RESULTS OF OPERATIONS
The following table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our condensed consolidated statements of operations (in thousands):
Three Month Period Ended
June 30, 2019
, Compared to the Three Month Period Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
Amount
|
|
% of Total
Revenue
|
|
$ Change
vs 2018
|
|
% Change
vs 2018
|
|
Amount
|
|
% of Total
Revenue
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Software as a service and platform as a service
|
$
|
172,499
|
|
|
58
|
%
|
|
$
|
58,899
|
|
|
52
|
%
|
|
$
|
113,600
|
|
|
48
|
%
|
License
|
52,541
|
|
|
18
|
%
|
|
6,986
|
|
|
15
|
%
|
|
45,555
|
|
|
19
|
%
|
Maintenance
|
51,922
|
|
|
17
|
%
|
|
(3,126
|
)
|
|
(6
|
)%
|
|
55,048
|
|
|
23
|
%
|
Services
|
20,656
|
|
|
7
|
%
|
|
(136
|
)
|
|
(1
|
)%
|
|
20,792
|
|
|
9
|
%
|
Total revenues
|
297,618
|
|
|
100
|
%
|
|
62,623
|
|
|
27
|
%
|
|
234,995
|
|
|
100
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
155,240
|
|
|
52
|
%
|
|
38,979
|
|
|
34
|
%
|
|
116,261
|
|
|
49
|
%
|
Research and development
|
39,235
|
|
|
13
|
%
|
|
1,373
|
|
|
4
|
%
|
|
37,862
|
|
|
16
|
%
|
Selling and marketing
|
32,962
|
|
|
11
|
%
|
|
(198
|
)
|
|
(1
|
)%
|
|
33,160
|
|
|
14
|
%
|
General and administrative
|
49,319
|
|
|
17
|
%
|
|
20,482
|
|
|
71
|
%
|
|
28,837
|
|
|
12
|
%
|
Depreciation and amortization
|
26,744
|
|
|
9
|
%
|
|
5,711
|
|
|
27
|
%
|
|
21,033
|
|
|
9
|
%
|
Total operating expenses
|
303,500
|
|
|
102
|
%
|
|
66,347
|
|
|
28
|
%
|
|
237,153
|
|
|
101
|
%
|
Operating loss
|
(5,882
|
)
|
|
(2
|
)%
|
|
(3,724
|
)
|
|
173
|
%
|
|
(2,158
|
)
|
|
(1
|
)%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(15,323
|
)
|
|
(5
|
)%
|
|
(5,606
|
)
|
|
58
|
%
|
|
(9,717
|
)
|
|
(4
|
)%
|
Interest income
|
2,997
|
|
|
1
|
%
|
|
255
|
|
|
9
|
%
|
|
2,742
|
|
|
1
|
%
|
Other, net
|
1,402
|
|
|
—
|
%
|
|
3,079
|
|
|
(184
|
)%
|
|
(1,677
|
)
|
|
(1
|
)%
|
Total other income (expense)
|
(10,924
|
)
|
|
(4
|
)%
|
|
(2,272
|
)
|
|
26
|
%
|
|
(8,652
|
)
|
|
(4
|
)%
|
Loss before income taxes
|
(16,806
|
)
|
|
(6
|
)%
|
|
(5,996
|
)
|
|
55
|
%
|
|
(10,810
|
)
|
|
(5
|
)%
|
Income tax expense (benefit)
|
(22,531
|
)
|
|
(8
|
)%
|
|
(26,295
|
)
|
|
(699
|
)%
|
|
3,764
|
|
|
2
|
%
|
Net income (loss)
|
$
|
5,725
|
|
|
2
|
%
|
|
$
|
20,299
|
|
|
(139
|
)%
|
|
$
|
(14,574
|
)
|
|
(6
|
)%
|
Revenues
Total revenue for the three months ended
June 30, 2019
,
increased
$62.6 million
, or
27%
, as compared to the same period in
2018
, of which
$49.3 million
, or
21%
, was due to the acquisition of Speedpay.
Total revenue was
$4.5 million
lower
for the three months ended
June 30, 2019
, compared to the same period in
2018
, due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, total revenue for the three months ended
June 30, 2019
,
increased
$17.8 million
, or
8%
, compared to the same period in
2018
.
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue
The Company’s SaaS arrangements allow customers to use certain software solutions (without taking possession of the software) in a single-tenant cloud environment on a subscription basis. The Company’s PaaS arrangements allow customers to use certain software solutions (without taking possession of the software) in a multi-tenant cloud environment on a subscription or consumption basis. Included in SaaS and PaaS revenue are fees paid by our customers for use of our Biller solutions. Biller-related fees may be paid by our clients or directly by their customers and may be a percentage of the underlying transaction amount, a fixed fee per executed transaction or a monthly fee for each customer enrolled. SaaS and PaaS costs include payment card interchange fees, the amounts payable to banks and payment card processing fees, which are included in cost of revenue in the condensed consolidated statements of operations. All fees from SaaS and PaaS arrangements that do not qualify for treatment as a distinct performance
obligation, which includes set-up fees, implementation or customization services, and product support services, are included in SaaS and PaaS revenue.
SaaS and PaaS revenue
increased
$58.9 million
, or
52%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
, of which
$49.3 million
, or
43%
, was due to the acquisition of Speedpay. SaaS and PaaS revenue was
$0.8 million
lower
for the three months ended
June 30, 2019
, compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, SaaS and PaaS revenue for the three months ended
June 30, 2019
,
increased
$10.4 million
, or
9%
, compared to the same period in
2018
, of which $8.6 million and $1.8 million is attributable to acceleration of recurring revenue associated with customer-related consolidation activity and new customers adopting our SaaS and PaaS offerings and existing customers adding new functionality or increasing transaction volumes, respectively.
License Revenue
Customers purchase the right to license ACI software under multi-year, time-based software license arrangements that vary in length but are generally five years. Under these arrangements the software is installed at the customer’s location (i.e. on-premise). Within these agreements are specified capacity limits typically based on customer transaction volume. ACI employs measurement tools that monitor the number of transactions processed by customers and if contractually specified limits are exceeded, additional fees are charged for the overage. Capacity overages may occur at varying times throughout the term of the agreement depending on the product, the size of the customer, and the significance of customer transaction volume growth. Depending on specific circumstances, multiple overages or no overages may occur during the term of the agreement.
Included in license revenue are license and capacity fees that are payable at the inception of the agreement or annually (initial license fees). License revenue also includes license and capacity fees payable quarterly or monthly due to negotiated customer payment terms (monthly license fees). The Company recognizes revenue in advance of billings for software license arrangements with extended payment terms and adjusts for the effects of the financing component, if significant.
License revenue
increased
$7.0 million
, or
15%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
. License revenue was
$2.1 million
lower
for the three months ended
June 30, 2019
, compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of foreign currency, license revenue for the three months ended
June 30, 2019
,
increased
$9.0 million
, or
20%
, compared to the same period in
2018
.
The
increase
in total license revenue was primarily driven by the timing and relative size of license and capacity events during the three months ended
June 30, 2019
, as compared to the same period in
2018
.
Maintenance Revenue
Maintenance revenue includes standard and premium maintenance and any post contract support fees received from customers for the provision of product support services.
Maintenance revenue
decreased
$3.1 million
, or
6%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
. Maintenance revenue was
$1.2 million
lower
for the three months ended
June 30, 2019
, as compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of foreign currency, maintenance revenue for the three months ended
June 30, 2019
,
decreased
$1.9 million
, or
3%
, compared to the same period in
2018
.
Services Revenue
Services revenue includes fees earned through implementation services and other professional services. Implementation services include product installations, product configurations, and custom software modifications (“CSMs”). Other professional services include business consultancy, technical consultancy, on-site support services, CSMs, product education, and testing services. These services include new customer implementations as well as existing customer migrations to new products or new releases of existing products.
Services revenue
decreased
$0.1 million
, or
1%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
. Services revenue was
$0.5 million
lower
for the three months ended
June 30, 2019
, as compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of foreign currency, services revenue for the three months ended
June 30, 2019
,
increased
$0.4 million
, or
2%
, compared to the same period in
2018
.
Operating Expenses
Total operating expenses for the three months ended
June 30, 2019
,
increased
$66.3 million
, or
28%
, as compared to the same period in
2018
, of which $41.8 million, or 18%, and $16.6 million, or 7%, was due to the acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively.
Total operating expenses for the three months ended
June 30, 2018
, included $0.6 million of significant integration and divestiture-related expenses. Total operating expenses were $3.5 million lower for the three months ended
June 30, 2019
, compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay, significant acquisition and integration-related expenses, and foreign currency, total operating expenses for the three months ended
June 30, 2019
, increased $12.2 million, or 5%, compared to the same period in
2018
, primarily due to higher cost of revenue, general and administrative, research and development, and depreciation and amortization expenses, partially offset by lower selling and marketing.
Cost of Revenue
Cost of revenue includes costs to provide SaaS and PaaS services, third-party royalties, amortization of purchased and developed software for resale, the costs of maintaining our software products, as well as the costs required to deliver, install, and support software at customer sites. SaaS and PaaS service costs include payment card interchange fees, amounts payable to banks, and payment card processing fees. Maintenance costs include the efforts associated with providing the customer with upgrades, 24-hour help desk, post go-live (remote) support, and production-type support for software that was previously installed at a customer location. Service costs include human resource costs and other incidental costs such as travel and training required for both pre go-live and post go-live support. Such efforts include project management, delivery, product customization and implementation, installation support, consulting, configuration, and on-site support.
Cost of revenue
increased
$39.0 million
, or
34%
, during the three months ended
June 30, 2019
, compared to the same period in
2018
, of which $33.9 million, or 29%, was due to the acquisition of Speedpay. Cost of revenue was $1.3 million lower for the three months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, cost of revenue increased $6.4 million, or 6%, for the three months ended
June 30, 2019
, as compared to the same period in
2018
, primarily due to a $4.8 million increase in payment card interchange and processing fees.
Research and Development
Research and development (“R&D”) expenses are primarily human resource costs related to the creation of new products, improvements made to existing products as well as compatibility with new operating system releases and generations of hardware.
R&D expense
increased
$1.4 million
, or
4%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
, of which $1.8 million, or 5%, was due to the acquisition Speedpay. R&D expense was $1.0 million lower for the three months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, R&D expense increased $0.6 million, or 1%, for the three months ended
June 30, 2019
, as compared to the same period in
2018
, due to an increase in personnel and related expenses.
Selling and Marketing
Selling and marketing includes both the costs related to selling our products to current and prospective customers as well as the costs related to promoting the Company, its products and the research efforts required to measure customers’ future needs and satisfaction levels. Selling costs are primarily the human resource and travel costs related to the effort expended to license our products and services to current and potential clients within defined territories and/or industries as well as the management of the overall relationship with customer accounts. Selling costs also include the costs associated with assisting distributors in their efforts to sell our products and services in their respective local markets. Marketing costs include costs incurred to promote the Company and its products, perform or acquire market research to help the Company better understand impending changes in customer demand for and of our products, and the costs associated with measuring customers’ opinions toward the Company, our products and personnel.
Selling and marketing expense
decreased
$0.2 million
, or
1%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
. The acquisition of Speedpay contributed $1.2 million to selling and marketing expense during the three months ended June 30, 2019. Selling and marketing expense was $0.7 million lower for the three months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, selling and marketing expense decreased $0.7 million, or 2%, for the
three months ended
June 30, 2019
, as compared to the same period in
2018
, due to a decrease in advertising and promotions expense.
General and Administrative
General and administrative expenses are primarily human resource costs including executive salaries and benefits, personnel administration costs, and the costs of corporate support functions such as legal, administrative, human resources, and finance and accounting.
General and administrative expense
increased
$20.5 million
, or
71%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
, of which $0.6 million, or 2%, and $16.4 million, or 57%, was due to the acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively. General and administrative expense for the three months ended
June 30, 2018
, included $0.4 million of significant integration and divestiture-related expenses. General and administrative expense was $0.2 million lower for the three months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay, significant acquisition and integration-related expenses, and foreign currency, general and administrative expense increased $4.0 million, or 14%, for the three months ended
June 30, 2019
, as compared to the same period in 2018, primarily due to an increase in personnel and related expenses.
Depreciation and Amortization
Depreciation and amortization
increased
$5.7 million
, or
27%
, during the three months ended
June 30, 2019
, as compared to the same period in
2018
, of which $4.3 million, or 20%, was due to the acquisition of Speedpay. Depreciation and amortization was $0.3 million lower for the three months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, depreciation and amortization increased $1.8 million, or 9%, for the three months ended
June 30, 2019
, as compared to the same period in
2018
.
Other Income and Expense
Interest expense for the three months ended
June 30, 2019
,
increased
$5.6 million
, or
58%
, as compared to the same period in
2018
, primarily due to higher comparative debt balances and interest rates.
Interest income includes the portion of software license fees paid by customers under extended payment terms that is attributed to the significant financing component. Interest income for the three months ended
June 30, 2019
,
increased
$0.3 million
, or
9%
, as compared to the same period in
2018
.
Other, net consists of foreign currency gain or loss and other non-operating items. Foreign currency gain for the three months ended
June 30, 2019
was
$1.4 million
and foreign currency loss for the three months ended
June 30, 2018
was
$1.7 million
.
Income Taxes
Refer to Note 12,
Income Taxes,
to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Six
Month Period Ended
June 30, 2019
, Compared to the
Six
Month Period Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
Amount
|
|
% of Total
Revenue
|
|
$ Change
vs 2018
|
|
% Change
vs 2018
|
|
Amount
|
|
% of Total
Revenue
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Software as a service and platform as a service
|
$
|
281,056
|
|
|
56
|
%
|
|
$
|
63,176
|
|
|
29
|
%
|
|
$
|
217,880
|
|
|
49
|
%
|
License
|
73,619
|
|
|
15
|
%
|
|
18
|
|
|
—
|
%
|
|
73,601
|
|
|
17
|
%
|
Maintenance
|
107,033
|
|
|
21
|
%
|
|
(4,674
|
)
|
|
(4
|
)%
|
|
111,707
|
|
|
25
|
%
|
Services
|
41,765
|
|
|
8
|
%
|
|
648
|
|
|
2
|
%
|
|
41,117
|
|
|
9
|
%
|
Total revenues
|
503,473
|
|
|
100
|
%
|
|
59,168
|
|
|
13
|
%
|
|
444,305
|
|
|
100
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
270,181
|
|
|
54
|
%
|
|
46,584
|
|
|
21
|
%
|
|
223,597
|
|
|
50
|
%
|
Research and development
|
75,429
|
|
|
15
|
%
|
|
776
|
|
|
1
|
%
|
|
74,653
|
|
|
17
|
%
|
Selling and marketing
|
62,392
|
|
|
12
|
%
|
|
(2,661
|
)
|
|
(4
|
)%
|
|
65,053
|
|
|
15
|
%
|
General and administrative
|
80,836
|
|
|
16
|
%
|
|
23,350
|
|
|
41
|
%
|
|
57,486
|
|
|
13
|
%
|
Depreciation and amortization
|
48,610
|
|
|
10
|
%
|
|
6,232
|
|
|
15
|
%
|
|
42,378
|
|
|
10
|
%
|
Total operating expenses
|
537,448
|
|
|
107
|
%
|
|
74,281
|
|
|
16
|
%
|
|
463,167
|
|
|
104
|
%
|
Operating loss
|
(33,975
|
)
|
|
(7
|
)%
|
|
(15,113
|
)
|
|
80
|
%
|
|
(18,862
|
)
|
|
(4
|
)%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(26,937
|
)
|
|
(5
|
)%
|
|
(7,855
|
)
|
|
41
|
%
|
|
(19,082
|
)
|
|
(4
|
)%
|
Interest income
|
6,030
|
|
|
1
|
%
|
|
544
|
|
|
10
|
%
|
|
5,486
|
|
|
1
|
%
|
Other, net
|
(510
|
)
|
|
—
|
%
|
|
1,222
|
|
|
(71
|
)%
|
|
(1,732
|
)
|
|
—
|
%
|
Total other income (expense)
|
(21,417
|
)
|
|
(4
|
)%
|
|
(6,089
|
)
|
|
40
|
%
|
|
(15,328
|
)
|
|
(3
|
)%
|
Loss before income taxes
|
(55,392
|
)
|
|
(11
|
)%
|
|
(21,202
|
)
|
|
62
|
%
|
|
(34,190
|
)
|
|
(8
|
)%
|
Income tax benefit
|
(35,154
|
)
|
|
(7
|
)%
|
|
(34,966
|
)
|
|
18,599
|
%
|
|
(188
|
)
|
|
—
|
%
|
Net loss
|
$
|
(20,238
|
)
|
|
(4
|
)%
|
|
$
|
13,764
|
|
|
(40
|
)%
|
|
$
|
(34,002
|
)
|
|
(8
|
)%
|
Revenues
Total revenue for the
six
months ended
June 30, 2019
,
increased
$59.2 million
, or
13%
, as compared to the same period in
2018
, of which
$49.3 million
, or
11%
, was due to the acquisition of Speedpay.
Total revenue was
$8.2 million
lower
for the
six
months ended
June 30, 2019
, compared to the same period in
2018
, due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, total revenue for the
six
months ended
June 30, 2019
,
increased
$18.1 million
, or
4%
, compared to the same period in
2018
.
Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue
SaaS and PaaS revenue
increased
$63.2 million
, or
29%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, of which
$49.3 million
, or
23%
, was due to the acquisition of Speedpay. SaaS and PaaS revenue was
$1.7 million
lower
for the
six
months ended
June 30, 2019
, compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, SaaS and PaaS revenue for the
six
months ended
June 30, 2019
,
increased
$15.6 million
, or
7%
, compared to the same period in
2018
, of which $8.6 million and $7.0 million is attributable to acceleration of recurring revenue associated with customer-related consolidation activity and new customers adopting our SaaS and PaaS offerings and existing customers adding new functionality or increasing transaction volumes, respectively.
License Revenue
License revenue remained flat during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
. License revenue was
$2.7 million
lower
for the
six
months ended
June 30, 2019
, compared to the same period in
2018
due to the impact of foreign
currencies
weakening
against the U.S. dollar. Excluding the impact of foreign currency, license revenue for the
six
months ended
June 30, 2019
,
increased
$2.7 million
, or
4%
, compared to the same period in
2018
.
The
increase
in license revenue was primarily driven by the timing and relative size of license and capacity events during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
.
Maintenance Revenue
Maintenance revenue
decreased
$4.7 million
, or
4%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
. Maintenance revenue was
$2.9 million
lower
for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of foreign currency, maintenance revenue for the
six
months ended
June 30, 2019
,
decreased
$1.8 million
, or
2%
, compared to the same period in
2018
.
Services Revenue
Services revenue
increased
$0.6 million
, or
2%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
. Services revenue was $
1.0 million
lower
for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
due to the impact of foreign currencies
weakening
against the U.S. dollar. Excluding the impact of foreign currency, services revenue for the
six
months ended
June 30, 2019
,
increased
$1.7 million
, or
4%
, compared to the same period in
2018
.
Operating Expenses
Total operating expenses for the
six
months ended
June 30, 2019
,
increased
$74.3 million
, or
16%
, as compared to the same period in
2018
, of which $41.8 million, or 9%, and $21.3 million, or 5%, was due to the acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively.
Total operating expenses for the
six
months ended
June 30, 2018
, included $5.0 million of significant integration and divestiture-related expenses. Total operating expenses were $8.8 million lower for the
six
months ended
June 30, 2019
, compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay, significant acquisition and integration-related expenses, and foreign currency, total operating expenses for the
six
months ended
June 30, 2019
, increased $25.1 million, or 6%, compared to the same period in
2018
, primarily due to higher cost of revenue, general and administrative, research and development, and depreciation and amortization expenses, partially offset by lower selling and marketing.
Cost of Revenue
Cost of revenue
increased
$46.6 million
, or
21%
, during the
six
months ended
June 30, 2019
, compared to the same period in
2018
, of which $33.9 million, or 15%, was due to the acquisition of Speedpay. Cost of revenue was $3.3 million lower for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, cost of revenue increased $16.0 million, or 7%, for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, primarily due to a $9.9 million increase in payment card interchange and processing fees and $6.1 million in personnel and related expenses.
Research and Development
R&D expense
increased
$0.8 million
, or
1%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
. The acquisition of Speedpay contributed $1.8 million to R&D expense during the six months ended June 30, 2019. R&D expense was $2.3 million lower for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, R&D expense increased $1.3 million, or 2%, for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, primarily due to an increase in personnel and related expenses.
Selling and Marketing
Selling and marketing expense
decreased
$2.7 million
, or
4%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
. The acquisition of Speedpay contributed $1.2 million to selling and marketing expense during the
six
months ended
June 30, 2019
. Selling and marketing expense was $1.7 million lower for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, selling and marketing expense decreased $2.1 million, or 3%, for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, due to a decrease in advertising and promotions expense.
General and Administrative
General and administrative expense
increased
$23.4 million
, or
41%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, of which $0.6 million, or 1%, and $21.2 million, or 37%, was due to the acquisition of Speedpay and significant transaction and integration-related expenses associated with the acquisition of Speedpay, respectively. General and administrative expense for the
six
months ended
June 30, 2018
, included $4.4 million of significant integration and divestiture-related expenses. General and administrative expense was $0.8 million lower for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay, significant acquisition and integration-related expense, and foreign currency, general and administrative expense increased $6.8 million, or 13%, for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, primarily due to an increase in personnel and related expenses.
Depreciation and Amortization
Depreciation and amortization
increased
$6.2 million
, or
15%
, during the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, of which $4.3 million, or 10%, was due to the acquisition of Speedpay. Depreciation and amortization was $0.7 million lower for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
, due to the impact of foreign currencies weakening against the U.S. dollar. Excluding the impact of the acquisition of Speedpay and foreign currency, depreciation and amortization increased $2.7 million, or 6%, for the
six
months ended
June 30, 2019
, as compared to the same period in
2018
.
Other Income and Expense
Interest expense for the
six
months ended
June 30, 2019
,
increased
$7.9 million
, or
41%
, as compared to the same period in
2018
, primarily due to higher comparative debt balances and interest rates, as well as $1.8 million of interest expense related to royalty payments recorded during the first quarter of 2019. Excluding the impact of interest expense related to royalty payments, interest expense for the
six
months ended
June 30, 2019
, increased $6.1 million, or 32%, as compared to the same period in
2018
.
Interest income for the
six
months ended
June 30, 2019
,
increased
$0.5 million
, or
10%
, as compared to the same period in
2018
.
Other, net consists of foreign currency loss and other non-operating items. Foreign currency loss for the
six
months ended
June 30, 2019
and
2018
, was
$0.5 million
and
$1.7 million
, respectively.
Income Taxes
Refer to Note 12,
Income Taxes,
to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Segment Results
We report financial performance based on our segments, ACI On Premise and ACI On Demand, and analyze Segment Adjusted EBITDA as a measure of segment profitability.
Our Chief Executive Officer is also our chief operating decision maker (“CODM”). The CODM, together with other senior management personnel, focus their review on consolidated financial information and the allocation of resources based on operating results, including revenues and Segment Adjusted EBITDA, for each segment, separate from the corporate operations.
ACI On Premise serves customers who manage their software on site. These on-premise customers use the Company’s software to develop sophisticated solutions, which are often part of a larger system located and managed at the customer specified site. These customers require a level of control and flexibility that ACI On Premise solutions can offer, and they have the resources and expertise to take a lead role in managing these solutions.
ACI On Demand serves the needs of banks, merchants and corporates who use payments to facilitate their core business. These on-demand solutions are maintained and delivered through the cloud via our global data centers and are available in either a single-tenant environment for SaaS offerings, or in a multi-tenant environment for PaaS offerings.
Revenue is attributed to the reportable segments based upon the product sold and mechanism for delivery to the customer. Expenses are attributed to the reportable segments in one of three methods, (1) direct costs of the segment, (2) labor costs that can be attributed based upon time tracking for individual products, or (3) costs that are allocated. Allocated costs are generally marketing and sales related activities as well as information technology and facilities related expense for which multiple segments benefit. We also allocate certain depreciation costs to the segments.
Segment Adjusted EBITDA is the measure reported to the CODM for purposes of making decisions on allocating resources and assessing the performance of our segments and, therefore, Segment Adjusted EBITDA is presented in conformity with ASC 280,
Segment Reporting.
Segment Adjusted EBITDA is defined as earnings (loss) from operations before interest, income tax expense (benefit), depreciation and amortization (“EBITDA”) adjusted to exclude stock-based compensation, and net other income (expense).
Corporate and unallocated expenses consists of the corporate overhead costs that are not allocated to reportable segments. These overhead costs relate to human resources, finance, legal, accounting, merger and acquisition activity, and other costs that are not considered when management evaluates segment performance.
The following is selected financial data for our reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue
|
|
|
|
|
|
|
|
ACI On Premise
|
$
|
125,119
|
|
|
$
|
121,395
|
|
|
$
|
221,126
|
|
|
$
|
226,425
|
|
ACI On Demand
|
172,499
|
|
|
113,600
|
|
|
282,347
|
|
|
217,880
|
|
Total revenue
|
$
|
297,618
|
|
|
$
|
234,995
|
|
|
$
|
503,473
|
|
|
$
|
444,305
|
|
Segment Adjusted EBITDA
|
|
|
|
|
|
|
|
ACI On Premise
|
57,069
|
|
|
54,760
|
|
|
85,337
|
|
|
93,658
|
|
ACI On Demand
|
17,340
|
|
|
(3,364
|
)
|
|
17,078
|
|
|
(7,597
|
)
|
Depreciation and amortization
|
(29,778
|
)
|
|
(24,351
|
)
|
|
(54,630
|
)
|
|
(49,344
|
)
|
Stock-based compensation expense
|
(14,372
|
)
|
|
(7,705
|
)
|
|
(20,957
|
)
|
|
(14,067
|
)
|
Corporate and unallocated expenses
|
(36,141
|
)
|
|
(21,498
|
)
|
|
(60,803
|
)
|
|
(41,512
|
)
|
Interest, net
|
(12,326
|
)
|
|
(6,975
|
)
|
|
(20,907
|
)
|
|
(13,596
|
)
|
Other, net
|
1,402
|
|
|
(1,677
|
)
|
|
(510
|
)
|
|
(1,732
|
)
|
Loss before income taxes
|
$
|
(16,806
|
)
|
|
$
|
(10,810
|
)
|
|
$
|
(55,392
|
)
|
|
$
|
(34,190
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
ACI On Premise
|
$
|
3,019
|
|
|
$
|
2,849
|
|
|
$
|
6,049
|
|
|
$
|
5,824
|
|
ACI On Demand
|
8,489
|
|
|
7,826
|
|
|
16,051
|
|
|
15,562
|
|
Corporate
|
18,270
|
|
|
13,676
|
|
|
32,530
|
|
|
27,958
|
|
Total depreciation and amortization
|
$
|
29,778
|
|
|
$
|
24,351
|
|
|
$
|
54,630
|
|
|
$
|
49,344
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
ACI On Premise
|
$
|
2,051
|
|
|
$
|
1,838
|
|
|
$
|
4,007
|
|
|
$
|
3,305
|
|
ACI On Demand
|
2,214
|
|
|
1,834
|
|
|
4,165
|
|
|
3,297
|
|
Corporate
|
10,107
|
|
|
4,033
|
|
|
12,785
|
|
|
7,465
|
|
Total stock-based compensation expense
|
$
|
14,372
|
|
|
$
|
7,705
|
|
|
$
|
20,957
|
|
|
$
|
14,067
|
|
ACI On Premise Segment Adjusted EBITDA
increased
$2.3 million
for the three months ended
June 30, 2019
, compared to the same period in
2018
, primarily due to a $3.7 million increase in revenue.
ACI On Premise Segment Adjusted EBITDA
decreased
$8.3 million
for the
six
months ended
June 30, 2019
, compared to the same period in
2018
, primarily due to a $5.3 million decrease in revenue and a $3.0 million increase in operating expenses.
ACI On Demand Segment Adjusted EBITDA
increased
$20.7 million
for the three months ended
June 30, 2019
, compared to the same period in
2018
, of which $12.0 million was due to the acquisition of Speedpay. Excluding the impact of the acquisition of Speedpay, ACI On Demand Segment Adjusted EBITDA increased $8.7 million, primarily due to a $9.7 million increase in revenue.
ACI On Demand Segment Adjusted EBITDA
increased
$24.7 million
for the
six
months ended
June 30, 2019
, compared to the same period in
2018
, of which $12.0 million was due to the acquisition of Speedpay. Excluding the impact of the acquisition of Speedpay, ACI On Demand Segment Adjusted EBITDA increased $12.7 million, primarily due to a $15.3 million increase in revenue, partially offset by a $2.6 million increase in operating expenses.
Liquidity and Capital Resources
General
Our primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet the interest and principal requirements of our outstanding indebtedness; and (iii) to fund acquisitions, capital expenditures, and lease payments. We believe these needs will be satisfied using cash flow generated by our operations, our cash and cash equivalents, and available borrowings under our revolving credit facility.
Available Liquidity
The following table sets forth our available liquidity for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Cash and cash equivalents
|
$
|
139,396
|
|
|
$
|
148,502
|
|
Availability under revolving credit facility
|
265,000
|
|
|
500,000
|
|
Total liquidity
|
$
|
404,396
|
|
|
$
|
648,502
|
|
The
decrease
in total liquidity is primarily attributable to
$235.0 million
of outstanding revolving credit facility borrowings and
$21.2 million
of payments to purchase property and equipment and software and distribution rights, partially offset by positive operating cash flows.
The Company and Official Payments Corporation, a wholly owned subsidiary, maintain a
$140.0 million
uncommitted overdraft facility with Bank of America, N.A. 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. As of
June 30, 2019
, the full
$140.0 million
was available.
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of
June 30, 2019
, we had
$139.4 million
of cash and cash equivalents, of which
$71.3 million
was held by our foreign subsidiaries. If these funds were needed for our operations in the U.S., we may potentially be required to accrue and pay foreign and U.S. state income taxes to repatriate these funds. As of
June 30, 2019
, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested. The earnings of all other foreign entities are no longer indefinitely reinvested. We are also permanently reinvested for outside book/tax basis difference related to foreign subsidiaries. These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of
June 30, 2019
.
Cash Flows
The following table sets forth summarized cash flow data for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
Net cash provided by (used by):
|
|
|
|
Operating activities
|
$
|
56,865
|
|
|
$
|
71,111
|
|
Investing activities
|
(779,761
|
)
|
|
(29,351
|
)
|
Financing activities
|
714,655
|
|
|
(51,570
|
)
|
Cash Flows from Operating Activities
Net cash flows
provided
by operating activities during the
six
months ended
June 30, 2019
, were
$56.9 million
as compared to
$71.1 million
during the same period in
2018
. Net cash
provided
by operating activities primarily consists of net income (loss) adjusted to add back depreciation, amortization, and stock-based compensation. Cash flows
provided
by operating activities were
$14.2 million
lower
for the
six
months ended
June 30, 2019
, compared to the same period in
2018
, due to the timing of working capital. Our current policy is to use our operating cash flow primarily for funding capital expenditures, lease payments, stock repurchases, and acquisitions.
Cash Flows from Investing Activities
During the first
six
months of 2019, we paid
$755.2 million
, net of
$0.1 million
in cash acquired, to acquire Speedpay. We also used cash of
$21.2 million
to purchase software, property and equipment, as compared to
$27.9 million
during the same period in 2018.
Cash Flows from Financing Activities
Net cash flows
provided
by financing activities for the
six
months ended
June 30, 2019
, were
$714.7 million
as compared to net cash flows
used
by financing activities of
$51.6 million
during the same period in
2018
. During the first
six
months of
2019
, we received proceeds of
$500.0 million
from our Delayed Draw Term Loan and
$250.0 million
from our Revolving Credit Facility to fund our purchase of Speedpay, and we repaid
$9.4 million
on the Initial Term Credit Loan and
$15.0 million
on the Revolving Credit Facility. In addition, we received proceeds of
$7.6 million
from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and used
$2.8 million
for the repurchase of restricted share awards (“RSAs”) and restricted share units (“RSUs”) for tax withholdings. We also used
$0.6 million
to repurchase common stock. During the first
six
months of
2018
, we repaid
$10.4 million
on the Initial Term Loan. In addition, we received proceeds of
$16.5 million
from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended, and used
$2.6 million
for the repurchase of RSAs for tax withholdings. We also used
$54.5 million
to repurchase common stock.
We may decide to use cash to acquire new products and services or enhance existing products and services through acquisitions of other companies, product lines, technologies, and personnel, or through investments in other companies.
We believe our existing sources of liquidity, including cash on hand and cash provided by operating activities, will satisfy our projected liquidity requirements, which primarily consists of working capital and debt service requirements, for the next twelve months and foreseeable future.
Debt
On April 5, 2019, we entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) to amend and restate our existing agreement, dated February 24, 2017. The Credit Agreement consists of (a) a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”), (b) a five-year $279.0 million senior secured term loan facility (the “Initial Term Loan”), and (c) a five-year $500.0 million senior secured term loan facility (the “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”).
As of
June 30, 2019
, we had
$235.0 million
and
$775.5 million
outstanding under our Revolving Credit Facility and Term Loans, respectively, with up to
$265.0 million
of unused borrowings under the Revolving Credit Facility. The interest rate in effect for the Credit Facility as of
June 30, 2019
, was
4.65%
. As of
June 30, 2019
, we also had
$400.0 million
outstanding of 5.750% Senior Notes due 2026 (the “2026 Notes”). Refer to Note
4
,
Debt
,
to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Stock Repurchase Program
In 2005, our board of directors (“the board”) approved a stock repurchase program authorizing us, as market and business conditions warrant, to acquire our common stock and periodically authorize additional funds for the program. In February 2018, the board approved the repurchase of our common stock for up to
$200.0 million
, in place of the remaining purchase amounts previously authorized.
We repurchased
23,802
shares for
$0.6 million
under the program during the
six
months ended
June 30, 2019
. Under the program to date, we have repurchased
44,153,195
shares for approximately
$548.5 million
. As of
June 30, 2019
, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately
$176.0 million
.
There is no guarantee as to the exact number of shares we will repurchase. Repurchased shares are returned to the status of authorized but unissued shares of common stock. In March 2005, our board approved a plan under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of shares of common stock under the existing stock repurchase program. Under our Rule 10b5-1 plan, we have delegated authority over the timing and amount of repurchases to an independent broker who does not have access to inside information about the Company. Rule 10b5-1 allows us, through the independent broker, to purchase shares at times when we ordinarily would not be in the market because of self-imposed trading blackout periods, such as the time immediately preceding the end of the fiscal quarter through a period of three business days following our quarterly earnings release.
Contractual Obligations and Commercial Commitments
For the
six
months ended
June 30, 2019
, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended
December 31, 2018
, except as disclosed below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
Term loan
|
|
$
|
775,535
|
|
|
$
|
38,950
|
|
|
$
|
79,644
|
|
|
$
|
656,941
|
|
|
$
|
—
|
|
Term loan interest (1)
|
|
152,542
|
|
|
35,401
|
|
|
65,366
|
|
|
51,775
|
|
|
—
|
|
Revolving credit facility
|
|
235,000
|
|
|
—
|
|
|
—
|
|
|
235,000
|
|
|
—
|
|
Revolving credit facility interest (2)
|
|
52,035
|
|
|
10,955
|
|
|
21,909
|
|
|
19,171
|
|
|
—
|
|
Financed internal-use software (3)
|
|
19,795
|
|
|
11,634
|
|
|
8,161
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
1,234,907
|
|
|
$
|
96,940
|
|
|
$
|
175,080
|
|
|
$
|
962,887
|
|
|
$
|
—
|
|
|
|
(1)
|
Based on Term Loan debt outstanding and interest rate in effect at
June 30, 2019
, of
4.65%
.
|
|
|
(2)
|
Based on Revolving Credit Facility debt outstanding and interest rate in effect at
June 30, 2019
, of
4.65%
.
|
|
|
(3)
|
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
,
$19.8 million
is outstanding under these and other agreements previously entered into, of which
$11.6 million
and
$8.2 million
is included in other current liabilities and other noncurrent liabilities, respectively, in the accompanying condensed consolidated balance sheet.
|
We are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740,
Income Tax
. The liability for unrecognized tax benefits as of
June 30, 2019
, is $28.3 million.
Critical Accounting Estimates
The preparation of the condensed consolidated financial statements requires we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions we believe to be proper and reasonable under the circumstances. We continually evaluate the appropriateness of estimates and assumptions used in the preparation of our condensed consolidated financial statements. Actual results could differ from those estimates.
The accounting policies that reflect our more significant estimates, judgments, and assumptions, and that we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:
|
|
•
|
Intangible Assets and Goodwill
|
|
|
•
|
Stock-Based Compensation
|
|
|
•
|
Accounting for Income Taxes
|
During the
six
months ended
June 30, 2019
, there were no significant changes to our critical accounting policies and estimates. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2018, filed on March 1, 2019, for a more complete discussion of our critical accounting policies and estimates.