================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q/A Amendment No. 1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number 0-25346
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0772104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No______.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
33,100,247 shares of Class A Common Stock at August 10, 2000
================================================================================
<PAGE>
EXPLANATORY NOTE: This Form 10-Q/A restates and amends the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 to
reclassify certain amounts in the table in Note 7 to the financial statements
presenting revenues and operating income for each operating segment.
TRANSACTION SYSTEMS ARCHITECTS, INC.
FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of
June 30, 2000 and September 30, 1999 3
Condensed Consolidated Statements of Income for the
three and nine months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Index to Exhibits 17
<PAGE>
<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands)
June 30, September 30,
2000 1999
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,501 $ 70,482
Marketable securities 12,038 8,456
Billed receivables, net 60,108 50,619
Accrued receivables 49,539 41,880
Refundable income taxes 9,599 -
Deferred income taxes 1,419 1,164
Other 12,128 7,215
-------------- ---------------
Total current assets 174,332 179,816
Property and equipment, net 20,252 20,754
Software, net 25,689 25,835
Intangible assets, net 67,425 61,612
Long-term accrued receivables 21,215 26,850
Investments and notes receivable 7,791 3,569
Deferred income taxes 2,469 97
Other 5,875 4,785
-------------- ---------------
Total assets $ 325,048 $ 323,318
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10,539 $ 501
Accounts payable 16,464 8,030
Accrued employee compensation 5,593 7,192
Accrued liabilities 17,599 18,287
Income taxes - 8,521
Deferred revenue 58,211 54,627
-------------- ---------------
Total current liabilities 108,406 97,158
Long-term debt 815 991
-------------- ---------------
Total liabilities 109,221 98,149
-------------- ---------------
Stockholders' equity:
Class A Common Stock 165 163
Additional paid-in capital 170,466 161,630
Retained earnings 84,105 82,922
Treasury stock, at cost (35,258) (14,250)
Accumulated other comprehensive income (3,651) (5,296)
-------------- ---------------
Total stockholders' equity 215,827 225,169
-------------- ---------------
Total liabilities and stockholders' equity $ 325,048 $ 323,318
============== ===============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share amounts)
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------------- -----------------------------------
2000 1999 2000 1999
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 46,498 $ 53,259 $ 128,259 $ 149,888
Maintenance fees 17,340 16,042 51,229 47,605
Services 14,992 18,858 41,848 61,462
Hardware, net 72 967 72 3,192
------------ ------------ -------------- --------------
Total revenues 78,902 89,126 221,408 262,147
------------ ------------ -------------- --------------
Operating expenses:
Cost of software license fees 11,851 10,381 33,760 32,153
Cost of maintenance and services 17,952 17,740 52,008 56,071
Research and development 10,125 8,711 28,553 25,447
Selling and marketing 18,837 17,495 54,602 50,821
General and administrative costs 16,185 14,639 45,982 43,984
Amortization of goodwill and
purchased intangibles 2,035 1,572 5,970 3,121
------------ ------------ -------------- --------------
Total operating expenses 76,985 70,538 220,875 211,597
------------ ------------ -------------- --------------
Operating income 1,917 18,588 533 50,550
------------ ------------ -------------- --------------
Other income (expense):
Interest income 985 706 2,649 2,130
Interest expense (178) (77) (313) (236)
Transaction related expenses - - - (653)
Other (1,065) (131) (933) 37
------------ ------------ -------------- --------------
Total other (258) 498 1,403 1,278
------------ ------------ -------------- --------------
Income before income taxes 1,659 19,086 1,936 51,828
Provision for income taxes (644) (7,237) (753) (19,726)
------------ ------------ -------------- --------------
Net income $ 1,015 $ 11,849 $ 1,183 $ 32,102
============ ============ ============== ==============
Earnings Per Share Data:
Basic:
Net income $ 0.03 $ 0.37 $ 0.04 $ 1.02
============ ============ ============== ==============
Average shares outstanding 31,621 32,016 31,789 31,465
============ ============ ============== ==============
Diluted:
Net income $ 0.03 $ 0.36 $ 0.04 $ 1.00
============ ============ ============== ==============
Average shares outstanding 31,875 32,650 32,201 32,214
============ ============ ============== ==============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine Months Ended June 30,
------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,183 $ 32,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,438 6,074
Amortization 15,301 8,619
Changes in operating assets and liabilities:
Billed and accrued receivables (11,297) (4,720)
Other current and noncurrent assets (19,190) (13,304)
Accounts payable 7,929 (72)
Deferred revenue 3,219 4,774
Other current liabilities (11,892) (8,440)
-------------- --------------
Net cash provided by (used in) operating activities (8,309) 25,033
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (4,926) (5,026)
Purchases of software (8,295) (5,560)
Purchase of marketable securities - (6,500)
Acquisition of businesses, net of cash acquired (7,959) (9,967)
Additions to investments and notes receivable (4,222) (602)
-------------- --------------
Net cash used in investing activities (25,402) (27,655)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of Class A Common Stock 1,406 755
Proceeds from exercise of stock options 2,005 2,114
Purchases of Class A Common Stock (21,008) -
Borrowings on line of credit 10,000 -
Payments of long-term debt (495) (1,350)
-------------- --------------
Net cash provided by (used in) financing activities (8,092) 1,519
-------------- --------------
Effect of exchange rate fluctuations on cash 822 68
-------------- --------------
Decrease in cash and cash equivalents (40,981) (1,035)
Cash and cash equivalents, beginning of period 70,482 63,648
-------------- --------------
Cash and cash equivalents, end of period $ 29,501 $ 62,613
============== ==============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
Transaction Systems Architects, Inc. (the Company or TSA) develops, markets,
installs and supports a broad line of software products and services primarily
focused on facilitating electronic payments and electronic commerce. In
addition to its own products, the Company distributes or acts as a sales agent
for software developed by third parties. The products are used principally by
financial institutions, retailers and third-party processors, both in domestic
and international markets.
The condensed consolidated financial statements at June 30, 2000 and for the
three and nine months ended June 30, 2000 and 1999 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999. The results of operations for the three
and nine months ended June 30, 2000 are not necessarily indicative of the
results for the entire fiscal year ending September 30, 2000.
Certain September 30, 1999 amounts have been reclassified to conform to the
June 30, 2000 presentation.
2. Comprehensive Income
The components of other comprehensive income were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 1,015 $ 11,849 $ 1,183 $ 32,102
Other comprehensive income:
Unrealized investment holding gain (loss) (7,072) 687 3,695 844
Foreign currency translation adjustments (1,038) 29 (2,050) (1,861)
--------------- -------------- -------------- ---------------
Comprehensive income (loss) $ (7,095) $ 12,565 $ 2,828 $ 31,085
=============== ============== ============== ===============
</TABLE>
Components of accumulated other comprehensive income at each balance sheet date
were as follows (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------------- ---------------
<S> <C> <C>
Unrealized investment holding gain (loss) $ 653 $ (3,043)
Foreign currency translation adjustments (4,304) (2,253)
-------------- ---------------
$ (3,651) $ (5,296)
============== ===============
</TABLE>
As of August 10, 2000, the fair value of the marketable securities declined
from $12.0 million at June 30, 2000 to approximately $7.8 million.
3. Revenue Recognition
The Company accounts for revenue in accordance with American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition" (SOP 97-2). The Company has concluded that for certain software
arrangements entered into after October 1, 1998 with extended guaranteed
payment terms, the "fixed or determinable" presumption of SOP 97-2 has been
overcome and software license fees, net of third party royalties in fiscal
1999, should be recognized upon meeting all other SOP 97-2 revenue recognition
criteria ("guaranteed software license fees"). The present value of the
guaranteed software license fees recognized during the three months ended June
30, 2000 and 1999 totaled $11.2 million and $18.9 million, respectively. The
present value of the guaranteed software license fees recognized during the
nine months ended June 30, 2000 and 1999 totaled $21.7 million and $37.5
million, respectively. The discount rates used to determine the present value
of the guaranteed software license fees, representing the Company's
incremental borrowing rates, ranged from 9.5% to 11.0%. The portion of the
guaranteed software license fees that has been recognized by the Company, but
not yet billed, is reflected in accrued receivables in the accompanying
condensed consolidated balance sheets.
4. Earnings Per Share
Basic earnings per share is computed using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed
on the basis of the weighted average number of common shares outstanding plus
the dilutive effect of outstanding stock options using the "treasury stock"
method.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 1,015 $ 11,849 $ 1,183 $ 32,102
============= ============= ============= =============
Weighted average shares outstanding 31,621 32,016 31,789 31,465
Dilutive effect of stock options 254 634 412 749
------------- ------------- ------------- -------------
Dilutive shares outstanding 31,875 32,650 32,201 32,214
============= ============= ============= =============
Basic earnings per share $ 0.03 $ 0.37 $ 0.04 $ 1.02
============= ============= ============= =============
Diluted earnings per share $ 0.03 $ 0.36 $ 0.04 $ 1.00
============= ============= ============= =============
</TABLE>
For the three months ended June 30, 2000 and 1999, stock options representing
3,668,875 and 137,889 shares of the Company's common stock, respectively, have
been excluded from the computation of diluted earnings per share as exercise
prices of the stock options were greater than the average market price of the
common stock. For the nine months ended June 30, 2000 and 1999, stock options
representing 2,064,457 and 40,552 shares of the Company's common stock,
respectively, have been excluded from the computation of diluted earnings per
share as exercise prices of the stock options were greater than the average
market price of the common stock.
5. Acquisitions
In April 2000, TSA and WorkPoint Systems, Inc. (WorkPoint Systems) completed a
stock exchange transaction which resulted in WorkPoint Systems becoming a
wholly-owned subsidiary of TSA. WorkPoint Systems is a provider of multi-user
software that enables enterprises to model processes over a distributed
corporate network. This software can be used to create graphical models that
provide a visual representation of and automatically execute various steps in a
business process. Shareholders of WorkPoint Systems received 164,680 shares of
TSA Class A Common Stock, with a market value of $4,750,000, in exchange for
100% of WorkPoint Systems shares. The stock exchange was accounted for using the
purchase method of accounting. Accordingly, the excess purchase price over the
estimated fair value of the net tangible assets acquired totaling $4.3 million
was allocated to goodwill. This goodwill is being amortized using the
straight-line method over five years.
In June 2000, the Company acquired a 70% ownership in Hospital Health Plan
Corporation (HHPC), a business that offers a suite of products designed to
facilitate the automatic adjudication of medical claims. HHPC was acquired for
$4.6 million in cash and $3.3 million in assumed liabilities. This acquisition
was accounted for as a purchase and resulted in the recording of goodwill of
$7.8 million that is being amortized using the straight-line method over five
years.
6. Line of Credit
During the quarter, the Company replaced its $10 million bank line of credit
with a $25 million bank line of credit. The new line is secured by certain
trade accounts receivable of TSA. Among other restrictions, the Company must
maintain a minimum accounts receivable balance, minimum tangible net worth and
minimum working capital levels at each reporting date. After obtaining a
waiver from the bank, the Company is in compliance with all debt covenants as
of June 30, 2000.
Interest accrues at an annual rate equal to the bank's "base rate" less .75%
and is payable at the end of each month. During the quarter ended June 30,
2000, the Company recorded interest expense of $104,000. Current borrowings
outstanding amount to $10 million and at June 30, 2000, the remaining $15
million was available to the Company for future borrowings. The bank line of
credit expires on May 31, 2001.
7. Segment Information
During the second quarter of fiscal 2000, the Company announced a business
strategy resulting in the formation of six business units organized around the
Company's products and services. Key elements of the strategy include
aligning the Company's business into vertically-integrated business units
targeted at key markets where the Company's products and services best match
emerging market demand. During the third quarter of fiscal 2000, the
Company's strategy was further defined whereby the six business units were
classified into 'core' and 'non-core' businesses. The core businesses are
comprised of the Consumer Banking, Electronic Commerce and Internet Banking
units and the non-core businesses are comprised of the Electronic Business
Infrastructure, Corporate Banking e-Payments and Health Claims Transaction
Processing and Management units. The Company plans to direct the majority of
its focus on the core businesses, which in total make up its consumer payments
business. The Company is considering various alternatives for its non-core
businesses, including possible spin-offs, sales or attracting additional
capital and partners.
One of the first steps of this new business strategy was the announcement of the
formation of Insession Technologies, Inc., the Electronic Business
Infrastructure business unit of the company. As indicated in the Company's June
5, 2000 news release, Insession Technologies, Inc. filed a registration
statement with the Securities and Exchange Commission for a proposed initial
public offering of Insession Technologies, Inc. common stock, all of which will
be offered by Insession Technologies, Inc. The timing and size of the offering
are dependent on market conditions and other factors. This does not constitute
an offer of any securities for sale.
Insession Technologies, Inc. is currently a wholly-owned subsidiary of the
Company. The Company currently plans to distribute all of its remaining shares
of Insession Technologies, Inc. common stock to the Company's stockholders on a
pro rata basis within approximately 12 months after the Insession Technologies,
Inc. initial public offering, subject to receiving a ruling from the IRS that
the distribution will be tax-free. However, the Company is not obligated to
complete the distribution or otherwise divest its shares of Insession
Technologies, Inc. common stock, and the distribution or other divestiture may
not occur by the anticipated time or at all.
A summary of the products and related services associated with each operating
segment is as follows:
Core operating segments:
o Consumer Banking products focus on the consumer side of financial
institutions related to automated teller machine (ATM) networks,
point-of-sale deployments, branch networks, home banking, fraud
detection and back-office payments management.
o Electronic Commerce products offer retailers, merchant banks and
payment processors electronic payment solutions such as secure
web-based payments, debit and credit transaction authorization, fraud
management and targeted marketing programs.
o Internet Banking products offer banking and bill payments solutions
to large financial institutions as well as small community banks.
Non-core operating segments:
o Electronic Business Infrastructure products facilitate communication,
data movement, transaction processing and systems monitoring across
incompatible computing systems involving mainframes, distributed
computing networks and the Internet.
o Corporate Banking e-Payments products offer electronic commerce and
electronic payments solutions to corporate banking institutions.
o Health Claims Transaction Processing and Management products allow
large companies and healthcare payment processors to automate claims
eligibility determination, claims capture and claims payments.
In evaluating segment performance, management focuses on income from operations.
The table below presents revenues and operating income for each operating
segment (in thousands). Certain prior period amounts have been reclassified to
conform to the current presentation.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Segment revenues:
Consumer Banking $ 47,132 $ 62,541 $ 135,390 $ 183,590
Electronic Commerce 8,956 5,156 17,907 13,700
Internet Banking 2,311 2,945 6,765 8,121
-------------- ------------- ------------- -------------
Revenues - core business units 58,399 70,642 160,062 205,411
Electronic Business Infrastructure 10,421 9,100 32,268 30,012
Corporate Banking e-Payments 9,114 8,321 26,364 23,711
Health Claims Transaction Processing and Management 968 1,063 2,714 3,013
-------------- ------------- ------------- -------------
Revenues - non-core business units 20,503 18,484 61,346 56,736
-------------- ------------- ------------- -------------
Total revenues $ 78,902 $ 89,126 $ 221,408 $ 262,147
============== ============= ============= =============
Segment operating income (loss):
Consumer Banking $ 2,831 $ 18,163 $ 3,055 $ 49,296
Electronic Commerce (874) (1,679) (7,074) (3,949)
Internet Banking (591) 472 (1,248) 1,359
-------------- ------------- ------------- -------------
Operating income (loss) - core business units 1,366 16,956 (5,267) 46,706
Electronic Business Infrastructure 1,016 749 4,693 3,063
Corporate Banking e-Payments 208 584 1,804 124
Health Claims Transaction Processing and Management (673) 299 (697) 657
-------------- ------------- ------------- -------------
Operating income (loss) - non-core business units 551 1,632 5,800 3,844
-------------- ------------- ------------- -------------
Total operating income $ 1,917 $ 18,588 $ 533 $ 50,550
============== ============= ============= =============
</TABLE>
The Company currently does not track long-lived or total assets separately for
each operating segment.
The Company's products are sold and supported through distribution networks
covering the geographic regions of Americas, Europe/Middle East/Africa (EMEA)
and Asia/Pacific. The following are revenue and long-lived assets for these
geographic regions (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues by geographic region:
United States $ 35,735 $ 43,491 $ 101,797 $ 127,110
Americas - other 9,811 8,863 26,987 28,822
-------------- ------------- ------------- -------------
Total Americas 45,546 52,354 128,784 155,932
EMEA 26,386 29,090 71,192 82,514
Asia/Pacific 6,970 7,682 21,432 23,701
-------------- ------------- ------------- -------------
$ 78,902 $ 89,126 $ 221,408 $ 262,147
============== ============= ============= =============
June 30, September 30,
2000 1999
------------- -------------
Long-lived assets by geographic region:
Americas (primarily United States) $ 113,253 $ 103,425
EMEA 12,260 11,520
Asia/Pacific 1,519 1,620
------------- -------------
$ 127,032 $ 116,565
============= =============
</TABLE>
8. Accounting Pronouncements Issued But Not Yet Effective
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". The Company will be required to adopt SAB 101 no later than the
fourth quarter ending September 30, 2001. SAB 101 requires, among other
things, that license and other up-front fees be recognized over the term of
the agreement, unless the fees are in exchange for products delivered or
services performed that represent the culmination of a separate earnings
process. The Company does not expect this change in accounting principle to
have a material effect on the Company's financial position and results of
operation.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25". The Interpretation
clarifies the application of APB Opinion No. 25 for certain issues involving
employee stock compensation. The Interpretation is effective July 1, 2000.
Adoption of this Interpretation is not expected to have a significant effect
on the Company's consolidated financial statements.
9. Subsequent Event
In June 1999, the Company entered into a transaction with Digital Courier
Technologies, Inc. (DCTI), whereby the Company acquired 1.25 million shares of
DCTI's Common Stock for $6.5 million. At that time, the Company received
warrants to purchase an additional 1.0 million shares at an exercise price of
$5.20 per share. In July 2000, the Company exercised its rights to purchase
1.0 million shares of DCTI Common Stock at $5.20 per share. At the time of
the exercise, the market price of the DCTI stock was approximately $7.56 per
share. As of August 10, 2000, the market value of the DCTI stock has declined
to approximately $4.03 per share.
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
----------------------------------------- -------------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- -------------------
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
--------- ------- --------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 46,498 58.9 % $ 53,259 59.7 % $ 128,259 58.0 % $ 149,888 57.2 %
Maintenance fees 17,340 22.0 16,042 18.0 51,229 23.1 47,605 18.2
Services 14,992 19.0 18,858 21.2 41,848 18.9 61,462 23.4
Hardware, net 72 0.1 967 1.1 72 0.0 3,192 1.2
--------- ------- --------- ------- ---------- ------- ---------- -------
Total revenues 78,902 100.0 89,126 100.0 221,408 100.0 262,147 100.0
--------- ------- --------- ------- ---------- ------- ---------- -------
Operating expenses:
Cost of software license fees 11,851 15.0 10,381 11.6 33,760 15.2 32,153 12.3
Cost of maintenance and services 17,952 22.8 17,740 19.9 52,008 23.5 56,071 21.3
Research and development 10,125 12.8 8,711 9.8 28,553 12.9 25,447 9.7
Selling and marketing 18,837 23.9 17,495 19.6 54,602 24.7 50,821 19.4
General and administrative costs 16,185 20.5 14,639 16.4 45,982 20.8 43,984 16.8
Amortization of goodwill and
purchased intangibles 2,035 2.6 1,572 1.8 5,970 2.7 3,121 1.2
--------- ------- --------- ------- ---------- ------- ---------- -------
Total operating expenses 76,985 97.6 70,538 79.1 220,875 99.8 211,597 80.7
--------- ------- --------- ------- ---------- ------- ---------- -------
Operating income 1,917 2.4 18,588 20.9 533 0.2 50,550 19.3
--------- ------- --------- ------- ---------- ------- ---------- -------
Other income (expense):
Interest income 985 1.2 706 0.7 2,649 1.1 2,130 0.8
Interest expense (178) (0.2) (77) (0.1) (313) (0.1) (236) (0.1)
Transaction related expenses - 0.0 - 0.0 - 0.0 (653) (0.2)
Other (1,065) (1.3) (131) (0.1) (933) (0.4) 37 0.0
--------- ------- --------- ------- ---------- ------- ---------- -------
Total other (258) (0.3) 498 0.5 1,403 0.6 1,278 0.5
--------- ------- --------- ------- ---------- ------- ---------- -------
Income before income taxes 1,659 2.1 19,086 21.4 1,936 0.8 51,828 19.8
Provision for income taxes (644) (0.8) (7,237) (8.1) (753) (0.3) (19,726) (7.6)
--------- ------- --------- ------- ---------- ------- ---------- -------
Net income $ 1,015 1.3 % $ 11,849 13.3 % $ 1,183 0.5 % $ 32,102 12.2 %
========= ======= ========= ======= ========== ======= ========== =======
</TABLE>
Revenues
Total revenues for the third quarter of fiscal 2000 decreased 11.5% or $10.2
million from the comparable period in fiscal 1999. Of this decrease, $6.8
million resulted from an 12.7% decrease in software license fee revenue, $3.9
million from a 20.5% decrease in services revenue, $895,000 from a 92.6%
decrease in hardware revenue, offset by a $1.3 million, or 8.1%, increase in
maintenance fee revenue.
Total revenues for the first three quarters of fiscal 2000 decreased 15.5% or
$40.7 million from the comparable period in fiscal 1999. Of this decrease,
$21.6 million resulted from a 14.4% decrease in software license fee revenue,
$19.6 million from a 31.9% decrease in services revenue, $3.1 million from a
97.7% decrease in hardware revenue, offset by a $3.6 million, or 7.6%,
increase in maintenance fee revenue.
During the first three quarters of fiscal 2000, 54.0% of total revenues
resulted from international operations as compared to 52.9% for all of fiscal
1999.
During the first quarter of fiscal 2000, the Company's large bank and merchant
customers and potential new customers, in effect, locked down their systems in
preparation for the Year 2000. This Year 2000 lock-down has had a negative
impact on the Company's software license fee and services revenue during the
first two quarters and, to a lesser extent, the third quarter of fiscal 2000
due to the less than expected demand by the Company's customers and potential
new customers to upgrade and enhance their current systems. In addition,
since the Year 2000 cutover, the Company has found its customers increasingly
scrutinizing their information technology purchases which has led to further
delays in software and services purchases as compared to the activity in the
second and third quarters of fiscal 1999.
The Company believes overall demand for the Company's products and services is
increasing at a gradual pace. However, the Year 2000 lock-down described
above interrupted the Company's normal sales cycle and therefore may have a
negative impact on the company's revenue and net income beyond the first three
quarters of fiscal 2000. The Company also believes customer demand for system
upgrades and enhancements will be slow to return to normal growth levels, as
many of the Company's customers upgraded and enhanced their systems prior to
the Year 2000.
The statements in this report regarding future results are preliminary and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, this report contains other
forward-looking statements including statements regarding the Company's
expectations, plans and beliefs. The forward-looking statements in this
report are subject to a variety of risks and uncertainties. Actual results
could differ materially. Factors that could cause actual results to differ
include but are not limited to those described above and the following:
o That the Company will continue to derive a substantial majority of
its total revenue from licensing its BASE24 family of software
products and providing services and maintenance related to those
products. Any reduction in demand for, or increase in competition
with respect to, BASE24 products would have a material adverse effect
on TSA's financial condition and results of operations.
o That the Company's business is concentrated in the banking industry,
making it susceptible to a downturn in that industry.
o Fluctuations in quarterly operating results may result in volatility
in TSA's stock price. No assurance can be given that operating
results will not vary.
o TSA's stock price may be volatile, in part due to external factors
such as announcements by third parties or competitors, inherent
volatility in the high-technology sector and changing market
conditions in the industry.
For a detailed discussion of these and other risk factors, interested parties
should review the Company's filings with the Securities and Exchange
Commission, including Exhibit 99.01 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999.
Monthly License Fees (MLF) revenue, a component of software license fees, was
$14.3 million and $14.1 million in the third quarter of fiscal 2000 and 1999,
respectively and $43.2 million and $40.1 million for the first three quarters
of fiscal 2000 and 1999, respectively. The increase in MLF revenue is a
result of the continued growth of the installed base of the Company's consumer
banking, electronic business infrastructure and Internet banking products.
Maintenance fees revenue for the third quarter of fiscal 2000 and 1999 was
$17.3 million and $16.0 million, respectively. Maintenance fees revenue for
the first three quarters of fiscal 2000 and 1999 was $51.2 million and $47.6
million, respectively. The increase in maintenance fees revenue is a result
of continued growth of the installed base of the Company's consumer banking
and corporate banking products.
Hardware revenue consists primarily of revenues received under a market
development funding program with Compaq which expired on September 30, 1999
and was not renewed. Hardware revenue for the third quarter of fiscal 2000
and 1999 was $0.1 million and $1.0 million, respectively. Hardware revenue
for the first three quarters of fiscal 2000 and 1999 was $0.1 million and $3.2
million, respectively.
Expenses
Total operating expenses for the third quarter of fiscal 2000 increased 9.1%
or $6.4 million over the comparable period in fiscal 1999. The increase for
the quarter is due primarily to additional operating expenses incurred from
the acquisitions of SDM International, Inc. (in July 1999), WorkPoint Systems,
and HHPC and an increase in marketing program expenses. This increase in
expense was offset, in part, by a reduction in staff required to support the
Company's products and services. Total operating expenses for the first three
quarters of fiscal 2000 increased 4.4% or $9.3 million over the comparable
period in fiscal 1999. This increase is primarily due to the acquisitions of
SDM International, Inc., WorkPoint Systems and HHPC. This increase in expense
was offset, in part, by a reduction in staff required to support the Company's
products and services. Total staff (including both employees and independent
contractors) decreased from 2,252 at June 30, 1999 to 2,156 at June 30, 2000.
Income Taxes
The effective tax rate for the first three quarters of fiscal 2000 was 38.9%
as compared to 37.8% for all of fiscal 1999. This increase is primarily
attributable to non-deductible amortization associated with the fiscal 1999
acquisitions of Insession Inc. and SDM International, Inc.
As of June 30, 2000, the Company has deferred tax assets of $17.6 million and
deferred tax liabilities of $4.8 million. Each quarter, the Company evaluates
its historical operating results as well as its projections for the future to
determine the realizability of the deferred tax assets. This analysis
indicated that $8.7 million of the deferred tax assets were more likely than
not to be realized. Accordingly, the Company has recorded a valuation
allowance of $8.9 million as of June 30, 2000.
The Company intends to analyze the realizability of the net deferred tax
assets at each future reporting period. Such analysis may indicate that the
realization of various deferred tax benefits is more likely than not and,
therefore, the valuation reserve may be further reduced.
Backlog
As of June 30, 2000 and 1999, the Company had non-recurring revenue backlog of
$28.5 million and $31.5 million in software license fees, respectively, and
$27.8 million and $24.0 million in services, respectively. The Company
includes in its non-recurring revenue backlog all fees specified in contracts
which have been executed by the Company and its customers to the extent that
the Company contemplates recognition of the related revenue within one year.
There can be no assurance that the contracts included in non-recurring revenue
backlog will actually generate the specified revenues or that the actual
revenues will be generated within the one year period.
As of June 30, 2000 and 1999, the Company had recurring revenue backlog of
$138.6 million and $138.5 million, respectively. The Company defines
recurring revenue backlog to be all monthly license fees, maintenance fees and
facilities management fees specified in contracts which have been executed by
the Company and its customers to the extent that the Company contemplates
recognition of the related revenue within one year. There can be no
assurance, however, that contracts included in recurring revenue backlog will
actually generate the specified revenues or that the actual revenues will be
generated within the one-year period.
Liquidity and Capital Resources
As of June 30, 2000, the Company's principal sources of liquidity consisted of
$29.5 million of cash and cash equivalents and a bank line of credit in the
amount of $25 million with outstanding borrowings of $10.0 million at June 30,
2000. The bank line of credit is subject to maintenance of certain covenants.
The Company's net cash flows used in operating activities for the first three
quarters of fiscal 2000 amounted to $8.3 million. This compares to $25.0
million in net cash flows provided by operating activities for the first three
quarters of fiscal 1999. The decrease of $33.3 million in cash flows from
operating activities is principally due to lower net income offset by an
increase in amortization expense due to the acquisitions of Insession Inc. in
March 1999 and SDM International, Inc. in July 1999.
A contributor to the Company's cash management program is the factoring of
accrued receivables, whereby interest in Company receivables is transferred on
a non-recourse basis to third-party financial institutions in exchange for
cash. During the first three quarters of fiscal 2000 and 1999, the Company
generated operating cash flows from the factoring of accrued receivables of
$19.6 million and $20.4 million, respectively.
The Company's net cash flows used in investing activities totaled $25.4 million
and $27.7 million in the first three quarters of fiscal 2000 and 1999,
respectively. This decrease is primarily due to a reduction in the purchase of
marketable securities and cash paid for the acquisition of businesses, offset by
an increase in software purchases and additions to investments and notes
receivables. Cash used in investing activities of $3.0 million related to the
Company's final payment in the first quarter of fiscal 2000 in connection with
the acquisition of Insession Inc.
The Company's Board of Directors has approved the repurchase of up to
2,000,000 shares of Common Stock through February 2001. The purpose of the
stock repurchase program is to replace the shares issued in the SDM
International, Inc. acquisition completed in July 1999, and to fund a reserve
of shares for future employee stock option grants, acquisitions or other
corporate purposes. Under this repurchase program, the Company purchased
1,000,300 shares at an average cost of $21.00 for approximately $21.0 million
during the first three quarters of fiscal 2000. The total number of shares
purchased under the stock repurchase program through June 30, 2000 amounts to
1,475,300 shares. The Company used available cash to fund the Common Stock
repurchases.
Management believes that the Company's working capital, cash flow generated
from operations and funds available from the bank line of credit will be
sufficient to meet the Company's working capital requirements for the
foreseeable future.
Corporate Business Strategy
During the second quarter of fiscal 2000, the Company announced a business
strategy resulting in the formation of six business units organized around the
Company's products and services. Key elements of the strategy include
aligning the Company's business into vertically-integrated business units
targeted at key markets where the Company's products and services best match
emerging market demand. During the third quarter of fiscal 2000, the
Company's strategy was further defined whereby the six business units were
classified into 'core' and 'non-core' businesses. The core businesses are
comprised of the Consumer Banking, Electronic Commerce and Internet Banking
units and the non-core businesses are comprised of the Electronic Business
Infrastructure, Corporate Banking e-Payments and Health Claims Transaction
Processing and Management units. The Company plans to direct the majority of
its focus on the core businesses, which in total make up its consumer payments
business. The Company is considering various alternatives for its non-core
business, including possible spin-offs, sales or attracting additional capital
and partners.
One of the first steps of this new business strategy was the announcement of
the formation of Insession Technologies, Inc., the Electronic Business
Infrastructure business unit of the company. As indicated in the Company's
June 5, 2000 news release, Insession Technologies, Inc. filed a registration
statement with the Securities and Exchange Commission for a proposed initial
public offering of Insession Technologies, Inc. common stock, all of which
will be offered by Insession Technologies, Inc. The timing and size of the
offering are dependent on market conditions and other factors. This does not
constitute an offer of any securities for sale.
Insession Technologies, Inc. is currently a wholly-owned subsidiary of the
Company. The Company currently plans to distribute all of its remaining
shares of Insession Technologies, Inc. common stock to the Company's
stockholders on a pro rata basis within approximately 12 months after the
Insession Technologies, Inc. initial public offering, subject to receiving a
ruling from the IRS that the distribution will be tax-free. However, the
Company is not obligated to complete the distribution or otherwise divest its
shares of Insession Technologies, Inc. common stock, and the distribution or
other divestiture may not occur by the anticipated time or at all.
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the Company's market risk for the three
and nine month periods ended June 30, 2000. See the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1999 for additional
discussion regarding quantitative and qualitative disclosure about market risk.
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.26 * Credit Facility Letter Agreement and Promissory Note with
Wells Fargo Bank Nebraska, N.A.
10.33 * Transaction Systems Architects, Inc. 2000 Non-Employee
Director Stock Option Plan
27.00 * Financial Data Schedule
___________________
* Previously filed.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 18, 2000
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Registrant)
/s/ Edward C. Fuxa
--------------------------
Edward C. Fuxa
Controller
(Principal Accounting Officer)
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.26 * Credit Facility Letter Agreement and Promissory Note
with Wells Fargo Bank Nebraska, N.A.
10.33 * Transaction Systems Architects, Inc. 2000 Non-Employee
Director Stock Option Plan
27.00 * Financial Data Schedule
___________________
* Previously filed.
