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 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)
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Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number Description
99.1 Press Release, dated July 27, 2004.
Item 12. Results of Operations and Financial Condition.
On July 27, 2004, Transaction Systems Architects, Inc. issued a press
release announcing its results for the quarterly period ending June 30, 2004.
A copy of this press release 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: July 27, 2004 By: /s/ David R. Bankhead
-------------------------------------
David R. Bankhead
Senior Vice President,
Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release, dated July 27, 2004.
Exhibit 99.1
News Release
TRANSACTION SYSTEMS ARCHITECTS, INC.
224 SOUTH 108 AVENUE
OMAHA, NEBRASKA 68154
402.334.5101
FAX 402.390.8077
For more information contact:
William J. Hoelting
Vice President, Investor Relations
402.390.8990
FOR IMMEDIATE RELEASE
Transaction Systems Architects Reports
Third Quarter Results
Highlights -
o Revenue of $72.5 million and earnings per diluted share of $.49, which
includes a net one-time tax benefit of $.28 per diluted share
o Operating income of $13.0 million; operating margin of 17.9 percent
o Twelve-month revenue backlog of $232.8 million
o Operating cash flow of $23.1 million; cash balance of $158.9 million
o Thirteen new customers signed during the quarter
o Fiscal 2004 revenue guidance revised from a range of $282 to $292 million
to a range of $291 to $296 million
o Fiscal 2004 EPS guidance revised from a range of $.74 to $.83 to a range of
$1.10 to $1.17, which includes the net one-time tax benefit of $10.6 million,
or $.28 per diluted share
(OMAHA, Neb.--July 27, 2004)-- Transaction Systems Architects, Inc. (Nasdaq:
TSAI), a leading global provider of enterprise e-payments and e-commerce
software, announced today that revenue for the third quarter ended June 30, 2004
was $72.5 million, a decrease of two percent over the same quarter last year.
Net income was $18.7 million, or $.49 per diluted share, which includes a net
one-time tax benefit of $10.6 million, or $.28 per diluted share. This net
one-time tax benefit is attributed primarily to certain tax restructurings and
associated tax elections related to the Company's MessagingDirect Ltd.
subsidiaries. Net income of $18.7 million, or $.49 per diluted share, compares
to a net loss of $1.9 million, or a net loss of $.05 per diluted share, which
included a goodwill impairment charge of $9.3 million, for the third quarter of
fiscal 2003.
For the third quarter of fiscal 2004, revenues were comprised of software
license fees of $37.5 million, maintenance fees of $23.1 million and services
fees of $11.9 million. The Company's recurring revenue was $45.5 million, or 63
percent of revenue, and non-recurring revenue was $27.0 million, or 37 percent
of revenue. Recurring revenue consisted of monthly license fees of $20.2
million, maintenance fees of $23.1 million and facilities management fees of
$2.2 million.
Operating income was $13.0 million, with an operating margin of 17.9 percent,
compared to operating income of $4.7 million, with an operating margin of 6.3
percent, in the third quarter of fiscal 2003. Operating cash flow was $23.1
million with a cash balance of $158.9 million, compared to operating cash flow
of $12.1 million in the third quarter of fiscal 2003, an increase of 91 percent.
For the nine months ended June 30, 2004, revenue totaled $223.1 million,
compared to $205.5 million for the same nine-month period in fiscal 2003, an
increase of 9 percent. Operating income for the nine months ended June 30, 2004
was $42.5 million compared to $23.4 million, which included a goodwill
impairment charge of $9.3 million, for the same period last year, an increase of
82 percent. Operating margin was 19.1 percent for the first nine months of
fiscal 2004, compared to an operating margin of 11.4 percent for the same period
last year. Operating cash flow was $44.7 million for the first nine months of
fiscal 2004, compared to $26.1 million for the same period last year, an
increase of 71 percent. Net income was $36.7 million, or $.97 per diluted share,
compared to $5.2 million, or $.15 per diluted share, an increase of 604 percent
for the same nine-month period in fiscal 2003.
During the quarter, the Company added 13 new customers while maintaining a
worldwide presence of 76 countries. ACI Worldwide, the Company's largest
business unit, added seven new customers during the quarter. Solutions licensed
to these customers included BASE24(R), BASE24-es(TM), WINPAY24(TM), and ACI
Proactive Risk Manager(TM). ACI Worldwide also licensed capacity upgrades to 13
customers and licensed seven new applications to existing customers during the
quarter.
Insession Technologies, the Company's e-infrastructure business unit, added six
new customers and licensed 12 new applications to existing customers during the
quarter. Solutions licensed to new and existing customers include
GoldenGate(TM), WorkPoint(R), VersaTEST(TM), WebGate, SafeTGate, ICE(TM),
Automated Operator(TM) and AutoDBA(TM).
IntraNet, the Company's international payments and message processing solutions
provider, added one new Money Transfer System(TM) customer. IntraNet also
licensed one capacity upgrade and entered into 17 services contracts with
existing customers during the quarter.
The Company completed the third quarter of fiscal 2004 with $232.8 million in
backlog. Included in backlog are all software license fees, maintenance fees and
services specified in executed contracts to the extent that the Company believes
that recognition of the related revenue will occur within the next twelve
months. Recurring backlog includes all monthly license fees, maintenance fees
and facilities management fees and amounted to $173.6 million. Non-recurring
backlog includes other software license fees and services and amounted to $59.2
million.
"We are pleased with the quarter's and year-to-date financial results," said
Gregory D. Derkacht, President and CEO. "We continue to make progress on our
tax-planning initiatives and other projects, and we look forward to building on
our worldwide leadership position in the financial services sector with our
proven software solutions."
The Company has revised its revenue estimate for fiscal 2004 from a range of
$282 to $292 million to a range of $291 to $296 million. The Company has also
revised its EPS estimate from $.74 to $.83 to $1.10 to $1.17, which includes the
$.28 net one-time tax benefit.
The Company will provide further details regarding its financial performance for
the third quarter of fiscal 2004 in its scheduled teleconference to be held
Tuesday, July 27, 2004 at 4:00 pm CDT. Interested persons may access a real-time
audio broadcast of the teleconference at: www.tsainc.com/investors. The web cast
will be archived for 10 days after the teleconference at the same web address
listed above.
About Transaction Systems Architects, Inc.
The Company's software facilitates electronic payments by providing consumers
and companies access to their money. Its products are used to process
transactions involving credit cards, debit cards, secure electronic commerce,
mobile commerce, smart cards, secure electronic document delivery and payment,
checks, high-value money transfers, bulk payment clearing and settlement, and
enterprise e-infrastructure. The Company's solutions are used on more than 1,700
product systems in 76 countries on six continents.
Forward-Looking Statements
This press release contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. Generally,
forward-looking statements do not relate strictly to historical or current
facts, and include words or phrases such as "management anticipates," "the
Company believes," "the Company anticipates," "the Company expects," "the
Company plans," "the Company will," "the Company is well positioned" and words
and phrases of similar impact, and include but are not limited to statements
regarding future operations, business strategy and business environment. The
forward-looking statements are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements in
this press release include the Company's recurring and non-recurring backlog,
and each of the Company's revenue estimate and EPS estimate for fiscal 2004.
The Company's actual results could differ materially from the results discussed
in its forward-looking statements. The Company operates in a rapidly changing
technological and economic environment that presents numerous risks. Many of
these risks are beyond the Company's control and are driven by factors that
often cannot be predicted. The following discussion highlights some of these
risks:
o The Company's backlog estimate is based on management's assessment of the
customer contracts that exist as of the date the estimate is made. A number
of factors could result in actual revenues being less than the amounts
reflected in backlog. The Company's customers may attempt to renegotiate or
terminate their contracts for a number of reasons, including mergers,
changes in their financial condition, or general changes in economic
conditions in their industries or geographic locations, or the Company may
experience delays in the development or delivery of products or services
specified in customer contracts. Accordingly, there can be no assurance
that contracts included in recurring or non-recurring backlog will actually
generate the specified revenues or that the actual revenues will be
generated within a twelve-month period.
o No assurance can be given that operating results will not vary.
Fluctuations in quarterly operating results may result in volatility in the
Company's stock price. The Company's stock price may also be volatile, in
part, due to external factors such as announcements by third parties or
competitors, inherent volatility in the technology sector and changing
market conditions in the software industry. The Company's stock price may
also become volatile, in part, due to the various lawsuits filed against
the Company relating to its restatement of prior consolidated financial
results.
o The Company has historically derived a majority of its total revenues from
international operations and anticipates continuing to do so, and is
thereby subject to risks of conducting international operations including:
difficulties in staffing and management, reliance on independent
distributors, longer payment cycles, volatilities of foreign currency
exchange rates, compliance with foreign regulatory requirements,
variability of foreign economic conditions, and changing restrictions
imposed by U.S. export laws.
o The Company's BASE24-es(TM) product is a significant new product for the
Company. If the Company is unable to generate adequate sales of
BASE24-es(TM), if market acceptance of BASE24-es(TM) is delayed, or if the
Company is unable to successfully deploy BASE24-es(TM) in production
environments, the Company's business, financial condition and results of
operations could be materially adversely affected.
o Historically, a majority of the Company's total revenues resulted from
licensing its BASE24(R) product line and providing related services and
maintenance. Any reduction in demand for, or increase in competition with
respect to, the BASE24(R) product line could have a material adverse effect
on the Company's financial condition and results of operations.
o The Company's business is concentrated in the banking industry, making it
susceptible to a downturn in that industry. Further, banks are continuing
to consolidate, decreasing the overall number of potential buyers of the
Company's products and services.
o The Company's software products are complex. They may contain undetected
errors or failures when first introduced or as new versions are released.
This may result in loss of, or delay in, market acceptance of the Company's
products and a corresponding loss of sales or revenues. Customers depend
upon the Company's products for mission-critical applications. Software
product errors or failures could subject the Company to product liability,
as well as performance and warranty claims, which could materially
adversely affect the Company's business, financial condition and results of
operations.
o The Company has historically derived a substantial portion of its revenues
from licensing of software products that operate on HP NonStop servers.
Prior to its merger with HP, Compaq Computer Corporation announced a plan
to consolidate its high-end performance enterprise servers on the Intel
Corp. Itanium microprocessor, which is expected to be completed by 2005.
Any reduction in demand for the HP NonStop servers or in HP's ability to
deliver products on a timely basis could have a material adverse effect on
the Company's financial condition and results of operations. The Company
has not determined whether consolidation of the high-end servers will
materially affect the Company's business, financial condition or results of
operations.
o The Company is subject to income taxes, as well as non-income based taxes,
in the United States and in various foreign jurisdictions. Significant
judgment is required in determining the Company's worldwide provision for
income taxes and other tax liabilities. In addition, the Company has
implemented tax-saving strategies, including the tax-saving strategies that
resulted in the net one-time tax benefit this quarter. The Company believes
these tax-saving strategies comply with applicable tax law. However, taxing
authorities could disagree with the Company's positions. If the taxing
authorities are successful in challenging any of the Company's tax
positions, the Company's financial condition and results of operations
could be adversely affected.
o The Company's positions in its amended income tax returns filed for its
1999 through 2002 tax years are the subject of an ongoing tax examination
by the Internal Revenue Service ("IRS"). This examination may result in the
IRS issuing proposed assessments. The Company believes that its tax
positions comply with applicable tax law and it intends to defend its
positions through the IRS appeals process. However, if the IRS positions on
certain issues are upheld after all the Company's administrative and legal
options are exhausted, a material impact on the Company's financial
condition and results of operations could result.
o One of the Company's foreign subsidiaries is the subject of a tax
examination by the local taxing authority. Other foreign subsidiaries could
face challenges from various foreign tax authorities. It is not certain
that the local authorities will accept the Company's tax positions. The
Company believes its tax positions comply with applicable tax law and it
intends to defend its positions. Differing positions on certain issues
could be upheld by foreign tax authorities, which could adversely affect
the Company's financial condition and results of operations.
o The Company continues to evaluate the claims made in lawsuits filed against
the Company and certain directors and officers relating to its restatement
of prior consolidated financial results. The Company intends to defend
these lawsuits vigorously but cannot predict their outcomes and is not
currently able to evaluate the likelihood of its success or the range of
potential loss, if any. However, if the Company were to lose any of these
lawsuits or if they were not settled on favorable terms, the judgment or
settlement could have a material adverse effect on its financial condition,
results of operations and cash flows.
o The Company has insurance that provides an aggregate coverage of $20.0
million for the period during which the claims were filed, but cannot
evaluate at this time whether such coverage will be available or adequate
to cover losses, if any, arising out of these lawsuits. If these policies
do not adequately cover expenses and liabilities relating to these
lawsuits, the Company's financial condition, results of operations and cash
flows could be materially harmed. The Company's certificate of
incorporation provides that it will indemnify and advance expenses to its
directors and officers to the maximum extent permitted by Delaware law. The
indemnification covers any expenses and liabilities reasonably incurred by
a person, by reason of the fact that such person is or was or has agreed
to be a director or officer, in connection with the investigation, defense
and settlement of any threatened, pending or completed action, suit,
proceeding or claim. The Company's certificate of incorporation authorizes
the use of indemnification agreements and the Company enters into such
agreements with its directors and certain officers from time to time. These
indemnification agreements typically provide for a broader scope of the
Company's obligation to indemnify the directors and officers than set forth
in the certificate of incorporation. The Company's contractual
indemnification obligations under these agreements are in addition to the
respective directors' and officers' rights under the certificate of
incorporation or under Delaware law. However, the indemnification
agreements typically eliminate the Company's obligation to pay a director
or officer for any claims to the extent that he or she has previously
received payment for such claims under any insurance policy, the
certificate of incorporation or otherwise.
o Additional related suits against the Company may be commenced in the
future. The Company will fully analyze such suits and intends to vigorously
defend against them. There is a risk that the above-described litigation,
as well as any additional suits, could result in substantial costs and
divert management attention and resources, which could adversely affect the
Company's business, financial condition and results of operations.
o New accounting standards, revised interpretations or guidance regarding
existing standards, or changes in the Company's business practices could
result in future changes to the Company's revenue recognition or other
accounting policies. These changes could have a material adverse effect on
the Company's business, financial condition and results of operations.
o The Company may acquire new products and services or enhance existing
products and services through acquisitions of other companies, product
lines, technologies and personnel, or through investments in other
companies. Any acquisition or investment may be subject to a number of
risks, including diversion of management time and resources, disruption of
the Company's ongoing business, difficulties in integrating acquisitions,
dilution to existing stockholders if the Company's common stock is issued
in consideration for an acquisition or investment, the incurring or
assuming of indebtedness or other liabilities in connection with an
acquisition, and lack of familiarity with new markets, product lines and
competition. The failure to manage acquisitions or investments, or
successfully integrate acquisitions, could have a material adverse effect
on the Company's business, financial condition and results of operations.
o To protect its proprietary rights, the Company relies on a combination of
contractual provisions, including customer licenses that restrict use of
the Company's products, confidentiality agreements and procedures, and
trade secret and copyright laws. Despite such efforts, the Company may not
be able to adequately protect its proprietary rights, and the Company's
competitors may independently develop similar technology, duplicate
products or design around any rights the Company believes to be
proprietary. This may be particularly true in countries other than the
United States because some foreign laws do not protect proprietary rights
to the same extent as certain laws of the United States. Any failure or
inability of the Company to protect its proprietary rights could materially
adversely affect the Company.
o There has been a substantial amount of litigation in the software industry
regarding intellectual property rights. The Company anticipates that
software product developers and providers of electronic commerce solutions
could increasingly be subject to infringement claims, and third parties
may claim that the Company's present and future products infringe their
intellectual property rights. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause product delivery delays
or require the Company to enter into royalty or licensing agreements. A
successful claim by a third party of intellectual property infringement by
the Company could compel the Company to enter into costly royalty or
license agreements, or require the Company to pay significant damages or
even require the Company to stop selling certain products. Royalty or
licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which could adversely affect the Company's
business.
Any or all of the Company's forward-looking statements may turn out to be wrong.
They may be based on inaccurate assumptions or may not account for known or
unknown risks and uncertainties. Consequently, no forward-looking statement is
guaranteed and the Company's actual future results may vary materially from the
results expressed or implied in the Company's forward-looking statements.
The cautionary statements in this press release and any other cautionary
statements that may accompany the Company's forward-looking statements, whether
written or oral, expressly qualify all of the Company's forward-looking
statements. In addition, the Company disclaims any obligation to update any of
its forward-looking statements at any time unless an update is required by
applicable securities laws.
For a detailed discussion of these and other risk factors, interested parties
should review the Company's filings with the SEC, including the Company's Form
10K filed on December 23, 2003, the Company's Form 10-Q filed on February 17,
2004, and the Company's Form 10Q filed on May 17, 2004.
FINANCIAL HIGHLIGHTS FOLLOW
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, September 30,
2004 2003
----------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 158,859 $ 113,986
Marketable securities - 1,296
Billed receivables, net 49,998 42,225
Accrued receivables 7,560 9,592
Recoverable income taxes 10,434 11,985
Deferred income taxes, net 3,135 10,316
Other 6,168 5,104
--------- ---------
Total current assets 236,154 194,504
Property and equipment, net 8,458 9,405
Software, net 1,386 2,319
Goodwill, net 46,684 46,425
Deferred income taxes, net 21,122 9,638
Other 1,354 1,609
--------- ---------
Total assets $ 315,158 $ 263,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt - financing agreements $ 8,211 $ 15,493
Accounts payable 6,195 6,965
Accrued employee compensation 11,488 9,822
Accrued liabilities 11,902 9,714
Deferred revenue 82,756 70,798
Other 101 628
--------- ---------
Total current liabilities 120,653 113,420
Debt - financing agreements 3,634 9,444
Deferred revenue 15,688 17,689
Other 780 473
--------- ---------
Total liabilities 140,755 141,026
--------- ---------
Stockholders' equity:
Class A Common Stock 194 188
Treasury stock, at cost (35,258) (35,258)
Additional paid-in capital 252,812 235,767
Accumulated deficit (32,923) (69,602)
Accumulated other comprehensive loss, net (10,422) (8,221)
--------- ---------
Total stockholders' equity 174,403 122,874
--------- ---------
Total liabilities and stockholders' equity $ 315,158 $ 263,900
========= =========
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues:
Software license fees $ 37,549 $ 40,717 $ 121,162 $ 110,214
Maintenance fees 23,087 20,675 66,770 58,740
Services 11,896 12,382 35,144 36,559
--------- --------- --------- ---------
Total revenues 72,532 73,774 223,076 205,513
--------- --------- --------- ---------
Expenses:
Cost of software license fees 6,280 6,339 19,108 18,567
Cost of maintenance and services 13,390 15,082 43,108 45,583
Research and development 9,303 9,478 28,308 25,785
Selling and marketing 16,030 13,686 45,947 40,951
General and administrative 14,554 15,245 44,056 41,932
Impairment of goodwill - 9,290 - 9,290
--------- --------- --------- ---------
Total expenses 59,557 69,120 180,527 182,108
--------- --------- --------- ---------
Operating income 12,975 4,654 42,549 23,405
--------- --------- --------- ---------
Other income (expense):
Interest income 354 281 1,226 876
Interest expense (284) (682) (1,196) (2,425)
Other, net 995 225 3,069 (835)
--------- --------- --------- ---------
Total other income (expense) 1,065 (176) 3,099 (2,384)
--------- --------- --------- ---------
Income before income taxes 14,040 4,478 45,648 21,021
Income tax (provision) benefit 4,622 (6,331) (8,969) (15,809)
--------- --------- --------- ---------
Net income (loss) $ 18,662 $ (1,853) $ 36,679 $ 5,212
========= ========= ========= =========
Earnings (loss) per share information:
Weighted average shares outstanding:
Basic 37,277 35,571 36,833 35,489
========= ========= ========= =========
Diluted 38,352 35,571 38,009 35,601
========= ========= ========= =========
Earnings (loss) per share:
Basic $ 0.50 $ (0.05) $ 1.00 $ 0.15
========= ========= ========= =========
Diluted $ 0.49 $ (0.05) $ 0.97 $ 0.15
========= ========= ========= =========
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