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ACI Worldwide, Inc. Reports Financial Results for the Quarter Ended March 31, 2014

ACI Worldwide (NASDAQ: ACIW), a leading international provider of electronic payment and banking systems, today announced financial results for the period ended March 31, 2014. Management will host a conference call at 8:30 am ET to discuss these results as well as 2014 guidance. Interested persons may access a real-time audio broadcast of the teleconference at www.aciworldwide.com/investors or use the following numbers for dial-in participation: US/Canada: (866) 914-7436, International/Local: +1 (817) 385-9117. Please provide your name, the conference name ACI Worldwide, Inc. and conference code 25558357. There will be a replay available for two weeks on (855) 859-2056 for US/Canada Dial-In and +1 (404) 537- 3406 for International/Local Dial-In participants.

“ACI started 2014 strong with results that position us well to achieve our full year expectations,” commented Phil Heasley, President and CEO, ACI Worldwide. “Net new bookings were particularly robust as we are clearly seeing interest in our Universal Payments-enabled solutions.”

FINANCIAL SUMMARY

Financial Results for Q1

Revenue in Q1 was $221 million, an increase of $59 million, or 37%, above the prior year quarter. The acquisition of Official Payments and incremental revenue from Online Resources contributed $33 million and $29 million, respectively, to the increase in revenue compared to the prior year quarter.

New sales bookings, net of term extensions (SNET) increased 59% compared to the prior year quarter. Our 12-month backlog increased by $13 million from last quarter to $883 million, while our 60-month backlog increased by $49 million from last quarter to $3.91 billion.

Operating income was $0.3 million for the quarter, versus a loss of $4 million in the prior year quarter. Adjusted EBITDA of $32 million grew 46%, or $10 million above last year’s $22 million. Net EBITDA margin in Q1 2014 represented 16% versus 14% margin last year, after adjusting for $28 million and $1 million of pass through interchange in Q1 2014 and Q1 2013, respectively.

Q1 GAAP net loss was $6 million, or ($0.15) per diluted share, versus a net loss of $2 million, or ($0.05) per diluted share in Q1 2013. The variance was primarily driven by increased interest expense and foreign currency fluctuations.

We ended the first quarter with $59 million in cash on hand. Operating free cash flow (OFCF) for the quarter was $15 million, down from $34 million in Q1 of last year. The quarter ended with a debt balance of $779 million. We repurchased 1.2 million shares of our stock in the quarter for approximately $70 million and have approximately $138 million remaining on our current authorization.

Reiterating Guidance

We continue to expect to generate non-GAAP revenue in a range of $1.06 to $1.08 billion for the full year and now forecast non-GAAP revenue of $240 to $250 million in the second quarter. Adjusted EBITDA expectations remain in a range of $290 to $300 million. This guidance excludes $13 to $15 million of one-time integration-related expenses and includes $2 million for the deferred revenue adjustments. Lastly, our full year 2014 net new sales bookings growth is expected to be in the upper single digit range.

About ACI Worldwide

ACI Worldwide, the Universal Payments company, powers electronic payments and banking for more than 5,000 financial institutions, retailers, billers and processors around the world. ACI software processes $13 trillion in payments and securities transactions for more than 250 of the leading global retailers, and 21 of the world’s 25 largest banks. Through our comprehensive suite of software products and hosted services, we deliver a broad range of solutions for payment processing; card and merchant management; online banking; mobile, branch and voice banking; fraud detection; trade finance; and electronic bill presentment and payment. To learn more about ACI, please visit www.aciworldwide.com. You can also find us on Twitter @ACI_Worldwide.

         
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except share and per share amounts)
 
 
March 31, December 31,
2014 2013
ASSETS
Current assets
Cash and cash equivalents $ 58,936 $ 95,059
Receivables, net of allowances of $4,149 and $4,459, respectively 203,600 203,575
Deferred income taxes, net 71,051 47,593
Recoverable income taxes 2,927 2,258
Prepaid expenses 24,458 22,549
Other current assets   50,956     65,328  

Total current assets

  411,928     436,362  
 
Property and equipment, net 55,988 57,347
Software, net 193,130 191,468
Goodwill 665,406 669,217
Intangible assets, net 232,053 237,693
Deferred income taxes, net 39,541 48,852
Other noncurrent assets   41,956     40,912  
TOTAL ASSETS $ 1,640,002   $ 1,681,851  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 41,882 $ 43,658
Employee compensation 32,294 35,623
Current portion of long-term debt 53,227 47,313
Deferred revenue 149,972 122,045
Income taxes payable 4,121 1,192
Deferred income taxes, net 940 753
Other current liabilities   70,818     95,016  
Total current liabilities   353,254     345,600  
 
Noncurrent liabilities
Deferred revenue 45,259 45,656
Long-term debt 725,285 708,070
Deferred income taxes, net 10,208 11,000
Other noncurrent liabilities   27,396     27,831  
Total liabilities   1,161,402     1,138,157  
 
Commitments and contingencies
 
Stockholders' equity

Preferred stock; $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2014 and December 31, 2013

- -

Common stock; $0.005 par value; 140,000,000 shares authorized; 46,606,796 shares issued at March 31, 2014 and December 31, 2013

232 232
Additional paid-in capital 544,720 543,163
Retained earnings 258,080 263,855
Treasury stock, at cost, 8,680,947 and 7,751,807 shares at March 31, 2014 and December 31, 2013, respectively (304,018 ) (240,241 )
Accumulated other comprehensive loss   (20,414 )   (23,315 )
Total stockholders' equity   478,600     543,694  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,640,002   $ 1,681,851  
 
         
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
 
For the Three Months Ended
March 31,
2014 2013
 
Revenues
License $ 35,702 $ 41,356
Maintenance 62,499 58,634
Services 22,588 23,929
Hosting   100,684     38,078  

Total revenues

  221,473     161,997  
 
Operating expenses
Cost of license (1) 5,736 5,918
Cost of maintenance, services and hosting (1) 107,887 61,871
Research and development 37,456 37,149
Selling and marketing 27,909 25,074
General and administrative 25,116 25,037
Depreciation and amortization   17,078     10,957  
Total operating expenses   221,182     166,006  
 
Operating income (loss)   291     (4,009 )
 
Other income (expense)
Interest expense (9,175 ) (3,897 )
Interest income 199 131
Other, net   (1,057 )   3,165  
Total other income (expense)   (10,033 )   (601 )
 
Loss before income taxes (9,742 ) (4,610 )
Income tax benefit   (3,967 )   (2,444 )
Net loss $ (5,775 ) $ (2,166 )
 
Loss per common share
Basic $ (0.15 ) $ (0.05 )
Diluted $ (0.15 ) $ (0.05 )
 

Weighted average common shares outstanding

Basic 38,411 39,465
Diluted 38,411 39,465
 

(1) The cost of software license fees excludes charges for depreciation but includes amortization of purchased and developed software for resale.  The cost of maintenance, services and hosting fees excludes charges for depreciation.

         
ACI WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 
For the Three Months Ended
March 31,
2014 2013
Cash flows from operating activities:
Net loss $ (5,775 ) $ (2,166 )
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation 5,324 3,764
Amortization 15,282 10,422
Amortization of deferred debt issuance costs 1,348 960
Deferred income taxes (11,277 ) (6,096 )
Stock-based compensation expense 4,772 3,950
Excess tax benefit of stock options exercised (4,070 ) (1,308 )
Other (63 ) 559

Changes in operating assets and liabilities, net of impact of acquisitions:

Receivables (3,123 ) 30,671
Accounts payable (1,480 ) (9,215 )
Accrued employee compensation (3,580 ) (12,281 )
Current income taxes 6,166 4,278
Deferred revenue 26,896 15,938
Other current and noncurrent assets and liabilities   (15,163 )   (4,549 )
Net cash flows from operating activities   15,257     34,927  
 
Cash flows from investing activities:
Purchases of property and equipment (4,228 ) (6,241 )
Purchases of software and distribution rights (3,580 ) (2,764 )
Acquisition of businesses, net of cash acquired   -     (264,202 )
Net cash flows from investing activities   (7,808 )   (273,207 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock 652 475
Proceeds from exercises of stock options 2,887 3,864
Excess tax benefit of stock options exercised 4,070 1,308
Repurchases of common stock (70,000 ) -
Repurchase of restricted stock and performance shares for tax withholdings (4,503 ) (5,520 )
Proceeds from term portion of credit agreement - 300,000
Proceeds from revolving credit facility 40,000 -
Repayment of revolving credit facility (8,000 ) -
Repayment of term portion of credit agreement (8,871 ) (3,750 )
Payments on other debt and capital leases (382 ) (8,338 )
Payment for debt issuance costs   (163 )   (9,272 )

Net cash flows from financing activities

  (44,310 )   278,767  
 
Effect of exchange rate fluctuations on cash   738     (4,332 )
Net increase (decrease) in cash and cash equivalents (36,123 ) 36,155
Cash and cash equivalents, beginning of period   95,059     76,329  
Cash and cash equivalents, end of period $ 58,936   $ 112,484  
 
                                 
ACI Worldwide, Inc.
Reconciliation of Selected GAAP Measures to Non-GAAP Measures (1)
(unaudited and in thousands, except per share data)
 
FOR THE THREE MONTHS ENDED March 31,
2014 2014 2013

2013

Selected Non-GAAP Financial Data GAAP     Adj     Non-GAAP     GAAP     Adj     Non-GAAP     $ Diff     % Diff
 
Total revenues (2) $ 221,473 $ 587 $ 222,060 $ 161,997 $ 1,134 $ 163,131 $ 58,929 36 %
Total expenses (3) 221,182 (5,739 ) 215,443 166,006 (6,597 ) 159,409 56,034 35 %
Operating income (loss) 291 6,326 6,617 (4,009 ) 7,731 3,722 2,895 78 %
Income (Loss) before income taxes (9,742 ) 6,326 (3,416 ) (4,610 ) 7,731 3,121 (6,537 ) -209 %
Income tax expense (benefit) (4)   (3,967 )       2,214         (1,753 )       (2,444 )       2,706         262       (2,015 )     -769 %
Net income (loss) $ (5,775 )     $ 4,112       $ (1,663 )     $ (2,166 )     $ 5,025       $ 2,859     $ (4,522 )     -158 %
 
Depreciation 5,324 - 5,324 3,764 - 3,764 1,560 41 %
Amortization - acquisition related intangibles 6,538 - 6,538 3,842 - 3,842 2,696 70 %
Amortization - acquisition related software 5,107 - 5,107 2,993 - 2,993 2,114 71 %
Amortization - other 3,637 - 3,637 3,587 - 3,587 50 1 %
Stock-based compensation (5) 4,772 - 4,772 3,950 - 3,950 822 21 %
                                           
Adjusted EBITDA $ 25,669       $ 6,326       $ 31,995       $ 14,127       $ 7,731       $ 21,858     $ 10,137       46 %
 
Earnings per share information
Weighted average shares outstanding
Basic 38,411 38,411 38,411 39,465 39,582 39,582
Diluted 38,411 38,411 38,411 39,465 40,255 40,255
 
Earnings per share
Basic $ (0.15 ) $ 0.11 $ (0.04 ) $ (0.05 ) $ 0.13 $ 0.07 $ (0.12 ) -160 %
Diluted $ (0.15 ) $ 0.11 $ (0.04 ) $ (0.05 ) $ 0.12 $ 0.07 $ (0.11 ) -161 %
 

(1)  This presentation includes non-GAAP measures.  Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.  

(2)  Adjustment for ORCC deferred revenue that would have been recognized in the normal course of business but was not recognized due to GAAP purchase accounting requirements.

(3)  Expense for significant transaction related transactions, including, $2.0 million for employee related actions, $2.0 million for data center moves and $1.7 million for professional and other fees in 2014 and $1.9 million for employee related actions, $2.5 million for ORCC acquisition fees and $2.2 million for other professional fees in 2013.

(4)  Adjustments tax effected at 35%.

         
Quarter Ended
March 31,
Reconciliation of Operating Free Cash Flow (millions) 2014     2013
 
Net cash provided (used) by operating activities $ 15.3 $ 34.9
Payments associated with acquired opening balance sheet liabilities 4.1 -
Net after-tax payments associated with employee-related actions (4) 1.2 1.5
Net after-tax payments associated with lease terminations (4) 0.4 0.1
Net after-tax payments associated with significant transaction related expenses (4) 1.8 4.9

Net after-tax payments associated with IBM IT Outsourcing Termination (4)

- 1.9
Less capital expenditures   (7.8 )       (9.0 )
Operating Free Cash Flow $ 15.0       $ 34.3  
 

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