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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: October 28, 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 October 28, 2003.
Item 12. Results of Operations and Financial Condition.
On October 28, 2003, Transaction Systems Architects, Inc. held a
teleconference and web cast discussing its financial performance for the
quarterly period ending September 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: October 31, 2003 By: /s/ David R. Bankhead
------------------------------------
David R. Bankhead
Chief Financial Officer, Treasurer
and Senior Vice President
EXHIBIT INDEX
Exhibit
Number Description
99.1 Transcript of quarterly financial performance teleconference and
web cast, held on October 28, 2003.
Exhibit 99.1
TRANSACTION SYSTEMS ARCHITECT, INC.
Moderator: Bill Hoelting
October 28, 2003
4:00 pm CT
Operator: Good evening. My name is (Cory) and I will be your
conference facilitator. At this time I would like to
welcome everyone to the TSA 2003 Fourth Quarter and Fiscal
Year-End Financial Results Conference Call.
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 on
your telephone keypad. Thank you, ladies and gentlemen.
At this time I would like to turn the conference over to
Mr. Bill Hoelting, Vice President of Investor
Relations. Mr. Hoelting.
Bill Hoelting: Thank you and good afternoon. The participants for
TSA's Fourth Quarter Earnings Conference Call are Greg
Derkacht, President and CEO, David Bankhead, CFO, Mark
Vipond, President of ACI Worldwide.
This conference call could contain forward-looking
statements pursuant to the Safe Harbor Provisions of
section 21E of the Securities and Exchange Act of 1934.
Actual results might differ materially from those
projected in the forward-looking statements.
Statements during the conference 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 the forward-looking statements identified
in our press releases and Form 10K and 10Q filings.
The agenda for the call will be as follows: David Bankhead
will discuss the Q4 financials, Mark Vipond will then
discuss the Q4 highlights for ACI Worldwide and Greg
Derkacht will then provide some closing comments at which
time we'll open up the call to your questions. At this
time I would like to introduce David Bankhead, CFO of TSA.
David Bankhead: Thanks, Bill, and good afternoon. Today I'll be
discussing our fiscal 2003 financial results. I'll
start by highlighting some key milestones that we
achieved during the quarter.
Total revenue was $71.8 million. Operating expenses were
$59.9 million. Operating income was $11.9 million with an
operating margin of 16.5%. Net income was $9.1 million and
diluted earnings per share were 25 cents.
Operating cash flow was approximately $11.6 million. Our
cash balance at year-end was $114.0 million. Our 12 month
backlog was $232.8 million. The $71.8 million of revenue
is comprised of the following: software license fees of
$36.6 million, $20.5 million of maintenance revenue and
$14.7 million of services revenue.
The license fee revenue of $36.6 million was comprised of
$15.2 million in initial license fees and $21.4 million of
monthly license fees. Revenues for each of the geographic
channels were as follows: the United States, $30.8
million, Americas International, $10.1 million, Europe,
Middle East and Africa, $21.7 million and Asia Pacific,
$9.2 million.
Revenues for the three business units were as follows:
ACI, $55.8 million, Insession, $8.7 million and IntraNet,
$7.3 million. Operating expenses for the quarter were
$59.9 million, which is a decrease of 5.1% from those
reflected in the fourth quarter of last fiscal year.
The decrease is primarily due to decreases in bad debt
expense and professional fees offset by an increase in
business insurance expense. During the fourth quarter we
also incurred $2 million in restructuring costs associated
with staff reductions in two of our business units.
As a result of our ongoing tax planning initiative, we
have reduced our effective tax rate to 57.4% for the year.
This rate includes a non-deductible goodwill impairment
charge of $9.3 million related to the 2001 acquisition of
MessagingDirect Ltd.
Total revenue for the year was $277.3 million. Operating
expenses were $242 million. Operating income was $35.3
million with an operating margin of 12.7%. Net income was
$14.3 million and diluted earnings per share were 40
cents.
Operating cash flow for the year was approximately $37.6
million, again resulting in a year-end cash balance of
$114 million. Our ending backlog was $232.8 million, which
is comprised of recurring backlog of $167.1 million and
non-recurring backlog of $65.7 million.
The recurring components are monthly license fees of $77.7
million, maintenance fees of $80.6 million and facilities
management fees of $8.8 million. Non-recurring components
are license fees of $44.8 million and services of $20.9
million.
We include in backlog all revenue specified in signed
agreements to the extent we believe at this time that
recognition of the related revenue will occur within the
next 12 months.
Thank you for your time this afternoon. I'll now turn the
call over to Mark Vipond for his comments on the ACI
business unit.
Mark Vipond: Thank you, Dave. Good afternoon everyone. I'm here to
give you an update on the fourth quarter results for ACI
Worldwide. ACI's revenue for the quarter was $55.8
million. ACI had good sales results and we signed a
number of new contracts during the quarter.
Some of the highlights include system and capacity
upgrades over $100,000 at 12 customers. These upgrades
took place in all of our geographic regions with some of
our largest bank customers. For fiscal year 03, ACI had 47
capacity upgrades over $100,000.
ACI license product had 13 new customers in the quarter.
Those products included four BASE24(R), one NET24(TM), two
Proactive Risk Manager(TM), five WINPAY24(TM) and one
BASE24-es(TM) License.
We are pleased with this level of new customer signings
and it brings our total number of new customers in fiscal
year 03 to 38. We believe our focus on winning market
share with our multi platform payment solution is
reflected in these results.
ACI licensed 14 new applications to existing customers
during the quarter. These include licenses of our
BASE24-es, BASE24-es Enhanced Authorization System, Mobile
Top Up, Commerce Gateway, Automated Key Distribution
System, Proactive Risk Manager and new BASE24 add on
products.
For fiscal year 03 ACI licensed 46 new applications to
existing customers. With the ACI commerce framework and
our continued investment in multi platform integrated
payment solutions, we believe we are well positioned in
our market space.
We recently had our first customer operating on a Sun
Solaris platform move into production with our new
BASE24-es product. Our investments in BASE24-es and our
strategy to evolve our market leading BASE24 product to
this new technology continues to be well received by our
customers.
We believe our investment in this product line as well as
our investments in other products included within our ACI
commerce framework will position us to win more business
as market conditions improve throughout the world.
Thanks for your continued interest and I will now
introduce Greg Derkacht.
Greg Derkacht: Thank you, Mark. We appreciate your attendance
today and your interest in TSA. During the fourth quarter
we added 25 new customers with the four quarters activity
TSA total customer count is approximately 740 running on
more -- running more than 1,700 products in 73 countries.
Also this quarter we expanded our customer relationship
with a number of our existing customers buying them
additional software and services. As mentioned, we
generated $11.9 million in operating income for the
quarter as our three business units -- ACI Worldwide,
Insession Technologies and IntraNet -- continued to
effectively manage their businesses.
This quarter's operating expense did include $2 million
restructuring charge associated with staff reductions. As
a result of our ongoing tax planning initiatives, we have
reduced our effective tax rate for the fiscal year.
With our fiscal year-end close, we have completed our
planning process for next year and we are in a position at
this time to provide revenue and earnings guidance for
fiscal 2004.
As you know from past financial results, our business is
difficult to project on a quarterly basis due to the
nature of large software projects and capacity upgrades.
With these characteristics, we feel the best guidance we
can provide is annual revenue and annual EPS. So based on
our business model and an assumed 43% effective tax rate,
our annual revenue guidance for 2004 is 266 million to 278
-- I mean 287 million and our EPS guidance is 60 cents to
72 cents.
We will continue to invest in our newer initiatives. For
ACI Worldwide these initiatives include BASE24-es,
PRM(Proactive Risk Manager), and Payments Manager. We are
pleased with the progress of these new initiatives to
date.
ACI's most significant new progress initiative is
BASE24-es, an open system multi platform solution. As a
reminder, we rolled out BASE24-es in November 2002 and
have since signed seven new customers.
In addition, we have expanded our relationship with six
existing customers who have signed for BASE24-es Enhanced
Authorization Module. PRM addresses credit and debit card
fraud as well as anti money laundering issues and Payments
Manager is our back office suite.
Insession Technologies has two newer initiatives focusing
on database monitoring and workflow automation. Although
these are smaller in scale than ACI's initiatives, they
are important to Insession.
IntraNet's focus will be to expand its US leading money
transfer banking global messages solution into targeted
geos. Overall, we look to expand on our market leading
position in e-payments and e-commerce marketplace with our
new initiatives and focus on open system opportunities.
During our 2004 fiscal year our priorities will be to
continue to focus on our core businesses and our newer
product initiatives. Over time we may consider potential
acquisitions if they meet our business and financial
criteria.
In closing, I feel good about our current position in the
marketplace. We believe we're well positioned with the
change that we have made to our senior management team and
strengthened our balance sheet, which includes strong cash
balance and good liquidity ratios.
We enter fiscal 2004 with a backlog of contracted business
of $232 million -- $232.8 million, which provides us a
good base upon which to build. We also feel our cost
structure is appropriate and if there is an up tick in the
global economy, we should be able to leverage this
structure going forward.
I look forward to the upcoming year. And again, thank you
for your support and interest in TSA. At this time we will
open the conference call up to your questions. Thank you
very much.
Operator: Thank you, sir. At this time I would like to remind
everyone, if you would like to ask a question, please
press star, then the number 1 on your telephone keypad.
Again, if you would like to ask a question, press star 1.
We'll pause for just a moment to compile the Q&A roster.
Our first question is from (George Sutton) with
Craig-Hallum Capital.
(George Sutton): Hi guys. Congratulations on a great quarter.
Greg Derkacht: Thank you, George, very much.
(George Sutton): With respect to the strength in the quarter, can
you talk about the, you know, this being the fiscal
year-end close, I know in the past that's had an impact on
your business. Do you think that was an impact here this
quarter? And also the Patriot Act implementation that
needed to happen by the end of September, did that have
any impact?
Greg Derkacht: Well, let me speak to the first question and I'll let
Mark answer the second. As it relates to the year-end,
yes, there is some cyclicalness in our, basically our
performance. Typically the quarter is our best
quarter. But I would also note that we've had two
fairly strong quarters in a row and we would hope this
is harbinger of things to come, but most certainly
cannot say that's the case.
Mark Vipond: As far as the Patriot Act, no, I don't think our
results were materially affected by the Patriot Act at
all. We have sold our PRM system preventing money
laundering in a number of locations.
Typically those are rules based deployments where it's
relatively inexpensive as opposed to using our (neural)
technologies. So the impacts to our revenue and to our
performance as a result of the Patriot Act is not
significant.
(George Sutton): Okay and then can you give us any sense with respect to
the ES pipeline what sort of opportunities you think the
broadened platform might be providing at this point?
Mark Vipond: Yeah, in terms of -- what would I say. I mean, the
pipeline looks good. It has opened up doors. If you
think about the customers, some of which we have
announced, some of which we have not been able to
announce that we've signed, they've been predominately
customers that we wouldn't have gotten to before because
they wouldn't have purchased an HP-NSK based system.
And we continue to see the pipeline in our -- we have a
six quarter pipeline where we try to track activity in our
sales channel and we continue to see the ES pipeline of
business -- doesn't mean you're going to close it, but the
activity levels continue to increase quarter over quarter.
As we get more message out and we believe as we start
getting more of our clients live and have
(referenceabilty), that will continue to promote the
product and we'll see even more activity of that product
line.
(George Sutton): Okay, got you. And then lastly -- these are really I
guess for David. The $2 million in staff reduction, was
that included in the numbers you're giving us? And
secondly, the use of cash, if I heard you correctly, you
just stated that basically you like the fact that you
have liquidity and you'll look to make some acquisitions
potentially going forward, but nothing in terms of
consideration of a dividend or a buyback or anything
like that.
Greg Derkacht: I'll let Dave answer the first question and then I'll
answer the second.
David Bankhead: If I understood your first question correctly, whether
the $2 million was included in our operating expenses
for the quarter?
(George Sutton): Yes.
David Bankhead: Yes, it was.
(George Sutton): Okay.
Greg Derkacht: Yeah, as for the second question, we will look
for what I will call opportunistic acquisitions over some
period of time or strategic acquisitions which we think
makes sense to the organization.
I would say for the next fiscal year the intent is to keep
our powder dry, focus on what we're doing and at this
point in time we have given consideration, but there is
not any thought process as to a dividend or basically a
stock buyback.
(George Sutton): Okay, great. Thanks.
Operator: Our next question is from (Franco Turinelli) with
(William Blair and Company).
(Franco Turinelli): Greg, Mark, hi and, David, welcome to the conference
calls.
Group: Hi, (Franco).
(Franco Turinelli): A couple of questions for you if I may. First
of all, I just wanted to, a concern that I heard you
right. It sounds, Greg and Mark, as though, you know,
you're very encouraged by what you're seeing but you don't
yet see loose purse strings from your customers. Is that a
fair characterization?
Greg Derkacht: Well, I'll let Mark speak to it also but I would
say, you know, we most certainly wouldn't characterize it
as victory has been won. We do see some up tick in
activity, which hopefully will turn into sales and
revenue. But we cannot say that at this point in time.
Mark Vipond: I certainly wouldn't use the word loose. I think
there's not a death grip on their money anymore. How's
that? We have seen some, you know, decisions by
customers to start investing again. It's not broad,
(Franco), in terms of everybody's opening up their purse
strings, but it has improved a bit. But, you know, it's
not crazy yet.
(Franco Turinelli): Mark, what's the kind of factor in the -- and I know you
can't generalize but maybe you can just kind of talk us
through this a little bit. In the situations where
people have chosen to do something, particularly some of
the more fundamental infrastructure upgrades, what's
causing it? Is it volumes yet or is it functionality or
is it just that, you know, this has been so overdue for
so long that they've finally kind of gotten around to it?
Mark Vipond: I think it's a combination of a number of things. It's,
a lot it's -- remember, there's still a tremendous
number of custom Bespoked systems that are used to
process these environments and so you have volume
issues, you have functionality issues, some mandated,
some but to be responsive to the marketplace, things
like Triple DES and EMV.
When those issues hit a specific system, the amount of
development work that has to be undertaken is enormous.
And so it causes those customers to start looking at their
total cost of ownership and how much it costs to maintain
and support those environments and upgrade them and that
typically causes them to start looking around again to see
what their options are.
And I think we'll continue to see that. After Y2K people
either -- before Y2K they either decided to swap out their
in-house systems or they upgraded them. Well, now it's a
few years later and you have other issues coming up and so
it causes them to re-look at it again to make sure they
have the right strategic platform for the long term.
So I think we'll continue to see that. It's not like it's
a huge tidal wave but over time people continue to look at
their systems.
(Franco Turinelli): Dave, how about a couple of questions for you
if I may. Excluding the 9.3 million of non-deductible
charges included in the year, it looks to me like the tax
rate came in at about 45% for the year, maybe just a shade
light. Did I do my math right?
David Bankhead: You did it pretty well.
(Franco Turinelli): Okay. I'm assuming that the operating expense, the
restructuring expenses incurred in the quarter would
have been taxable, you know, more or less at that rate.
David Bankhead: Yeah, we would expect those to be deductible expenses.
I think we're saying the same thing.
(Franco Turinelli): Yeah, exactly.
David Bankhead: Yeah.
(Franco Turinelli): And I'm sorry, I'm not sure I fully understood
where that operating -- what that restructuring charge
ended up being taken. Was it mainly the -- on the expense
categories? Was it kind of across the board or was it
specifically in one line item? Did you end up putting it
in G&A or?
David Bankhead: No, it's spread really to the appropriate
operating, you know, the salary expense in the appropriate
operating units within those two divisions. So it does get
spread out.
Mark Vipond: But primarily being the salary one.
Greg Derkacht: That's the major part of it.
(Franco Turinelli): Okay, great. Just to turn to both the revenue
in the quarter and the backlog for a second and then I'll
get off the line and let someone else ask some questions,
but the professional services was way higher than I had
modeled, which is great.
And apart from, you know, bad modeling on my part, I was
wondering if you could provide any insight into, you know,
maybe what's going on there. And also the MLF's was down
slightly sequentially, which I was surprised to see. Could
you just give me a little bit of help on those two things?
Mark Vipond: Yeah, I'll attempt to. On the services side, yeah, I
would say the services probably surprised us a little
bit in terms of their strength, in terms of the amount
of services work that we had in the quarter.
And, you know, I had made statements in the past, over the
longer term we expect the services will flatten out. Well,
I think we've gotten there. What we're seeing is because
of the number of new customers, which is where a lot of
the services work comes from, because we have had more new
customers this year, we have seen an up tick in services.
And while I think long term the amount of custom work that
has to be done for some of our new deployments will be
less, I would expect our services work to maybe be a
little bit higher, I think consistent with what we saw
this last quarter in the near to mid term.
(Frank Turinelli): Yeah, because it tends to have a fairly long
tail of activity, right. I mean, that's one thing that we
forget that these are fairly complex implementations.
Mark Vipond: Correct. And it's -- we -- a lot of the service is
driven by new customers, it's driven by some customer
modifications for BASE24 compliance and you'll see some
spikiness in that too because some of the revenue
recognition rules now for our new products, services
works can't be recognized until we get the product
accepted by the client.
So -- and with the new rules of how revenue gets
recognized in the software business, there's lot of moving
parts in this stuff. So frankly, you're going to see some
spikiness even on the services side.
(Franco Turinelli): What about the MLF number? I was surprised to see that
down sequentially?
Mark Vipond: I don't have those numbers in front of me.
David Bankhead: The MLF number really is roughly flat from Q3.
Our MLF number for that quarter was 21.8 and we were 21.4
Q4 and we're a little bit above where we were Q4 of last
year, so.
Mark Vipond: I don't have any -- we'd have to go back and look at
it. You know, sometimes when a customer goes and says I
want to PUF or pay up front, they would say, hey, I've
basically monotized the MLF's. There could be some of
that. We'd have to look at it between ACI and Insession
where primarily the MLF's exists to see exactly where
that might have happened or if we had some customer
cancellations on contracts for various products. We'd
have to look into it. I don't know an answer to that.
(Franco Turinelli): Okay. I realize I was being picky. The amounts are
small. On the backlog, though, there's a very
significant pickup in the ILF component, little bit of
decline in MLF's. You must have signed a new facilities
management customer because that's doubled. Again, give
us some insight into what you're seeing with different
types of revenue stream.
Mark Vipond: The -- let me clarify the FM because I saw that
today too and I asked the question. That was basically a
re-categorization that one of our Canadian contracts was
being categorized as services and we put it into FM so
that did not double. We did not sign up a new customer.
That was taken out of services and put it into an FM. So
that was just mis-categorized before. Relative to -- yeah,
you see the initial license fees up tick. What that shows,
(Franco), as you'll figure out, is we had a good sales
quarter.
A lot of those sales would be for newer products that we
can't recognize until we either have delivery or
acceptance or some criteria. And so rather than showing up
with revenue, they go to backlog. And so the backlog
basically reflects a very strong sales quarter that we
had.
(Franco Turinelli): Okay, so I can also presume that's got some nice
professional services pull going back to the point we
made earlier.
Mark Vipond: Yeah, you can probably assume that there'll be
professional services that go along with that.
(Franco Turinelli): Terrific. Thank you, guys.
Mark Vipond: You bet.
Greg Derkacht: Thank you, (Franco).
Operator: At this time I would like to give everyone an additional
moment to ask a question by pressing star and the number
1 on your telephone keypad.
We'll take the next question from Bill Kitchel with
Millrace.
(Bill Kitchel): Thank you. I'm not as familiar with the, all the
features of your backlog and the revenue breakdown but
could you just speak a little bit more to the license
growth and the license growth opportunities ahead of you
in light of the year over year decline in license revenue?
Mark Vipond: Okay, what numbers are you referring to?
(Bill Kitchel): Well, I'm just looking at the 36.6 versus 39 last year.
Mark Vipond: Okay.
(Bill Kitchel): And I'm just trying to understand where the growth is
because ultimately that will drive services as well I
would think.
Mark Vipond: Yeah. In terms of, you know, in terms of license fees
you have to be -- you have to recognize potential, the
choppiness within our business these days because of the
revenue recognition rules.
So comparing this quarter to last year, if there was a,
you know, a $3 million just about, $3 million difference,
we can have wide variations in a given quarter. And you'll
see that because the revenue recognition rules have
changed. And so pretty hard to compare quarter to quarter.
It'd probably be better to be comparing annual to annual
because we're going to have more variations in that. And
so relative to the trend, what do you see -- look at the
backlog.
I mean, what that really shows is a lot of the license
fees that we've contracted that we can't recognize until
we get them accepted or delivered, which we anticipate
doing in the next 12 months, you see a pretty healthy
backlog of license fees business.
It reflects a lot of the sales we are making of our newer
products that will not flow into revenue in the near term.
They will flow into our backlog and eventually be
recognized as we get those products delivered to the
client.
Relative to the future of our business in license fees, I
would -- you know, we're not anticipating that as a huge
change in the macro economic environment. We think we had
a decent sales year in light of all the world, things
going on. And we expect it to be about the same next year.
(Bill Kitchel): I mean, what should we think of as a growth rate
in license fees and if you can't talk about it from that
standpoint, what should we think about as a growth in
backlog potentially looking out a year? Is it at this sort
of 3% sequential rate or is it higher? Is there something
that's restraining that or what -- how should I think of
that?
Greg Derkacht: Yeah, we wouldn't comment on those kind of
results. I think we've given guidance basically in two
specific areas and we don't give guidance in particular
components of that.
(Bill Kitchel): So you don't talk about license growth in your guidance?
Greg Derkacht: No, we don't.
(Bill Kitchel): Okay, thank you.
Greg Derkacht: Uh huh.
Operator: Gentlemen, at this time there are no further questions.
Are there any closing remarks?
Bill Hoelting: Well, we would like to thank everyone for their
participation today for our Q4 and yearend conference
call. Thank you very much.
Operator: This concludes today's TSA 2003 Fourth Quarter and
Fiscal Year-End Financial Results Conference Call. You
may now disconnect.
END