ACI WORLDWIDE INC

Previous wording

The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and with our financial statements and related notes contained in this Form 10-Q. Results for the three and nine months ended September 30, 2024, are not necessarily indicative of results that may be attained in the future.

Current wording

The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and with our financial statements and related notes contained in this Form 10-Q. Results for the three months ended March 31, 2025, are not necessarily indicative of results that may be attained in the future.

Previous wording

Our products are sold and supported directly and through distribution networks covering three geographic regions – the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific. Each region has its own globally coordinated sales force, supplemented with local independent reseller and/or distributor networks. Our products and solutions are marketed under the ACI Worldwide brand and used globally by banks and intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges, and a wide range of transaction-generating endpoints, including ATMs, merchant point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

Current wording

Our products are sold and supported directly and through distribution networks covering three geographic regions – the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific. Each region has its own globally coordinated sales force, supplemented with local independent reseller and/or distributor networks. Our products and solutions are marketed under the ACI Worldwide brand and used globally by banks of all sizes, central banks, intermediaries, merchants, and billers, such as third-party digital payment processors, payment associations, switch interchanges, and a wide range of transaction-generating endpoints, including ATMs, merchant point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

Previous wording

Increasing digital payment transaction volumes. The adoption of digital payments continues to accelerate, propelled by the digitization of cash, financial inclusion efforts of countries throughout the world, the Internet of Things, rapid growth of eCommerce and the adoption of real-time payments. COVID-19 further accelerated this growth as more people, governments, and businesses embraced digital payments - a change that has continued. We leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems cannot handle increased volume, through the sale of capacity upgrades to existing customers, and through the scalability of our platform-based solutions.

Current wording

Increasing digital payment transaction volumes. The adoption of digital payments continues to accelerate, propelled by the digitization of cash, financial inclusion efforts of countries throughout the world, rapid growth of eCommerce, and the adoption of real-time payments enabling more people, governments, and businesses to embrace digital payments. We leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems cannot handle increased volume, through the sale of capacity upgrades to existing customers, and through the scalability of our platform-based solutions.

Previous wording

Adoption of real-time payments. Expectations from both consumers and businesses are continuing to drive the payments world to more real-time delivery. This is bolstered by the new data-rich ISO 20022 messaging format, which is delivering greater value to banks and their customers. We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth and new payment types. Mature markets, including India, the United Kingdom, Australia, Malaysia, Singapore, Thailand, and the Nordics, continue to accelerate innovation, especially in terms of overlay services and cross-border connectivity. The United States is driving real-time payments adoption through Zelle, TCH Real-Time Payments, and the FedNow service. We are seeing success with real-time payments in the Middle East as well, as they have started to renovate their payment systems from legacy payment types to the modern digital and real-time world. ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as a leader in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world.

Current wording

Adoption of real-time payments. Expectations from both consumers and businesses are continuing to drive the payments world to more real-time delivery. This is bolstered by the new data-rich ISO 20022 messaging format prevalent in account-to-account payments, which is delivering greater value to banks and their customers and has now been rolled out across the world and continues to see adoption with local schemes, such as FedWire, planned for 2025. We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth and new payment types. Domestic schemes such as Unified Payments Interface ("UPI") in India and others are being made available to their citizens for cross-border transactions when abroad. Mature markets, including India, the United Kingdom, Australia, Brazil, Malaysia, Singapore, and Thailand, continue to accelerate innovation, especially in terms of overlay services, driving new transactions. The United States is driving real-time payments adoption through TCH Real-Time Payments and the FedNow Service. Asia is one of the most innovative markets for adoption of real-time payment systems. According to ACI’s Prime Time for Real-Time report, Asia Pacific is the largest regional market, with four of the global top five real-time payment markets by volume. ACI provides solutions for commercial and central banks across Asia. Latin American countries are pushing ahead with real-time payments modernization initiatives, looking to replicate Brazil’s success with PIX. ACI is also providing solutions centrally in Colombia and Peru. We are seeing success with real-time payments in the Middle East as well, as they have started to renovate their payment systems from legacy payment types to the modern digital and real-time world. ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Red Hat, and Mindgate Solutions continue to position us as a leader in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world.

Previous wording

Adoption of cloud technology. ACI has recognized the industry's technical inflection point in the transition from traditional on-premise infrastructure to the public cloud, and we are supporting our customers' cloud strategies. Public and private cloud technology innovations allow the financial services ecosystem to accelerate innovation and ensure scalability and resiliency while improving operating economics over time. As banks and intermediaries, merchants, and billers seek to transition their systems to make use of cloud technology, our investments and partnerships, as demonstrated by our product enablement and initial optimization onto Microsoft Azure, enable us to leverage those cloud technology benefits today and for the future while preserving ACI's fundamental base of performance, resiliency, and scalability.

Current wording

Adoption of cloud technology. ACI has recognized the industry's technical inflection point in the transition from traditional on-premises infrastructure to the private and public cloud, and we are supporting our customers' cloud strategies. Cloud technology innovations allow the financial services ecosystem to remove technical risk from their operations, accelerate innovation and time to market for new revenue-generating solutions for their customers, and accelerate innovation and ensure scalability and resiliency while improving operating economics over time. As banks and intermediaries, merchants, and billers seek to transition their systems to make use of cloud technology, our investments and partnerships, as demonstrated by our product enablement and initial optimization onto Microsoft Azure, enable us to leverage those cloud technology benefits today and for the future while preserving ACI's fundamental base of performance, resiliency, and scalability. Cloud-native solutions running in a multi-tenant SaaS environment also allow ACI to expand our market coverage to smaller institutions, offering scalable solutions which are easy to integrate with but at price points that fit their budgets.

Previous wording

Payments intelligence, fraud, and compliance. The accelerated adoption of real-time payments increases the urgency for industry-wide collaboration against fraud. As the threat of scams becomes a greater concern for remitting and receiving institutions, consumers are challenged with increased friction to prevent account take-over and criminals successfully persuading consumers to push transactions themselves, inadvertently, to mule accounts they have full control of, created with fake or synthetic identity, or simply "borrowed" with or without consent of the legit account holders. Regulators are beginning to litigate between consumers and financial institutions on the losses, and between emitting and receiving banks on the accountability for reimbursement. Banks and intermediaries, merchants, and billers are pursuing solutions to mitigate their risks while improving their customer experience, protecting their margins, and securing their revenue streams, especially with their new products and offerings. We continue to see opportunity for our advanced machine learning and network intelligence capabilities to stop criminals and enable frictionless legitimate business.

Current wording

Payments intelligence, fraud, and compliance. The accelerated adoption of real-time payments, fraudsters leveraging artificial intelligence, and the ramping up of mandates increase the urgency for industry-wide collaboration to mitigate fraud with precision and achieve operational excellence. As the threat of sophisticated fraud becomes a greater concern for remitting and receiving institutions, consumers are challenged with increased friction to prevent illegitimate access of genuine accounts or funds to protect the consumer trust and confidence, while achieving their strategic objectives. Regulators are beginning to litigate between consumers and financial institutions on the losses, and between remitting and receiving banks on the accountability. Banks and intermediaries, merchants, and billers are pursuing solutions to mitigate their risks while improving their customer experience, protecting their margins, and securing their revenue streams, especially with their new products and offerings. We continue to evolve our advanced machine learning and network intelligence capabilities to stop criminals and enable frictionless, legitimate business. Meanwhile, with payments intelligence, organizations can integrate intelligent services to enhance consumer relationships while achieving precise, real-time fraud and risk mitigation capabilities.

Previous wording

Omni-commerce. Shoppers are increasingly browsing, buying, and returning items across channels, including in-store, online, and mobile. COVID-19 accelerated this trend, leading to an increase in contactless payments, click and collect, and curbside collection. Merchants from all industries, including grocers, fuel and convenience stores, are being tasked with delivering seamless experiences that include pay-in-aisle, kiosks, mobile app payments, QR code payments, eCommerce, traditional and mobile POS, buy online pickup in-store (BOPIS), and buy online return in-store (BORIS). We believe there is significant opportunity to provide merchants with the tools to deliver a seamless, secure, personalized experience that creates loyalty and satisfaction, and drives conversion rates while protecting consumer data and preventing fraud.

Current wording

Omni-commerce. Shoppers are increasingly browsing, buying, and returning items across channels, including in-store, online, and mobile. This trend has led to an increase in contactless payments, click and collect, and curbside collection. Merchants from all industries, including grocers, fuel and convenience stores, are being tasked with delivering seamless experiences that include pay-in-aisle, kiosks, mobile app payments, QR code payments, eCommerce, traditional and mobile POS, buy online pickup in-store (BOPIS), and buy online return in-store (BORIS). We believe there is significant opportunity to provide merchants with the tools to deliver a seamless, secure, personalized experience that creates loyalty and satisfaction, and drives conversion rates while protecting consumer data and preventing fraud.

Previous wording

•The impact of certain foreign currencies weakening against the U.S. dollar resulted in a $0.4 million decrease in total revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The impact of foreign currencies weakening against the U.S. dollar resulted in a $1.4 million decrease in total revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•Adjusted for the impact of foreign currency, total revenue for the nine months ended September 30, 2024, increased $165.6 million, or 17%, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of foreign currency, total revenue for the three months ended March 31, 2025, increased $79.9 million, or 25%, as compared to the same period in 2024.

Previous wording

Cost of revenue increased $54.2 million, or 10%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

SaaS and PaaS revenue increased $21.4 million, or 10%, during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•The impact of certain foreign currencies strengthening against the U.S. dollar resulted in $0.5 million increase in SaaS and PaaS revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The impact of foreign currencies weakening against the U.S. dollar resulted in a $0.3 million decrease in SaaS and PaaS revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the nine months ended September 30, 2024, increased $48.0 million, or 8%, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended March 31, 2025, increased $21.7 million, or 10%, as compared to the same period in 2024.

Previous wording

•The impact of certain foreign currencies weakening against the U.S. dollar resulted in a $0.5 million decrease in license revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The impact of foreign currencies weakening against the U.S. dollar resulted in a $0.2 million decrease in license revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•Adjusted for the impact of foreign currency, license revenue for the nine months ended September 30, 2024, increased $110.8 million, or 78%, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of foreign currency, license revenue for the three months ended March 31, 2025, increased $54.7 million, or 184%, as compared to the same period in 2024.

Previous wording

•The increase was driven by license renewal timing as well as the relative size of new license and capacity events during the three months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The increase was driven by the relative size of new license and capacity events during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

Maintenance revenue includes standard, enhanced, and premium customer support and any post contract support fees received from customers for the provision of product support services.

Current wording

Maintenance revenue includes standard and premium customer support and any post contract support fees received from customers for the provision of product support services.

Previous wording

R&D expense increased $1.9 million, or 2%, during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

Maintenance revenue increased $0.9 million, or 2%, during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

Total operating expenses for the nine months ended September 30, 2024 increased $27.5 million, or 3%, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of foreign currency, maintenance revenue for the three months ended March 31, 2025, increased $1.5 million, or 3%, as compared to the same period in 2024.

Previous wording

•The impact of certain foreign currencies weakening against the U.S. dollar resulted in a $0.3 million decrease in services revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The impact of foreign currencies weakening against the U.S. dollar resulted in a $0.2 million decrease in services revenue during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•Adjusted for the impact of foreign currency, services revenue for the nine months ended September 30, 2024, increased $16.1 million, or 30%, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of foreign currency, services revenue for the three months ended March 31, 2025, increased $2.0 million, or 9%, as compared to the same period in 2024.

Previous wording

•Total operating expenses for the three months ended September 30, 2024, included $5.6 million for cost reduction strategies and $0.3 million of other significant transaction-related expenses during the period, compared to $3.8 million for cost reduction strategies and $0.4 million of European data center migration expenses for the same period in 2023.

Current wording

•Total operating expenses for the three months ended March 31, 2024, included $2.6 million for cost reduction strategies and $0.3 million of other significant transaction-related expenses.

Previous wording

•The impact of certain foreign currencies weakening against the U.S. dollar resulted in a $0.3 million decrease in total operating expenses for the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The impact of foreign currencies weakening against the U.S. dollar resulted in a $2.0 million decrease in total operating expenses during the three months ended March 31, 2025, compared to the same period in 2024.

Previous wording

•The impact of certain foreign currencies weakening against the U.S. dollar resulted in a $0.3 million decrease in cost of revenue during the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•The impact of foreign currencies weakening against the U.S. dollar resulted in a $0.7 million decrease in cost of revenue during the three months ended March 31, 2025, compared to the same period in 2024.

Previous wording

•Adjusted for the impact of foreign currency, cost of revenue increased $54.5 million, or 10%, for the nine months ended September 30, 2024, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of foreign currency, cost of revenue for the three months ended March 31, 2025, increased $23.0 million, or 12%, compared to the same period in 2024.

Previous wording

•The increase was primarily due to higher payment card interchange and processing fees and cloud computing fees of $14.4 million and $1.6 million, respectively. The remaining increase was due to higher personnel and related expenses of $3.7 million.

Current wording

•The increase was primarily due to higher payment card interchange fees and personnel and related expenses of $18.4 million and $4.6 million, respectively.

Previous wording

R&D expense increased $3.9 million, or 12%, during the three months ended September 30, 2024, as compared to the same period in 2023.

Current wording

R&D expense increased $3.9 million, or 11%, during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

SaaS and PaaS revenue increased $12.0 million, or 6%, during the three months ended September 30, 2024, as compared to the same period in 2023.

Current wording

General and administrative expense increased $1.6 million, or 6%, during the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•General and administrative expenses for the three months ended September 30, 2024, included $1.2 million related to the closure of a facility and $0.3 million of other significant transaction-related expenses, compared to $3.8 million of expense for cost reduction strategies and $0.4 million of European data center migration expenses in the same period in 2023.

Current wording

•General and administrative expenses for the three months ended March 31, 2024, included $2.6 million for cost reduction strategies and $0.3 million of other significant transaction-related expenses.

Previous wording

•Adjusted for the impact of cost reduction strategies, significant transaction-related expenses, and foreign currency, total operating expenses for the nine months ended September 30, 2024, increased $44.9 million, or 5%, as compared to the same period in 2023.

Current wording

•Adjusted for the impact of cost reduction strategies, significant transaction-related expenses, and foreign currency, general and administrative expense increased $4.9 million, or 22%, for the three months ended March 31, 2025, as compared to the same period in 2024.

Previous wording

•The increase was primarily due to higher personnel and related expenses of $3.3 million, including a $2.9 million increase in stock-based compensation expense, partially offset by lower cloud computing and professional fees of $1.4 million.

Current wording

•The increase was primarily due to higher personnel and related expenses, including a $2.9 million increase in stock-based compensation expense.

Previous wording

•The decrease was primarily due to a $2.2 million decrease in depreciation due to prior facilities cost reduction activities, and a $1.1 million decrease in amortization for fully amortized software and intangibles acquired through acquisitions.

Current wording

•The decrease was primarily due to a decrease in amortization for fully amortized intangibles acquired through acquisitions.

Previous wording

Interest expense for the three months ended September 30, 2024, decreased $1.5 million, or 7%, as compared to the same period in 2023, primarily due to repayments on the Term Loan.

Current wording

Interest expense for the three months ended March 31, 2025, decreased $4.3 million, or 23% compared to the same period in 2024, primarily due to lower comparative debt balances during 2025 as well as a decrease in interest rates.

Previous wording

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 September 30, 2024, increased $0.4 million, or 11%, as compared to the same period in 2023.

Current wording

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 March 31, 2025, increased $0.1 million, or 1%, as compared to the same period in 2024.

Previous wording

Other, net is primarily comprised of foreign currency transaction gains and losses. Other, net was $0.8 million of expense and $1.1 million of income for the three months ended September 30, 2024 and 2023, respectively.

Current wording

Other, net is primarily comprised of foreign currency transaction gains and losses. During the three months ended March 31, 2025, other, net also included the $25.9 million gain on the sale of the Company's equity method investment. Other, net was $23.7 million of income and $2.0 million of expense for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Banks Segment Adjusted EBITDA increased $62.9 million for the three months ended September 30, 2024, compared to the same period in 2023, due to a $66.3 million increase in revenue primarily related to an increase in license revenues, partially offset by a $3.4 million increase in cash operating expense.

Current wording

Payment Software Segment Adjusted EBITDA increased $54.3 million for the three months ended March 31, 2025, compared to the same period in 2024, due to a $59.6 million increase in revenue primarily due to an increase in license and services revenues, partially offset by a $5.3 million increase in cash operating expense.

Previous wording

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of September 30, 2024, we had $177.9 million of cash and cash equivalents, of which $68.2 million was held by our foreign subsidiaries. If these funds were needed for our operations in the United States, we may potentially be required to accrue and pay foreign and U.S. state income taxes to repatriate these funds. As of September 30, 2024, only the earnings in our Indian foreign subsidiaries are 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 September 30, 2024.

Current wording

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. As of March 31, 2025, we had $230.1 million of cash and cash equivalents, of which $117.3 million was held by our foreign subsidiaries. If these funds were needed for our operations in the United States, we may potentially be required to accrue and pay foreign and U.S. state income taxes to repatriate these funds. As of March 31, 2025, only the earnings from our Indian foreign subsidiaries are indefinitely reinvested. We are also permanently reinvested in the outside book/tax basis differences related to foreign subsidiaries. These outside basis differences could reverse through the sale of foreign subsidiaries, as well as various other events, none of which are considered probable as of March 31, 2025.

Previous wording

The increase in total liquidity is primarily attributable to the $100.0 million increase in the maximum amount available under the revolving credit facility.

Current wording

The increase in total liquidity is primarily attributable to cash flows generated from operations.

Previous wording

Our board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorizes additional funds for the program. In June 2024, the board approved the repurchase of the Company's common stock of up to $400.0 million in place of the remaining purchase amounts previously authorized.

Current wording

The board approved a stock repurchase program authorizing the Company, as market and business conditions warrant, to acquire its common stock and periodically authorizes additional funds for the program. In June 2024, the board approved the repurchase of the Company's common stock of up to $400.0 million in place of the remaining purchase amounts previously authorized.

Previous wording

We repurchased 3,946,537 shares for $128.7 million under the program during the nine months ended September 30, 2024. Under the program to date, we have repurchased 62,867,837 shares for approximately $1.1 billion. As of September 30, 2024, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $372.3 million. See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Current wording

We repurchased 264,936 shares for $14.4 million under the program during the three months ended March 31, 2025. Under the program to date, we have repurchased 63,132,773 shares for approximately $1.1 billion. As of March 31, 2025, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $358.1 million. See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Previous wording

During the first nine months of 2024, we used cash of $31.6 million to purchase software, property, and equipment, as compared to $30.5 million during the same period in 2023.

Current wording

During the first three months of 2025, we received net proceeds of $46.0 million from the sale of our equity method investment. In addition, we used cash of $8.9 million to purchase software, property, and equipment, as compared to $17.8 million during the same period in 2024.