Transaction Systems Architects Announces Second Quarter Results; Highl

Transaction Systems Architects Announces Second Quarter Results; Highlights Include Strong International Results; Strong Cash Flow; New and Extended Business

    Business Editors

    OMAHA, Neb.--(BUSINESS WIRE)--April 26, 2005--Transaction Systems Architects, Inc. (Nasdaq:TSAI), today announced financial results for the quarter ended March 31, 2005. Financial results for the quarter include revenues of $75.6 million, operating income of $16.0 million, net income of $11.2 million, diluted earnings per share of $.29, and operating cash flow of $15.5 million. Transaction Systems Architects will hold a conference call at 4:00 p.m. CDT today to further discuss this information. Interested persons may access a real-time audio broadcast of the teleconference at: www.tsainc.com/investors.

    Highlights -

--	Revenues of $75.6 million versus $76.5 million, a 1 percent decrease compared to second quarter of fiscal 2004
--	Recurring revenues of $43.2 million, or 57 percent of total revenues compared to $46.8 million, or 61 percent of total revenues for the second quarter of fiscal 2004
--	Operating income of $16.0 million versus $14.1 million, a 14 percent increase compared to second quarter of fiscal 2004
--	Operating cash flow of $15.5 million versus $10.4 million, a 48 percent increase compared to second quarter of fiscal 2004
--	Diluted earnings per share of $.29 versus $.21, a 38 percent increase compared to second quarter of fiscal 2004
--	Twelve-month revenue backlog of $230.6 million versus $233.1 million, a 1 percent decrease compared to second quarter of fiscal 2004
--	Extended international presence to seventy-nine countries and thirteen new customers signed during the second quarter
--	Fiscal 2005 revenue guidance revised from a range of $285 to $308 million to a range of $296 to $312 million
--	Fiscal 2005 diluted EPS guidance revised from a range of $.86 to $1.00 to a range of $.97 to $1.12, assuming an annual effective tax rate of 37%

    "We are pleased with our strong second quarter financial results. Each business unit delivered solid, focused performance this quarter. We also extended our worldwide presence to seventy- nine countries and added thirteen new customers during the quarter," said Philip G. Heasley, President and CEO.

    Second-Quarter Results

    During the quarter, ACI Worldwide signed seven new customers and Insession Technologies added six. Customer highlights included ACI Worldwide signing its first BASE24-es(TM) solution in the Asia-Pacific region, and two new BASE24(R) customers in Africa and the Middle East. Three new ACI Proactive Risk Manager(TM)(PRM) customers were added in Canada, the Netherlands and Italy, which brings the Company's PRM customer count to over eighty-five. ACI Worldwide licensed nineteen capacity upgrades. Insession Technologies, through its distributor relationship with GoldenGate(TM), signed two new customers to its data movement and replication solution. IntraNet Worldwide signed two key services contracts and licensed one capacity upgrade during the quarter.
    The Americas' revenues were $42.7 million, as compared to $41.2 million for the second quarter of fiscal 2004. The Americas' revenues consisted of U.S. revenues of $29.4 million and Americas' international revenues of $13.3 million, as compared to $31.5 million and $9.7 million, respectively, for the same period last year. Revenues for the Europe/Middle East/Africa region were $25.1 million, as compared to $25.7 million for the second quarter of fiscal 2004. Asia-Pacific's revenues were $7.8 million, as compared to $9.6 million for the second quarter of 2004. International revenues were $46.2 million, or 61 percent of total revenues, as compared to $45.0 million, or 59 percent of total revenues, for the second quarter of fiscal 2004.
    Revenues were comprised of software license fees of $43.0 million, maintenance fees of $22.6 million, and services of $10.0 million. Monthly license fees of $18.3, all maintenance fees of $22.6 million and $2.3 million of services (facilities management fees) represent recurring revenue.
    Operating income was $16.0 million, with an operating margin of 21 percent. This compared to operating income of $14.1 million, with an operating margin of 18 percent in the second quarter of fiscal 2004. Operating cash flow was $15.5 million compared to operating cash flow of $10.4 million in the second quarter of fiscal 2004, an increase of 48 percent. Net income was $11.2 million, or $.29 per diluted share, compared to $8.0 million, or $.21 per diluted share in the second quarter of fiscal 2004, increases of 40 percent and 38 percent, respectively.

    Year-to-Date Results

    As of March 31, 2005, year-to-date revenues totaled $156.2 million, as compared to $150.5 million for the same six-month period in fiscal 2004, an increase of 4 percent. Operating income was $38.1 million as compared to $29.6 million for the same period last year, an increase of 29 percent. Net income was $24.1 million, or $.62 per diluted share, compared to $18.0 million, or $.48 per diluted share, an increase of 34 percent and 29 percent, respectively.
    As of March 31, 2005, the Company's backlog was $230.6 million, as compared to $233.1 million for the same period in fiscal 2004. The recurring portion of backlog, which includes monthly license fees, maintenance fees and facilities management fees, amounted to $166.7 million. The non-recurring portion of backlog, which totaled $63.9 million, includes other software license fees and services.
    Operating cash flow was $30.5 million compared to operating cash flow of $21.5 million for the same period last year, an increase of 42 percent. During the quarter the Company repurchased approximately 351,000 shares of its common stock for $8.0 million, at an average price of $22.89 per share. Total shares outstanding were 38.1 million as of March 31, 2005. The Company's cash, cash equivalents and marketable securities as of March 31, 2005, were $195.9 million.
    "We believe we are well-positioned with our global presence, strong financial position and market-leading solutions and services," Heasley continued. "We look forward to continued growth of our franchise during the second half of fiscal 2005."
    The Company has revised its revenue estimate for fiscal 2005 from a range of $285 million to $308 million to a range of $296 million to $312 million. The Company has revised its diluted EPS estimate from a range of $.86 to $1.00 to a range of $.97 to $1.12. This guidance assumes an annual effective tax rate of 37%.

    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 1,770 product systems in 79 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 that we look forward to continued growth of our franchise during the second half of fiscal 2005.
    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:

    -- 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. Included in the backlog estimate 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 revenues will occur within the
    next twelve months. 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 12-month period.

    -- In December 2004, the FASB issued SFAS No. 123R, "Share-Based
    Payment." This revised accounting standard requires most
    public entities to record noncash compensation expense related
    to payment for employee services by equity awards, such as
    stock options, in their financial statements commencing in the
    first annual or interim period that begins after June 15,
    2005. In April 2005, the SEC issued a new rule that allows
    companies to implement the provisions of SFAS No. 123R at the
    beginning of their next fiscal year, instead of the next
    reporting period, that begins after June 15, 2005. The Company
    does not plan to adopt this revised accounting standard prior
    to its first quarter of fiscal 2006. The adoption of SFAS No.
    123R and the noncash expense that will be recorded thereby
    will have a negative impact on the Company's results of
    operations and will reduce the Company's earnings per share.
    Future grants of stock options will also increase the noncash
    expenses the Company must record, which will negatively impact
    the Company's results of operations and earnings per share.

    -- 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.

    -- The Company's tax positions in its income tax returns filed
    for its 1999 through 2003 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.

    -- 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 vigorously 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.

    -- 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 revenues would decline.

    -- 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.

    -- The Company has historically derived a majority of its
    revenues from international operations and anticipates
    continuing to do so, and is thereby subject to risks of
    conducting international operations. One of the principal
    risks associated with international operations is potentially
    adverse movements of foreign currency exchange rates. The
    Company's exposures resulting from fluctuations in foreign
    currency exchange rates may change over time as the Company's
    business evolves and could have an adverse impact on the
    Company's financial condition and/or results of operations.
    The Company has not entered into any derivative instruments or
    hedging contracts to reduce exposure to adverse foreign
    currency changes. Other potential risks associated with the
    Company's international operations include difficulties in
    staffing and management, reliance on independent distributors,
    longer payment cycles, potentially unfavorable changes to
    foreign tax rules, compliance with foreign regulatory
    requirements, reduced protection of intellectual property
    rights, variability of foreign economic conditions, changing
    restrictions imposed by U.S. export laws, and general economic
    and political conditions in the countries where the Company
    sells its products and services.

    -- 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.

    -- 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.

    -- The Company has historically derived a substantial portion of
    its revenues from licensing of software products that operate
    on Hewlett-Packard ("HP") NonStop servers. Any reduction in
    demand for HP NonStop servers, or any change in strategy by HP
    related to support of its NonStop servers, could have a
    material adverse effect on the Company's financial condition
    and/or results of operations.

    -- 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.

    -- 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.

    -- 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.

    -- 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 upon
    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.

    -- 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.

    -- 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.

    -- 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.

    -- 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.

    -- 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. If the Company reports any such
    deficiencies, negative publicity and/or a decline in the
    Company's stock price could result.

    -- 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.

    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 Securities and Exchange Commission, including the Company's Form 10-K filed on December 14, 2004, and the Company's Form 10-Q/A filed on February 18, 2005.

TRANSACTION SYSTEMS ARCHITECTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)

March 31, September 30, 2005 2004 ------------- ------------- (Unaudited) ASSETS

Current assets: Cash and cash equivalents $188,779 $169,632 Marketable securities 7,159 - Billed receivables, net 52,484 44,487 Accrued receivables 7,821 11,206 Recoverable income taxes 3,462 11,524 Deferred income taxes, net - 230 Other 8,565 6,901 ------------- ------------- Total current assets 268,270 243,980

Property and equipment, net 7,974 8,251 Software, net 1,861 1,454 Goodwill 46,905 46,706 Deferred income taxes, net 28,999 22,943 Other 2,941 2,124 ------------- ------------- Total assets $356,950 $325,458 ============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: Current portion of debt - financing agreements $3,799 $7,027 Accounts payable 7,856 6,974 Accrued employee compensation 12,397 13,354 Deferred income taxes 363 - Deferred revenue 89,491 82,647 Accrued and other liabilities 10,601 9,890 ------------- ------------- Total current liabilities 124,507 119,892

Debt - financing agreements 807 2,327 Deferred revenue 16,348 15,427 Other 1,314 851 ------------- ------------- Total liabilities 142,976 138,497 ------------- -------------

Stockholders' equity: Class A Common Stock 200 196 Treasury stock, at cost (43,293) (35,258) Additional paid-in capital 265,763 254,715 Retained earnings (accumulated deficit) 1,199 (22,917) Accumulated other comprehensive loss (9,895) (9,775) ------------- ------------- Total stockholders' equity 213,974 186,961 ------------- ------------- Total liabilities and stockholders' equity $356,950 $325,458 ============= =============

TRANSACTION SYSTEMS ARCHITECTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share amounts)

Three Months Ended Six Months Ended March 31, March 31, ------------------ ----------------- 2005 2004 2005 2004 --------- -------- -------- --------

Revenues: Software license fees $42,953 $42,380 $90,759 $83,613 Maintenance fees 22,649 22,370 44,729 43,683 Services 10,024 11,777 20,744 23,248 --------- -------- -------- -------- Total revenues 75,626 76,527 156,232 150,544 --------- -------- -------- --------

Expenses: Cost of software license fees 5,725 6,189 11,631 12,828 Cost of maintenance and services 13,818 14,739 27,654 29,718 Research and development 10,223 9,572 20,138 19,005 Selling and marketing 15,368 16,127 30,669 29,917 General and administrative 14,449 15,834 28,012 29,502 --------- -------- -------- -------- Total expenses 59,583 62,461 118,104 120,970 --------- -------- -------- -------- Operating income 16,043 14,066 38,128 29,574 --------- -------- -------- --------

Other income (expense): Interest income 864 349 1,448 872 Interest expense (137) (381) (305) (912) Other, net 255 (131) (992) 2,074 --------- -------- -------- -------- Total other income (expense) 982 (163) 151 2,034 --------- -------- -------- --------

Income before income taxes 17,025 13,903 38,279 31,608 Income tax provision (5,832) (5,927) (14,163) (13,591) --------- -------- -------- -------- Net income $11,193 $7,976 $24,116 $18,017 ========= ======== ======== ========

Earnings per share information: Weighted average shares outstanding: Basic 38,121 36,846 37,949 36,613 ========= ======== ======== ======== Diluted 38,903 38,027 38,731 37,835 ========= ======== ======== ========

Earnings per share: Basic $0.29 $0.22 $0.64 $0.49 ========= ======== ======== ======== Diluted $0.29 $0.21 $0.62 $0.48 ========= ======== ======== ========

--30--CLR/ms*

CONTACT: Transaction Systems Architects, Inc., Omaha Investor Relations: William J. Hoelting, 402-390-8990

KEYWORD: NEBRASKA INDUSTRY KEYWORD: HARDWARE BANKING RETAIL SOFTWARE EARNINGS CONFERENCE CALLS SOURCE: Transaction Systems Architects, Inc.

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