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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: April 27, 2004
(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 January 27, 2004.
Item 12. Results of Operations and Financial Condition.
On April 27, 2004, Transaction Systems Architects, Inc. held a
teleconference and web cast discussing its financial performance for the
quarterly period ending March 31, 2004. 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: May 3, 2004 By: /s/ David R. Bankhead
-------------------------------------
David R. Bankhead
Senior Vice President,
Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibit
Number Description
99.1 Transcript of quarterly financial performance teleconference and
web cast, held on April 27, 2004.
Exhibit 99.1
TRANSACTION SYSTEMS ARCHITECTS, INC.
Moderator: Bill Hoelting
April 27, 2004
4:00 pm CT
Operator: Good afternoon. My name is (Derrick). And I will be
your conference facilitator.
At this time I would like to welcome everyone to the TSA
2004 Second Quarter Earnings conference call.
All lines have been placed on mute to prevent any
background noise. After the speaker's remarks there will
be a question and answer period.
If you would like to ask a question during this time
simply press star followed by the number 1 on your
telephone keypad.
If you would like to withdraw your question press star
followed by the number 2 on your telephone keypad. Thank
you.
I would now like to turn the conference over to Mr. Bill
Hoelting, Vice President of Investor Relations. Please go
ahead sir.
Bill Hoelting: Thank you and good afternoon. The participants for
TSA's Second 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 Provision of
Section 21e of the Securities and Exchange Act of 1934.
Actual results might differ materially from those
projected in the forward-looking statement.
Statements during the conference call that are not
strictly an historical statements could constitute
forward-looking statement 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 10-K and 10-Q filings.
The agenda for the call will be as follows - Dave Bankhead
will discuss the Q2 financials for TSA. Mark Vipond will
then discuss the Q2 highlights for ACI Worldwide. Greg
Derkacht will provide some closing comments at which time
we will open up the calls to your questions.
At this time I would like to introduce Dave Bankhead, CFO
of TSA. Dave.
David Bankhead: Thanks Bill and good afternoon everyone. Today I'll be
discussing our Fiscal 2004 Second Quarter Financial
results.
I'll start by highlighting some key milestones that we
achieved during the quarter.
Total revenue was $76.5 million, an 11% increase over
revenues for the Second Quarter of last Fiscal Year.
Operating expenses were $62.5 million, an 8% increase over
the same period last year.
Operating income was $14.1 million with an operating
margin of 18.4%. This represented a 25% increase over
operating income for the Second Quarter of last Fiscal
Year.
Net income was $8 million resulting in a basic earnings
per share of 22 cents and diluted earnings per share of 21
cents.
Operating cash flow was $10.3 million. Our cash balance at
quarter end was $137.2 million.
The $76.5 million of revenue was comprised of the
following - software license fees of $42.4 million,
maintenance revenue of $22.3 million and services revenue
of $11.8 million.
License fee revenue of $42.4 million was comprised of
$20.2 million in initial license fees and $22.2 million of
monthly license fees.
Revenues for each of the geographic channels were as
follows - United States $31.5 million, America's
International $9.7 million, Europe, Middle East and
Africa, $25.7 million and Asia-Pacific $9.6 million.
Revenues for the three business units were as follows -
ACI $57.9 million, Insession $10.5 million and IntraNet
$8.1 million.
Operating expenses for the quarter were $62.5 million
which is an increase of $4.5 million over the Second
Quarter of last Fiscal Year.
This increase was due in large part to an exchange rate
fluctuations accounting for $2.6 million of the increase.
The company also incurred increased employee-related
expenses including sales commissions, variable
compensation, travel and commissions paid to distributors,
much of which reflects the increased sales in revenue
activity during the Quarter.
These increases were partially offset by savings of
approximately $1.6 million as a result of restructuring
efforts completed during the last twelve months.
Operating expenses also reflected an increase of $4
million over our First Quarter of this Fiscal Year. That
increase is primarily due to increased payroll tax expense
incurred at the beginning of each calendar year, increased
sales commissions, variable compensation and exchange rate
fluctuations.
Exchange rate fluctuations accounted for an increase of
approximately $1.1 million over Q1 expenses.
The company also incurred increased professional fees
related to ongoing tax planning initiatives as well as
Sarbanes-Oxley compliance including Section 404.
Our ending backlog was $233.1 million. We include in
backlog all fees specified in signed contracts to the
extent we believe at this time that recognition of the
related revenue will occur within the next twelve months.
Backlog is comprised of recurring backlog of $170.8
million and non-recurring backlog of $62.3 million.
The recurring components are monthly license fees of $73.7
million, maintenance fees of $88.0 million and facilities
management fees of $9.1 million.
Non-recurring components are license fees of $39.5 million
and services of $22.8 million.
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 Second Quarter
results for ACI Worldwide.
ACI's revenue for the quarter was $57.9 million. We had
good results. And we signed a number of new contracts
during the quarter.
Some of the highlights include system and capacity
upgrades over $100 thousand at 17 customers. This level of
capacity upgrades was significant and materially impacted
ACI's results for the quarter.
ACI licensed product to 14 new customers in the quarter.
Those products included six BASE24, four Proactive Risk
Manager, one Payments Manager, two NET24 and one Smart
Chip Manager license.
These new accounts were evenly distributed in all three of
our geographic regions.
We saw an increase in sales results in the past quarter
with particular strength in the EMEA market.
ACI also added clients in Algeria and Montenegro bringing
the total number of countries in which we do business to
76.
ACI licensed twelve new applications to existing customers
during the quarter. These included licenses of our BASE24
ES, BASE24, Automated Key Distribution System, Smart Chip
Manager, Commerce Gateway, Proactive Risk Manager,
Payments Manager and E-courier software.
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.
There are signs that market conditions are improving the
demand for ACI software solutions.
We had a very good sales quarter. And our pipeline of
activity is solid.
Sales of BASE24 and our Proactive Risk Manager products
were especially strong in the quarter.
In addition a number of key clients extended the terms of
their BASE24 contracts for five additional years. These
term extensions secure ACI's recurring revenue as our
clients continue to derive value from their ACI software
in the processing of electronic payment transactions.
We believe our investment in the ACI commerce framework
will position us to win more business as marketing
conditions improve throughout the world.
Thanks for your continued interest. And I will now
introduce Greg Derkacht.
Gregory Derkacht: Thank you Mark. We're very pleased with our strong
financial results for the Second Quarter in the first
half of Fiscal 2004.
For the first half of Fiscal 2004 revenue growth was 14%.
And net income growth was 155% as compared to the first
half of Fiscal 2003.
Our sales activity was strong across all geographic
channels. Our business units - ACI Worldwide, Insession
Technologies and IntraNet continue to effectively focus on
managing expenses while seeking out growth opportunities
within their markets.
The business unit added 18 new customers during the Second
Quarter.
Throughout Fiscal 2003 and the first half of Fiscal 2004
we have focused on a number of corporate matters. A great
deal of activity has occurred with Sarbanes-Oxley and the
investigation by the SEC.
As we announced in mid-April the SEC has terminated their
investigation with no enforcement action recommended. We
are very pleased with the SEC's decision and happy that we
are able to put this matter behind us.
We also have made progress on a number of internal fronts.
We have centralized our finance, tax, legal department.
And we have enhanced internal controls.
Like a lot of companies we have focused on corporate
governance which, for us has resulted in an ISS Corporate
Governance score of in the 90s which exceeds most software
companies.
With these and other internal improvements we are now in
an even-better position to pursue appropriate strategic
opportunities. We regularly review acquisition candidates
and we will continue to do so. We will be diligent and
patient in that process however.
Overall we remain cautiously optimistic with our outlook.
As we have previously discussed the nature of our large
software implementation projects and our software revenue
recognition policies can lead to significant variations on
our financial results.
Based on our financial results to the first half of the
year our backlog of contracted business and our projected
pipeline we are now increasing our annual guidance for
Fiscal 2004.
Assuming a 43% effective tax rate and no significant
changes in the projected foreign exchange rates, our
annual revenue guidance range for 2004 is being revised
from $271 million to $287 million to a range of $282
million to $292 million.
Our EPS guidance range is being revised from 65 cents to
77 cents per diluted share to a range a 74 cents to 83
cents per diluted share.
Thank you very much for your attendance today. And at this
time we will open up the conference call for your
questions. Again thank you very much.
Operator: At this time I would like to remind everyone if you would
like to ask a question please press star followed by the
number 1 on your telephone keypad. We'll pause for just a
moment to compile the Q&A roster.
Your first question comes from Franco Turrinelli with
William Blair and Company.
Franco Turrinelli: Good afternoon.
Mark Vipond: Hi Franco.
Franco Turrinelli: Couple of questions for Mark first and then maybe I'll
come back to Greg.
I'm very interested to hear about the term extensions from
significant customers.
A couple of questions related to that. First were these
associated also with capacity upgrades and secondly I'm
sure they extracted some economic value out of you -
what's the pricing environment like out there for these
extensions?
Mark Vipond: It's a fair question. The term extension environment,
you know, specifically this was in the U.S. - we had
some very significant customers.
And yes some of them were coupled with capacity upgrades.
And when they try to extract economic value from us it's
usually in that form Franco.
That says okay, I'm going to extend it for five more
years. I need more capacity because my volumes will
increase in that time. What can you do for me?
That's usually where you end up in the negotiation
relative to financial terms and conditions.
And so in this situation of last quarter - yeah there was
some of that - absolutely.
But very important for us - it secures the existing
revenue stream. And then we get some and typically we get
more revenue for the capacity.
Franco Turrinelli: Right so essentially you're giving them some
capacity for free for the extension of the contract I
guess is - not for free I'm sure.
Mark Vipond: No not for free - just as it says, you know, can you
work out an arrangement. It's never for free.
But as our customers get bigger and bigger volumes the
economic - the amount of money that we get for it does
decrease so their cost per transaction goes down.
But yeah they do wheedle in the or incorporate in the
capacity increases as well as with the term extensions.
Franco Turrinelli: The other question actually I guess - this
isn't really for you. It's maybe more for Greg both
Insession and IntraNet had pretty good quarters at least
on a sequential basis. Are you seeing some, you know,
changes in the environment for those business units?
Gregory Derkacht: Well I would say much like ACI Franco that yes
we are. I mean, the environment seems to be good
particularly in the tools business and infrastructure
tools.
And so Insession has had, you know, several very good
quarters at this point in time.
I would say as I mentioned before IntraNet's a little more
niched in their capabilities and their opportunities
because of the large size of the system. But we continue
to see good performance on both the units.
Franco Turrinelli: How far through are you on the IntraNet replacement
cycle do you feel?
Gregory Derkacht: We're very close to being completed with it at this
point in time Franco.
Franco Turrinelli: So should we expect that unit if nothing else to, you
know, reflect the completion of that replacement cycle
in future quarters?
Gregory Derkacht: Well in most cases as far as the revenue impact you've
seen a great portions of it already. But we do expect
revenues to be flat in that environment for some period
of time.
We think - but there are some service opportunities from
the unit. But we do expect flat performance by IntraNet.
Franco Turrinelli: I'm sure no one on this call minds, you know, analysts
being as wrong as I was on our expectations for the
quarter.
Nevertheless, you know, as I look at your guidance for the
remainder of the year and taking into account your comment
on the difficulty in projecting quarterly results because
of a revenue recognition policies your guidance does
presume, you know, second half of the year which is no
better and in fact, if anything, slightly worse from the
first half. I mean why - what do you see on the horizon
that kind of leads you to that conclusion?
Gregory Derkacht: Well I'll attempt to answer that Franco -- and
then I'll let Mark speak if he'd like to - as we've stated
previously - and I most certainly want to convey the fact
that there is some upside opportunity - but we'd like to
put ourselves in the position where we feel that we have a
very high opportunity to make the numbers.
But more importantly as we've stated before there is some
significant fluctuation.
Contracts out of the Third Quarter in some cases flew - I
mean were drawn back into the Second Quarter.
And you have other contracts which basically in the Third
Quarter are being pushed out.
So, you know, we have to attempt to measure this on a
quarterly basis and make that best call we possibly can
with the volatility that we've got because of the size of
these projects.
And so again I don't want to say there's no upside to
this. But we do want to put - have the numbers that make
sense for us.
Mark Vipond: My only comment would be to add some more color to
Greg's commentary.
As a manager of backlog - deals can come in and out. And
now with the revenue recognition rules there's a lot of
stipulations on a given product or a given customer as to
when we can actually recognize revenue or if it's a
ratable-based revenue recognition when it will actually
start.
So in Q2 this last quarter we had a great deal of capacity
upgrades that it's very - as we've said many times - very
difficult to predict those, virtually impossible in some
cases.
We have an idea of a steady state. But boy they can come
and go.
So we had a lot of capacity upgrades. We wouldn't have
expected internally to do as well as we did in this last
quarter.
Some of it's also due to the fact that we accelerated in
delivery of some things we had anticipated in Q3 and Q4.
As we've said many times sales activity is quite good. We
had a very good sales quarter.
But sales as we define them do not necessarily translate
into revenue in the short term anymore relative to
products that we sell or sales that we make to clients
unless it's a Category A product like a BASE24 or it's a
capacity upgrade or it's a simple add-on.
It typically - the revenue recognition of it will be
delayed until some time in the future, typically upon
acceptance from the client.
And so we can have great sales and the revenue from that
may not come for 1, 2, 3 or 4 quarters. So things are
always moving in and moving out. And I said that last
time.
We'll have chunkiness. And, you know, we had another good
chunky good quarter this last quarter. And we can have -
equally we can have a quarter where things don't line
quite as well for us. And second half we may have some of
that.
Franco Turrinelli: Okay thanks.
Mark Vipond: Sure.
Gregory Derkacht: Thank you Franco.
Operator: Your next question comes from George Sutton with Craig
Hallum.
George Sutton: Hi guys - another good job.
Mark Vipond: Hi George. Thank you.
George Sutton: First from a geographic perspective, last quarter you
defined the European market as really the area of
strength and the U.S. was starting to turn.
Can you give us an update on from a geography perspective
is it - a geographic perspective is it still Europe really
driving the boat with the U.S. still in a turn mode- are
you starting to see better results in the U.S.?
Mark Vipond: I would say Europe is definitely been the strong last
quarter and in Q1 and quite frankly I expect it to
continue to have strength this quarter.
U.S. had a good quarter. I won't say great, not nearly as
strong as EMEA. So that was positive.
We should have a good result up in Canada so the America's
is improving this quarter. Asia-Pacific continues to be
the lagger relatively at least from our sales results.
We have more activity. But boy it sure as heck hasn't
translated itself into tangible sales increases over the
last couple of quarters.
So I don't think it's materially different than it was
from last quarter George in terms of where we see the
strength, the weakness.
George Sutton: And you've discussed Asian-Pacific of course you'd
pulled back a while ago. Is there any sense that there
makes sense to expand in Europe - or I'm sorry - in
Asia-Pacific.
Mark Vipond: Well the areas of the markets of interest continue to be
India and China. And we continue to have an operation
in Japan, which hasn't produced the kind of results
we're looking for.
The exciting places right now are India and China. We have
a very strong distributor in India. I should know this but
I can't tell you. I think it's like 14 or 15 clients that
we have in India that they have been successful in selling
and installing.
China - we have some clients in China. But we're looking
for more partners to take us into China rather than going
there directly.
Overall Australia - there were some recent announcements
from a client of ours down in Australia that they've made
to the press about recommitting to the BASE24 and using
that to process their ATM networks over the next five
years. We're very excited about that.
There's some good activity. And actually with the broad
set of products that we have, we're seeing more sales
activity.
But we're still waiting for that to translate into sales
results and the ultimate revenue that comes from. That's a
long way to answer to say - we're staying the course.
George Sutton: That was a long-winded question so - Greg, I know
you're going to give me great detail on this question but
I'm curious - I know you've been looking at some of the
deals that are out there from an M&A perspective, can you
give us any sense of what kinds of opportunities you're
interested in going forward now that you're more
internally ready?
Gregory Derkacht: Yeah George I'll attempt to answer that to the extent
that I can.
We have said, as I mentioned before, a set of criteria
which we evaluate continuously for acquisition potentials.
And now that I think that we've got ourselves in the
position where we can focus more on those opportunities
we're going to start looking.
I would say that particularly out of the bag or out of the
starting gates we want these things to be somewhat
synergistic and have opportunities for cross-sell
opportunities in those kind of things.
They don't necessarily have to be exactly in our space.
But we also want, as I mentioned before, I think before
all the issues started with the company - good management
organizations, good teams and units that have the
capabilities of standing alone by themselves.
And so those are the kind of criteria we're looking for.
Ideally we're absolutely going to find synergies at the
organization.
We really want to leverage our distribution channel. It's
big for a company this size. It's expensive. And we think
we can do a better job at utilizing that channel and
expanding people internationally into other places in the
world.
So those are the kind of opportunities I'll say we're
looking at this point in time.
George Sutton: Okay great. Guys tremendous job - thanks.
Gregory Derkacht: Thank you very much.
Operator: Once again Ladies and Gentlemen in order to ask a
question please press star followed by the number 1 on
your telephone keypad now.
You have no further questions at this time.
Bill Hoelting: Thank you for attending our Q2 conference call. We look
forward to talking to you down the road with our Q3
results. Thank you once again.
Gregory Derkacht: Thank you everyone.
Operator: That concludes today's TSA 2004 Second Quarter Earnings
conference call. You may now disconnect.
END