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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 26, 2004
(Date of earliest event reported)
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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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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
__ Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
__ Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
__ Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
__ Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02. Results of Operations and Financial Condition.
On October 26, 2004, Transaction Systems Architects, Inc. issued a press
release announcing its results for the quarterly period and full fiscal year
ending September 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, 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 26, 2004 By: /s/ David R. Bankhead
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David R. Bankhead
Senior Vice President,
Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release, dated October 26, 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 Fiscal 2004
Fourth Quarter and Full Year Results
Highlights -
o Revenue of $69.7 million and earnings per diluted share of $.26 for the
fourth quarter
o Operating income of $12.3 million; operating margin of 17.6 percent
o Twelve-month revenue backlog of $229.6 million
o Operating cash flow of $12.7 million; cash balance of $169.6 million
o Twenty-one new customers signed during the quarter
o Revenue of $292.8 million and earnings per diluted share of $1.23 for fiscal
year 2004, which includes a net one-time tax benefit of $.28 per diluted
share in Q3 of fiscal year 2004
o Operating income of $54.8 million; operating margin of 18.7 percent for
fiscal year 2004
o Initiating revenue guidance range of $279 to $308 million and earnings per
diluted share guidance range of $.79 to $.94 for fiscal 2005
(OMAHA, Neb. -- October 26, 2004) -- Transaction Systems Architects, Inc.
(Nasdaq: TSAI), a leading global provider of enterprise e-payments software,
announced today that revenue for the fourth quarter ended September 30, 2004 was
$69.7 million, a decrease of 2.9 percent from the same quarter last year. Net
income for the quarter was $10.0 million, or $.26 per diluted share, compared to
net income of $9.1 million, or $.25 per diluted share for the same period last
year, an increase of 9.8 percent and 4.0 percent, respectively.
For the fourth quarter of fiscal 2004, revenue was comprised of software license
fees of $36.2 million, maintenance fees of $21.7 million and services fees of
$11.8 million. The Company's recurring revenue was $43.6 million, or 63 percent
of total revenue, and non-recurring revenue was $26.1 million, or 37 percent of
total revenue. Recurring revenue consisted of monthly license fees of $19.6
million, maintenance fees of $21.7 million and facilities management fees of
$2.3 million.
Operating income for the quarter was $12.3 million, with an operating margin of
17.6 percent, compared to operating income of $11.9 million, with an operating
margin of 16.5 percent, in the fourth quarter of fiscal 2003. Operating cash
flow was $12.7 million compared to operating cash flow of $11.9 million in the
fourth quarter of fiscal 2003, an increase of 6.7 percent. The cash balance as
of September 30, 2004 was $169.6 million.
During the quarter, the Company added twenty-one new customers while maintaining
a worldwide presence of 76 countries. ACI Worldwide, the Company's largest
business unit, added ten new customers during the quarter. Solutions licensed
included BASE24(R), BASE24-es(TM), ACI Proactive Risk Manager(TM), WINPAY24(TM),
and ACI e-Courier(TM). ACI Worldwide also licensed capacity upgrades to 19
customers and licensed new applications to 17 existing customers during the
fourth quarter.
Insession Technologies, the Company's e-infrastructure business unit, added 11
new customers and licensed 11 new applications to existing customers during the
quarter. IntraNet, the Company's corporate banking software provider, licensed
five add-on modules and signed 30 service contracts with its existing customers
during the quarter.
The Company completed the fourth quarter of fiscal 2004 with $229.6 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 monthly license fees, maintenance fees and
facilities management fees and amounted to $168.1 million. Non-recurring backlog
includes other software license fees and services and amounted to $61.5 million.
For the fiscal year ended September 30, 2004, the Company's revenue was $292.8
million, compared to $277.3 million for fiscal 2003, an increase of 5.6 percent.
Operating income in fiscal 2004 was $54.8 million, with an operating margin of
18.7 percent, compared to $35.3 million, with an operating margin of 12.7
percent, in fiscal 2003.
Net income for the year ended September 30, 2004 was $46.7 million, or $1.23 per
diluted share, compared to $14.3 million, or $.40 per diluted share, for fiscal
2003, an increase of 226 percent and 208 percent, respectively. The net income
results for fiscal 2004 include a net one-time tax benefit of $10.6 million, or
$.28 per diluted share, in the third quarter. 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.
"We are pleased with our fiscal 2004 results, as we have made significant
progress during the year in a number of key areas," said Gregory D. Derkacht,
President and CEO. "We will continue to invest in our newer initiatives. We look
for these initiatives to provide additional market opportunities in fiscal 2005.
In addition, we continue to consider external growth opportunities that will
leverage our key strengths."
The Company's revenue estimate for fiscal 2005 is $279 million to $308 million
and its earnings per diluted share estimate for fiscal 2005 is $.79 to $.94.
The Company will provide further details regarding its financial performance for
the fourth quarter of fiscal 2004 in its scheduled teleconference to be held
Tuesday, October 26, 2004 at 4:00 pm CDT. Interested persons may access a
real-time audio broadcast of the teleconference at: www.tsainc.com/investors.
The webcast will be archived for ten days after the teleconference at this same
web address.
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,
the Company's revenue estimate and EPS estimate for fiscal 2005, and statements
that the Company expects initiatives to provide market opportunities, and the
Company will consider external growth opportunities that will leverage our key
strengths.
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 The Company continues to evaluate the claims made in various 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.
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.
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 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 benefitted from, and expects to continue to benefit from,
implemented tax-saving strategies. The Company believes that
implemented 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.
The Company's tax positions in its amended income tax returns filed for
its 1999 through 2002 tax years are the subject of an ongoing
examination by the Internal Revenue Service ("IRS"). The Company
believes that its tax positions comply with applicable tax law. This
examination may result in the IRS issuing proposed assessments that
could adversely affect the Company's financial condition and results of
operations.
Two of the Company's foreign subsidiaries are 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. However,
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 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
developments in 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 product is a significant new product for the
Company. If the Company is unable to generate adequate sales of
BASE24-es, if market acceptance of BASE24-es is delayed, or if the
Company is unable to successfully deploy BASE24-es 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 product line and providing related services and
maintenance. Any reduction in demand for, or increase in competition
with respect to, the BASE24 product line could have a material adverse
effect on the Company's 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'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 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, or 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, pay significant damages or even 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.
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.
Any or all of the forward-looking statements may turn out to be wrong. They can
be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Many of these factors will be important in determining the
Company's actual future results. Consequently, no forward-looking statement can
be guaranteed. Actual future results may vary materially from those expressed or
implied in any forward-looking statements.
These cautionary statements and any other cautionary statements that may
accompany such forward-looking statements, whether written or oral, expressly
qualify all of the forward-looking statements. In addition, the Company
disclaims any obligation to update any forward-looking statements after the date
of this release unless applicable securities laws require it to do so.
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
10-K filed on December 23, 2003, the Company's Form 10-Q filed on February 17,
2004, the Company's Form 10-Q filed on May 17, 2004 and the Company's Form 10-Q
filed on August 11, 2004.
FINANCIAL HIGHLIGHTS FOLLOW
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, September 30,
2004 2003
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 169,632 $ 113,986
Marketable securities - 1,296
Billed receivables, net 44,487 42,225
Accrued receivables 11,206 9,592
Recoverable income taxes 11,524 11,985
Deferred income taxes, net 1,529 10,316
Other 6,901 5,104
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Total current assets 245,279 194,504
Property and equipment, net 8,251 9,405
Software, net 1,454 2,319
Goodwill 46,706 46,425
Deferred income taxes, net 21,644 9,638
Other 2,124 1,609
--------- ---------
Total assets $ 325,458 $ 263,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt - financing agreements $ 7,027 $ 15,493
Accounts payable 6,974 6,965
Accrued employee compensation 13,354 9,822
Deferred revenue 82,647 70,798
Accrued and other liabilities 9,890 10,342
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Total current liabilities 119,892 113,420
Debt - financing agreements 2,327 9,444
Deferred revenue 15,427 17,689
Other 851 473
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Total liabilities 138,497 141,026
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Stockholders' equity:
Class A Common Stock 196 188
Treasury stock, at cost (35,258) (35,258)
Additional paid-in capital 254,715 235,767
Accumulated deficit (22,917) (69,602)
Accumulated other comprehensive loss, net (9,775) (8,221)
--------- ---------
Total stockholders' equity 186,961 122,874
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Total liabilities and stockholders' equity $ 325,458 $ 263,900
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TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended Year Ended
September 30, September 30,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues:
Software license fees $ 36,240 $ 36,611 $157,402 $146,825
Maintenance fees 21,714 20,447 88,484 79,187
Services 11,754 14,720 46,898 51,279
-------- -------- -------- --------
Total revenues 69,708 71,778 292,784 277,291
-------- -------- -------- --------
Expenses:
Cost of software license fees 5,888 6,933 24,996 25,500
Cost of maintenance and services 14,272 15,767 57,380 61,350
Research and development 9,699 9,588 38,007 35,373
Selling and marketing 15,162 13,531 61,109 54,482
General and administrative 12,422 14,105 56,478 56,037
Impairment of goodwill - - - 9,290
-------- -------- -------- --------
Total expenses 57,443 59,924 237,970 242,032
-------- -------- -------- --------
Operating income 12,265 11,854 54,814 35,259
-------- -------- -------- --------
Other income (expense):
Interest income 536 335 1,762 1,211
Interest expense (239) (573) (1,435) (2,998)
Other, net (775) 975 2,294 140
-------- -------- -------- --------
Total other income (expense) (478) 737 2,621 (1,647)
-------- -------- -------- --------
Income before income taxes 11,787 12,591 57,435 33,612
Income tax provision (1,781) (3,478) (10,750) (19,287)
-------- -------- -------- --------
Net income $ 10,006 $ 9,113 $ 46,685 $ 14,325
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Earnings per share information:
Weighted average shares outstanding:
Basic 37,499 35,739 37,001 35,558
======== ======== ======== ========
Diluted 38,285 36,438 38,076 35,707
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Earnings per share:
Basic $ 0.27 $ 0.25 $ 1.26 $ 0.40
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Diluted $ 0.26 $ 0.25 $ 1.23 $ 0.40
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-end-