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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: July 29, 2003
(Date of earliest event reported)
-------------------------
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-25346 47-0772104
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
224 South 108th Avenue,
Omaha, Nebraska 68154
(Address of principal executive offices, including zip code)
(402) 334-5101
(Registrant's telephone number, including area code)
-------------------------
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number Description
99.1 Transcript of quarterly financial performance teleconference
and web cast, held on July 29, 2003.
Item 12. Results of Operations and Financial Condition.
On July 29, 2003, Transaction Systems Architects, Inc. held a
teleconference and web cast discussing its financial performance for the
quarterly period ending June 30, 2003. A copy of this teleconference/web cast
is attached hereto as Exhibit 99.1.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: August 1, 2003 By: /s/ Gregory D. Derkacht
-------------------------------------
Gregory D. Derkacht
President and Chief Executive Officer
EXHIBIT INDEX
Exhibit
Number Description
99.1 Transcript of quarterly financial performance teleconference and
web cast, held on July 29, 2003.
Exhibit 99.1
TRANSACTION SYSTEMS ARCHITECTS, INC.
Moderator: Bill Hoelting
July 29, 2003
4:00 pm CT
Operator: Good afternoon. My name is (Matthew) and I will be your
conference facilitator today. At this time, I would
like to welcome everyone to the Transaction Systems
Architects, Inc. 2003 Third Quarter Financial Results.
All lines have been placed on mute to prevent any
background noise.
After the speakers' remarks, there will be a question and
answer period. If you would like to ask a question during
this time, simply press star, then the number 1 on your
telephone keypad. If you would like to withdraw your
question, press star, then the number 2. Thank you.
I would now like to turn the call over to Mr. Bill
Hoelting, Vice President, Investor Relations. Mr.
Hoelting, you may begin.
Bill Hoelting: Thank you and good afternoon. Participants for TSA's
Third Quarter Financial Results conference call are Greg
Derkacht, President and CEO; Dwight Hanson, Senior Vice
President; Mark Vipond, President of ACI Worldwide; and
David Bankhead, CFO.
This conference call could contain forward-looking
statements pursuant to the Safe Harbor Provisions of
Section 21E of the Securities Exchange Act of 1934. Actual
results might differ materially from those projected in
the forward-looking statements. Statements during the call
that are not strictly historical, statements could
constitute forward-looking statements which involve risks
and uncertainties which could cause actual results to
materially differ from those in the forward-looking
statements.
Forward-looking statements include the following: any
statement dealing with the future prospects or results of
the company and forward-looking statements identified in
our recent Form 10-K and 10-Q filings.
The agenda for the call will be as follows: Dwight Hanson
will provide an overview of TSA's Q3 financials, Mark
Vipond will then discuss the highlights for ACI Worldwide,
and Greg Derkacht will provide some closing comments at
which time we will open up the call to your questions.
At this time, I would like to introduce Dwight Hanson.
Dwight Hanson: Thanks Bill, and good afternoon. Today I'll be
discussing our fiscal 2003 third quarter financial
results. First, I'll start by highlighting some key
financial metrics that we achieved during the quarter.
Total revenue was $73.8 million. Operating expenses were
$69.1 million, which included a goodwill impairment charge
of $9.3 million. Operating income was $4.7 million, with
an operating margin of 6.3%. Net loss was $1.9 million and
loss per share was 5 cents, both of which reflect the
goodwill impairment charge. Operating cash flow was $11.5
million. Our cash balance was $100.9 million. And our
12-month backlog was $225.9 million.
The $73.8 million of revenue is comprised of the
following: software license fees of $40.7 million of which
$18.9 million was initial license fees, $21.8 million was
monthly license fees, maintenance revenue was $20.7
million, and services revenue was $12.4 million.
Revenues for each of our geographic channels were as
follows: United States, $31.9 million; Americas
International, $9 million; Europe, Middle East, and
Africa, $25.1 million; and Asia Pacific, $7.8 million.
Revenues for each business units were as follows: ACI,
$56.4 million; Insession, $8.6 million; and IntraNet, $8.8
million.
Total revenues of $73.8 million represents an increase of
6.2% as compared to the third quarter of last year.
Increases in license revenue as well as maintenance
revenue were the reasons for this increase in total
revenues.
The increase in license revenue is primarily due to the
increase in capacity upgrades that the ACI business unit
received during the third quarter and the early completion
of certain contracts from fourth quarter backlog. The
increase in maintenance revenue reflects the quarter over
quarter continued growth of our installed-base of software
products and the ACI and Insession business units.
Operating expenses for the quarter were $69.1 million,
which is an increase of 21.5% as compared to the third
quarter of last year. This increase is primarily due to a
goodwill impairment charge of $9.3 million, which reflects
the write-down of the last component of the goodwill
associated with our MessagingDirect business.
During the third quarter, we updated our assessment of the
MessagingDirect business and concluded that due to the
continued slow adoption of secured document delivery
technology, it was appropriate to record this charge.
All other expenses, other than G&A, decreased quarter over
quarter, which reflects the impact of the expense control
and reduction efforts that have taken place over the last
18 months. The increase in G&A expenses is due to
increased professional fees and changes in bad debt
expense. The bad debt expense for the third quarter of
last year was a negative amount due to adjustments made to
the allowance for doubtful accounts.
The tax revision of $6.3 million was computed using a 46%
effective rate for the third quarter on all items except
the goodwill impairment charge, which is a non-deductible
item for tax purposes. The corresponding effective rate
for the year has been reduced to 52% as a result of a
number of tax-planning strategies that were deployed
during the third quarter. We continue to implement
additional tax-planning strategies in an attempt to
further reduce our overall effective tax rate.
Generated positive operating cash flow of $11.5 million
and our cash balance at the end of the quarter was $100.9
million.
Our ending backlog was $225.9 million, which is comprised
of recurring backlog of $164.3 million and non-recurring
backlog of $61.6 million. The recurring components are
monthly license fees of $80.4 million, maintenance fees of
$79 million, and facilities management fees of $4.9
million. And non-recurring components are license fees of
$38.7 million and services of $22.9 million.
We include in backlog all revenues specified in signed
agreements to the extent we believe that recognition of
the related revenue will occur within 12 months.
Thanks for your time this afternoon. I'll now turn the
call over to Mark for his comments on the ACI business
unit.
Mark Vipond: Thank you, Dwight. Good afternoon, everyone. I'm here
to give you an update on third quarter results for ACI
Worldwide. ACI's revenue for the quarter was $56.4
million.
Despite the challenging economic conditions that remain
throughout the world, ACI was able to find new business
during the quarter. Some of the highlights include systems
and capacity upgrades over $100,000 at 14 customers. These
upgrades took place in all of our geographic regions with
several significant contracts in our European operation.
These upgrades are an essential element of ACI's business.
We expect customers will continue to license additional
capacity over time but it is difficult to predict the
timing of these events. The number of capacity upgrades in
the third quarter was greater than we have received in the
past few quarters and contributed to our increased
revenues.
ACI licensed products to 13 new customers in the quarter.
Those products included six BASE24, one NET24, three
Proactive Risk Manager, two WINPAY24, and one large U.S.
bank -- BB&T Corporation, which we announced yesterday,
that licensed our BASE24-es solution to run their ATM
network and IBM zSeries server technology.
While BB&T is already a customer of TSA due to its use of
IntraNet's MTS product, it is a new customer for ACI and
represents a significant win for our company. We are
pleased with the number of new ACI customers in the
quarter. We believe - which we believe illustrates the
value our products provide and the long-term strength of
our company.
ACI licensed seven new applications to existing customers
during the quarter. These include licenses of our
BASE24-es Enhanced Authorization System, Mobile Top-up,
Automated Key Distribution System, Proactive Risk Manager,
and new BASE24 add-on products.
With the ACI commerce framework and our continued
investments in multi-platform integrated payment systems,
we believe we are well positioned in our market space. Our
investment in BASE24-es and our strategy to evolve our
marketing-leading BASE24 product to this new technology
have been well received. In addition, the BASE24-es
multi-platform solution is generating interest in new
markets where we believe we can license more new customers
over time.
Thanks for your continued interest. I will now introduce
Greg Derkacht.
Greg Derkacht: Thank you, Mark. In summary, during the quarter,
we were able to increase our revenue, grow our cash
position to over $100 million. As was noted, our operating
results were negatively impacted by a non-tax deductible
goodwill impairment charge of $9.3 million relating to
2001 acquisitions of MessagingDirect.
MessagingDirect secured document delivery technology
currently is within the ACI Worldwide business unit and
has experienced slow adoption rates. Going forward, our
plan is to focus on our growth initiatives and continue to
manage our cause.
As you can see, we have made progress on our effective tax
rate but we still have work to do on this particular
issue. We will continue to implement additional
tax-planning strategies and we believe that by the end of
the fiscal year, we will again be in a position to provide
revenue and earnings guidance.
Two weeks ago, we announced the appointment of David
Bankhead as the company's new Chief Financial Officer. We
are extremely pleased to have Dave join our team. He comes
to us with over 30 years of financial experience and has
been a CFO in four other public companies. The search to
fill this position was quite extensive and ultimately,
Dave's background, including his international track
record, made him the right choice.
Dave is going to say a few words in our discussion today
and plans on fully participating in next quarter's
conference call. Thank you very much for your continued
interest in TSA.
David Bankhead: This is David Bankhead. Thanks, Greg, for the kind
words. I am pleased to be joining the management team.
TSA's history of success and innovation in the
electronic payment space made this a very easy decision
for me. I believe the company is well positioned to
continue to lead in this market and I look forward to
contributing to that effort. Thank you for your
interest in TSA and I look forward to working with you
in the future.
Now I'll turn the call back over to Bill.
Bill Hoelting: Thank you. Operator, at this time, we'd like to open up
the call to the questions.
Operator: Certainly. If you have a question at this time, please
press star, then the number 1 on your telephone keypad.
Again, that is star, then the number 1 if you have a
question. And we will pause for just a moment to
compile the Q&A roster.
And your first question is from (Franco Turrinelli) with
William Blair.
(Franco Turrinelli): Good afternoon, gentlemen. How are you?
Greg Derkacht: Hi, (Franco).
(Franco Turrinelli): A very impressive quarter from a point of
view of the number of customer additions and capacity
upgrades. Is this the light at the end of the tunnel that
we've all been waiting for or is this just, you know, some
fortuitous timing?
Greg Derkacht: I would - and I'll let Mark talk to it also -
I'll just characterize the environment. It really has
not changed significantly. The sales cycle delays are
still very, very significant and difficult. It was a
good quarter. We're proud with the results. But we
have not seen anything change significantly,
internationally within the U.S. that really signals a
change.
Mark Vipond: Yeah, this is Mark, (Franco). Boy, you ask the same
question every time. From the capacity upgrades, we
were obviously very pleased with the results in the
quarter. But that's, as I said in my comments, it's a
bit unpredictable. Sometimes you run the customers that
run it, it clips their capacity volumes, and sometimes
you don't. So that's one a bit unpredictable.
Relative to the new customers, yeah, we also were very
excited about the number of new customers. A lot of the
BASE24, as I said, six new BASE24 customers, we're very
excited about BB&T. Does it change anything? We're just
still slugging away out in the marketplace and I think
we've got some good traction and got some good results.
But as Greg said, I don't think the market has materially
changed but we are confident that our strategy is a good
one for us to attract new customers over time and maybe we
saw some sense of that this quarter but I don't know that
we can sit there and say it's going to be that way every
quarter going forward.
(Franco Turrinelli): Okay, Mark. I'll try to come up with some different
questions for you. Hey, you guys always use the same
script, why shouldn't I?
Mark Vipond: Oh, come on.
(Franco Turrinelli): One question though for you, you know, the
customers, as you point out, great roster, great, you
know, good diversification against different product - the
product as well. My guess is that most of these customers
are reasonably significant and probably did not contribute
very much to revenue in the quarter but are contributing
to that nice backlog that we're seeing right now.
Mark Vipond: This is Mark. Yeah, that's absolutely true. Many of
our products - newer products that we have with
BASE24-es and some of our additions of PRM and our
Payments Manager, because of the revenue recognition
rules, they are delayed in terms of when you can
recognize them. They either have to be accepted - there
are different criteria when they can be recognized.
The only things that we can actually recognize or have
confidence in recognizing in a given quarter that we sell
are capacity upgrades and, you know, pots and pans --
little add-ons to our existing BASE24 customers in the ACI
business. So there's little that we can influence or
recognize in a given quarter; most of it goes in the
backlog before it sells.
(Franco Turrinelli): One final question, if I may, before handing
it back to the others on the call. I realize that you
don't feel comfortable providing guidance, however, in the
past, we have often seen the September quarter be a pretty
strong quarter for you. What's your thinking just kind of
heading into this final quarter in terms of customers,
budgetary capacity, and in terms of their plans? Any
visibility to that, you know, at all that you can share
with us?
Mark Vipond: My answer to that would be it's - the demand level was
about the same as it's been for a while. Yeah, we
usually have - this is the end of our fiscal year and so
naturally, our sales people are a little bit more
aggressive trying to get to their numbers - that you may
have some up-tick from that. But I think the demand
level in the marketplace is about the same as we saw it
this quarter and the last quarter. I don't think it's
materially changed.
(Franco Turrinelli): Okay. Thanks, Mark. And let me not hand over without
a) welcoming David there, and b) thanking Dwight for his
service.
Dwight Hanson: Thanks (Franco), very much.
David Bankhead: Thank you.
Operator: Your next question is from (Kevin McLaughlin) with (BDF
Investments).
(Kevin McLaughlin): Hi. (Kevin McLaughlin) (BDF). In previous
conference calls, Greg, you mentioned that the Board had
given you directions to create a corporate strategy and I
think it was relative to the potential for mergers and
acquisitions. I was wondering about the market's
conditions and the attractiveness of those kinds of
opportunities and the company's intentions, please?
Greg Derkacht: Well, let me say the intentions as far as we're
concerned at this point in time is still the same. We
are literally still in the process of finalizations of
strategies basically in the directions from the Board.
Should, within the September timeframe, have the
strategy basically solidly in place, I think at that
point in time, we'll be well served to discuss and have
an opportunity to discuss our strategy with various
people, including the street.
So, you know, we're very, very close at this point in
time. We're also going through a strategy validation
process with an outside firm to assist us in that process.
So I think we're getting very, very close.
(Kevin McLaughlin): Okay.
Greg Derkacht: And...
(Kevin McLaughlin): Thank you very much.
Greg Derkacht: Excuse me.
(Kevin McLaughlin): No. I'll let you finish.
Greg Derkacht: I think the opportunity levels out there are still
significant. And we'll be finished with the process
here pretty soon.
(Kevin McLaughlin): All right. Thank you very much. Thanks to Dwight and
welcome to David.
Greg Derkacht: Thank you, (Kevin).
Operator: Once again, ladies and gentlemen, I would like to remind
you, if you have a question, please press star, then 1
on your telephone keypad.
And your next question is from (Ned Davis) with (Taconic).
(Ned Davis): Good afternoon, gentlemen, and also a great
performance it looks like and welcome, David. Mark, I have
a couple of questions. One, the balance sheet, would you
describe the situation as sort of somewhat normalized now
with respect to receivables, payables, etc.?
I know that there was a big effort to kind of improve
liquidity back a couple of quarters. Is it sort of
stabilized now? Can we expect these ratios to remain
roughly where they are? And then I have one other question
after that.
Greg Derkacht: I would say we feel our balance sheet is
stabilized at this point in time and hopefully, we can
have good continued form from cash and things like that
but we do feel it's stabilized.
(Ned Davis): Okay. The second question has to do with some of the
new contracts. Let me particularly reference the BB&T
transaction. I take it that's a relatively large
transaction about over a period of years in terms of a
revenue standpoint?
Mark Vipond: Well, as with most of our contracts, that was,
specifically but generally, we sign a five-year agreement
and the product support fees and the monthly license fees
are recognizable over five years.
(Ned Davis): So is it - are they replacing a legacy from
another vendor or an in-house legacy? And is this
something you think you can, if you will, copy with other
large players, either here or overseas?
Mark Vipond: So the answer to the question on BB&T, yes, they are
replacing a legacy system from a vendor that has
discontinued support on the IBM zSeries. And so we are
taking over that application. And can we replicate it?
Yeah, we believe we can.
This specific application that we're replacing is
typically not installed in such a large organization, it's
usually in geared towards smaller organizations with
anywhere from 50 to 100 ATMs in their network. And BB&T
have somewhere in approaching 2000.
So I don't know if that replacing that specific
application, is that replicatable because there's not that
many of them that have that big of a system on that
antiquated piece of note.
But obviously, one of our strategies relative to driving
increased customers and market share is to go after the
in-house and the other solutions that run on these
platforms that may not have stayed up enough with
investments and mandates and the technology that we can
eclipse them with our product and also provide additional
functionality. That's certainly part of our strategy is to
build our market share with our es product.
(Ned David): Okay. One last detail, I want to get a clarification.
The tax rate effectively was 46% with no impact from the
goodwill impairment charge. But somewhere else it says
52% rates of year. So are you in effect providing a tax
rate guidance for the full year at 52%? Is that - did I
understand that correctly?
Dwight Hanson: Well, the way the process works is you estimate
what your rate is for the year and then you apply that to
your year-to-date results and then you push out the
difference within the current quarter.
(Ned Davis): Okay.
Dwight Hanson: So at this point, that's our best estimate of the rate,
based on the fact that we know today, because that's how
you do it.
(Ned Davis): So that's for the full year '03 fiscal, the 52%?
Dwight Hanson: That's correct.
Greg Derkacht: That's right.
(Ned Davis): Okay. So we could - whatever estimate we want to use
for the fourth quarter, we could then deduce what the
tax rate would be based on using that 52%. That's kind
of what you're saying.
Dwight Hanson: As long as you apply that to the full year numbers,
right.
(Ned Davis): Right. Okay.
Dwight Hanson: Exclusive of that goodwill charge.
(Ned Davis): Is the 46% rate for this quarter a fluke or is it
something that's particularly with David working on this
might signal that your tax rate will start pushing towards
the normal corporate rate next year?
Greg Derkacht: Well, we most certainly have the project continuing at
this point in time and we'll continue to hopefully apply
strategy, which will continue to reduce the rate. So
it's very much indigenous to continue this process to
producing effective tax rate. But obviously, working
with the tax authorities is a long-term process and we
hopefully will be able to do it at this point in time
but we make no guarantees of that.
(Ned Davis): Okay. Thank you.
Greg Derkacht: Thank you, (Ned).
Operator: And your next question is from (Nick Fisken) with
(Stephens Inc.).
(Nick Fisken): Hi. A question on the increasing G&A; Dwight, you said
- you gave a couple reasons why and I wanted to hear
those again. And then b), can you give us some more
detail on the increase of the bad debt expense, please?
Dwight Hanson: Okay. Well, it's, like I said, the increase is
primarily due to increased professional fees that we
incurred this year as compared to the third quarter of
last year. And the bad debt expense that we're - that
we have in the third quarter this year, when you compare
it against the third quarter of last year, it was
actually a negative bad debt expense because we adjusted
our overall bad debt allowance.
So it's more of a function over an abnormal amount a year
ago than it is an unusual amount in the current quarter
for this year, (Nick). It's really a function of that and
that's what I was trying to convey in my remarks earlier.
(Nick Fisken): Now the increased professional fees and ongoing expense...
Dwight Hanson: Well...
(Nick Fisken): ...is G&A going to be the same level on a go-forward basis?
Greg Derkacht: Let me kind of come on that, (Nick). Basically,
the G&A - the increase is related to the tax project
that's going on and so at least for one more quarter,
we'll see that continue. So at this point in time, I think
the G&A will be right at somewhat at that level or at
least the next quarter.
(Nick Fisken): Okay, thanks, and congrats on the progress.
Greg Derkacht: Thank you.
Dwight Hanson: Thanks.
Operator: And you have a follow-up from (Franco Turrinelli) with
William Blair.
(Franco Turrinelli): Actually, I think (Nick) took my question but
just to confirm, there was a step-up sequentially in the
G&A from the first quarter and I'm assuming that that is
related to the tax project that you just talked about.
Dwight Hanson: Yes.
(Franco Turrinelli): Okay. Thanks.
Operator: And at this time, there are no further questions. Do
you have any closing remarks?
Bill Hoelting: We thank you all for participating in our Q3 conference
call and look forward to the next conference call.
Thank you for attending today.
Greg Derkacht: Thank you very much.
Operator: This concludes today's teleconference. You may now
disconnect.
END