	1,386,185			671,756
Less: current portion of term loans	38,950			23,747
Less: current portion of debt issuance costs	(4,861		)	(2,980		)
Total long-term debt	$	1,352,096		$	650,989

Overdraft Facility

In 2019, the Company and OPAY entered in to a $140.0 million uncommitted overdraft facility with Bank of America, N.A. The overdraft facility bears interest at LIBOR plus 0.875% 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 June 30, 2019, there was no amount outstanding on the overdraft facility.

Other

During the six months ended June 30, 2019, the Company financed certain multi-year license agreements for internal-use software for $10.4 million, with annual payments through April 2022. As of June 30, 2019, $

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$32.17	117	$3,750

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-08-08	Earnings, Regulation FD, Exhibits
8-K	2019-06-11	Shareholder Vote
8-K	2019-05-21	Regulation FD, Exhibits
8-K	2019-05-09	M&A, Other Events, Exhibits
8-K	2019-05-09	Earnings, Regulation FD, Exhibits
8-K	2019-04-05	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-03-04	Officers, Exhibits
8-K	2019-02-28	Enter Agreement, Earnings, Regulation FD, Exhibits
8-K	2018-11-14	Regulation FD, Exhibits
8-K	2018-11-08	Earnings, Regulation FD, Exhibits
8-K	2018-08-21	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-08-07	Other Events, Exhibits
8-K	2018-08-06	Regulation FD, Other Events, Exhibits
8-K	2018-08-02	Earnings, Regulation FD, Exhibits
8-K	2018-06-12	Shareholder Vote
8-K	2018-02-22	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-02-19	Officers

LEN	Lennar	16,730
CF	CF Industries	9,100
DVA	Davita	8,720
SHO	Sears	3,240
POL	Polyone	2,100
OSIS	OSI Systems	1,870
ATNX	Athenex	873
BKSC	Bank of South Carolina	105
ACT	Advanced Credit Technologies	13
BBII	Brisset Beer	0

EX-31.01	aciw-20190630xexx3101.htm
EX-31.02	aciw-20190630xexx3102.htm
EX-32.01	aciw-20190630xexx3201.htm
EX-32.02	aciw-20190630xexx3202.htm