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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: January 25, 2005
(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 January 25, 2005, Transaction Systems Architects, Inc. issued a press
release announcing its financial results for the quarterly period ending
December 31, 2004. A copy of this press release is attached hereto as Exhibit
99.1.
Item 9.01. Financial Statements and Exhibits.
Exhibit 99.1 -- Press Release dated January 25, 2005.
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: January 25, 2005 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
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99.1 Press Release dated January 25, 2005.
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 2005
First Quarter Results
Highlights -
o Revenue of $80.6 million and earnings per diluted share of $.34
o Operating income of $22.1 million; operating margin of 27.4 percent
o Twelve-month revenue backlog of $230.4 million
o Operating cash flow of $15.0 million
o Cash, cash equivalents and marketable securities of $186.5 million
o Ten new customers signed during the quarter
o Fiscal 2005 revenue guidance revised from a range of $279 to $308 million
to a range of $285 to $308 million
o Fiscal 2005 diluted EPS guidance revised from a range of $.79 to $.94
to a range of $.86 to $1.00
(OMAHA, Neb.-- January 25, 2005)--Transaction Systems Architects, Inc. (Nasdaq:
TSAI), a leading global provider of enterprise e-payments software, announced
today that revenue for the first quarter ended December 31, 2004 was $80.6
million, an increase of 8.9 percent from the same quarter last year. Net income
for the quarter was $12.9 million, or $.34 per diluted share, compared to net
income of $10.0 million, or $.27 per diluted share for the same period last
year, increases of 28.7 percent and 25.9 percent, respectively. Net income and
earnings per diluted share for the first quarter of fiscal 2005 included a $1.2
million foreign exchange loss compared with a $2.4 million foreign exchange gain
during the same quarter last year.
For the first quarter of fiscal 2005, revenues were comprised of software
license fees of $47.8 million, maintenance fees of $22.1 million and services
of $10.7 million. The Company's recurring revenue was $42.9 million, or 53
percent of total revenue, and non-recurring revenue was $37.7 million, or 47
percent of total revenue. Recurring revenue consisted of monthly license fees of
$18.3 million, maintenance fees of $22.1 million and facilities management fees
of $2.5 million.
Operating income was $22.1 million, with an operating margin of 27.4 percent,
compared to operating income of $15.5 million, with an operating margin of 21.0
percent, in the first quarter of fiscal 2004. Operating cash flow was $15.0
million compared to operating cash flow of $11.1 million in the first quarter of
fiscal 2004, an increase of 35.3 percent. Cash, cash equivalents and marketable
securities as of December 31, 2004 were $186.5 million.
During the quarter, the Company added ten new customers while maintaining a
worldwide presence in 76 countries. ACI Worldwide, the Company's largest
business unit, added four new customers during the quarter. Solutions licensed
included BASE24(R) and ACI Proactive Risk Manager(TM). ACI Worldwide also
licensed capacity upgrades to eleven customers and licensed eight new
applications to existing customers during the first quarter.
Insession Technologies, the Company's e-infrastructure business unit, added six
new customers and licensed six new applications to existing customers during the
quarter. IntraNet, the Company's corporate banking software provider, licensed
one capacity upgrade, one new add-on module and signed 33 service contracts with
its existing customers during the quarter.
The Company completed the first quarter of fiscal 2005 with $230.4 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 specified and amounted to $170.9 million.
Non-recurring backlog includes other software license fees and services and
amounted to $59.5 million.
"The Company's strong first quarter financial results provide a good start to
fiscal 2005," said Gregory D. Derkacht, President and CEO. "We remain cautiously
optimistic about the remainder of fiscal 2005 as demand for our solutions remain
steady and we continue to make progress with implementations and delivery of our
newer software solutions." The Company has revised its revenue estimate for
fiscal 2005 from a range of $279 million to $308 million to a range of $285
million to $308 million. The Company has revised its diluted EPS estimate from a
range of $.79 to $.94 to a range of $.86 to $1.00, which excludes the effect of
anticipated accounting rule changes related to expensing of equity-based
compensation.
The Company will provide further details regarding its financial performance for
the first quarter of fiscal 2005 in its scheduled teleconference to be held
Tuesday, January 25, 2005 at 4:00 pm CST. 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 1,740
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 we remain cautiously optimistic about the remainder of fiscal 2005 as
demand for our solutions remain steady and we continue to make progress with
implementations and delivery of our newer software solutions.
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 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/or results of
operations.
o The Company's EPS estimate for 2005 excludes the impact of recording
expenses associated with equity-based compensation. In December 2004,
the Financial Accounting Standards Board ("FASB") issued the final
version of FASB Statement of Financial Accounting Standards ("SFAS")
No. 123 (Revised 2004), Share-Based Payment. This revised accounting
standard requires most public companies to record a non-cash expense
for stock options in their financial statements commencing in the first
annual or interim period that begins after June 15, 2005. The Company
does not plan to adopt this revised accounting standard prior to its
fourth quarter of fiscal 2005. The adoption of SFAS No 123, as revised,
and the non-cash expense that will be recorded thereby, will reduce the
Company's EPS.
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 decided to challenge any of the
Company's tax positions and were successful in such challenges, the
Company's financial condition and/or results of operations could be
adversely affected.
o 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 has resulted in the IRS issuing proposed adjustments, the
majority of which relate to the timing of revenue recognition. The IRS
could issue additional proposed adjustments that could adversely affect
the Company's financial condition and/or results of operations.
o Three of the Company's foreign subsidiaries are the subject of tax
examinations by the local taxing authorities. 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 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/or results of operations.
o No assurance can be given that operating results will not vary from
quarter to quarter, and any 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/or
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/or 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. Any reduction in demand for HP NonStop servers, or any change
in strategy by Compaq Computer Corporation related to support of HP
NonStop servers, could have a material adverse effect on the Company's
financial condition and/or results of operations.
o The Company's business is concentrated in the financial services
industry, making it susceptible to a downturn in that industry.
Consolidation activity among financial institutions has increased in
recent years. There are several potential negative effects of increased
consolidation activity. Continuing consolidation of financial
institutions may result in a fewer number of existing and potential
customers for the Company's products and services. Consolidation of two
of the Company's customers could result in reduced revenues if the
combined entity were to negotiate greater volume discounts or
discontinue use of certain of the Company's products. Additionally, if
a non-customer and a customer combine and the combined entity in turn
decided to forego future use of the Company's products, the Company's
revenue would decline.
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/or 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/or 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 From time to time, the Company is involved in litigation relating to
claims arising out of its operations. Any claims, with or without
merit, could be time-consuming and result in costly litigation. Failure
to successfully defend against these claims could result in a material
adverse effect on the Company's business, financial condition and/or
results of operations.
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/or
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.
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/or results of operations.
o Beginning in fiscal 2005, Section 404 of the Sarbanes-Oxley Act of 2002
will require the Company's annual report on Form 10-K to include (1) a
report on management's assessment of the effectiveness of the Company's
internal controls over financial reporting, (2) a statement that the
Company's independent auditor has issued an attestation report on
management's assessment of the Company's internal controls over
financial reporting, and (3) a report by the Company's independent
auditor on their assessment of the effectiveness of the Company's
internal controls over financial reporting. There are no assurances
that the Company will discover and remediate all deficiencies in its
internal controls, including any significant deficiencies or material
weaknesses, as it implements new documentation and testing procedures
to comply with the Section 404 reporting requirements. If the Company
is unable to remediate such deficiencies or is unable to complete the
work necessary to properly evaluate its internal controls over
financial reporting, there is a risk that management and/or the
Company's independent auditor may not be able to conclude that the
Company's internal controls over financial reporting are effective.
o The Company issued a press release dated September 28, 2004 announcing
Gregory D. Derkacht's plans to retire as the Company's president and
chief executive officer not later than June 30, 2006. The Company has
commenced a search for Gregory D. Derkacht's successor and expects to
identify such person prior to June 30, 2006. The search, and the
related transition period, could divert management attention and
resources away from other operational matters. Additionally, there can
be no assurance that the Company will be successful in identifying a
successor president and CEO by June 30, 2006 that meets the Company's
criteria. If a suitable successor is not identified prior to Gregory D.
Derkacht's retirement, the resulting uncertainty could adversely affect
the Company's business and/or its stock price.
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-Q filed on February 17, 2004, the Company's Form 10-Q filed on May 17, 2004,
the Company's Form 10-Q filed on August 11, 2004 and the Company's Form 10-K
filed on December 14, 2004.
FINANCIAL HIGHLIGHTS FOLLOW
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
2004 2004
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 178,317 $ 169,632
Marketable securities 8,169 -
Billed receivables, net 46,008 44,487
Accrued receivables 13,998 11,206
Recoverable income taxes 7,624 11,524
Deferred income taxes, net - 230
Other 7,634 6,901
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Total current assets 261,750 243,980
Property and equipment, net 7,921 8,251
Software, net 1,956 1,454
Goodwill 47,044 46,706
Deferred income taxes, net 23,176 22,943
Other 2,586 2,124
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Total assets $ 344,433 $ 325,458
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt - financing agreements $ 4,256 $ 7,027
Accounts payable 6,657 6,974
Accrued employee compensation 12,205 13,354
Deferred income taxes, net 1,742 -
Deferred revenue 82,517 82,647
Accrued and other liabilities 12,220 9,890
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Total current liabilities 119,597 119,892
Debt - financing agreements 1,449 2,327
Deferred revenue 17,433 15,427
Other 954 851
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Total liabilities 139,433 138,497
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Stockholders' equity:
Class A Common Stock 198 196
Treasury stock, at cost (35,258) (35,258)
Additional paid-in capital 260,000 254,715
Accumulated deficit (9,994) (22,917)
Accumulated other comprehensive loss (9,946) (9,775)
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Total stockholders' equity 205,000 186,961
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Total liabilities and stockholders' equity $ 344,433 $ 325,458
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TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
Three Months Ended December 31,
-------------------------------
2004 2003
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Revenues:
Software license fees $ 47,806 $ 41,233
Maintenance fees 22,080 21,313
Services 10,720 11,471
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Total revenues 80,606 74,017
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Expenses:
Cost of software license fees 5,906 6,639
Cost of maintenance and services 13,836 14,979
Research and development 9,915 9,433
Selling and marketing 15,301 13,790
General and administrative 13,563 13,668
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Total expenses 58,521 58,509
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Operating income 22,085 15,508
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Other income (expense):
Interest income 584 523
Interest expense (168) (531)
Other, net (1,247) 2,205
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Total other income (expense) (831) 2,197
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Income before income taxes 21,254 17,705
Income tax provision (8,331) (7,664)
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Net income $ 12,923 $ 10,041
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Earnings per share information:
Weighted average shares outstanding:
Basic 37,781 36,382
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Diluted 38,552 37,641
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Earnings per share:
Basic $ 0.34 $ 0.28
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Diluted $ 0.34 $ 0.27
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-end-