S1 (SONE) 8-K Results of Operations and Financial Condition

ent

S1 Corporation Reports 14 Percent Increase in

Third Quarter Revenue and GAAP EPS of $0.11

Norcross, Georgia, November 6, 2008 -- S1 Corporation (Nasdaq:SONE), a leading global provider of customer interaction financial and payment solutions, today announced financial results for the third quarter ended September 30, 2008.

n Total revenue for the third quarter of 2008 increased 14 percent to $58.6 million from $51.3 million in the third quarter of 2007. Total revenue for the nine months ended September 30, 2008 increased 12 percent to $169.8 million from $151.5 million in the nine months ended September 30, 2007.

n GAAP earnings were $6.2 million or $0.11 per share (diluted) for the third quarter of 2008, a $0.03 increase over earnings of $5.1 million or $0.08 per share (diluted) for the third quarter of 2007. GAAP earnings were $16.5 million or $0.28 per share (diluted) for the nine months ended September 30, 2008, a $0.07 increase over GAAP earnings of $13.1 million or $0.21 per share (diluted) for the nine months ended September 30, 2007. These figures include stock based compensation expense of $0.4 million and $2.9 million in the third quarter of 2008 and 2007, respectively, and $4.6 million and $7.9 million for the nine months ended September 30, 2008 and 2007, respectively.

n Adjusted EBITDA for the third quarter of 2008 was $10.5 million compared to $9.9 million in the third quarter of 2007. Adjusted EBITDA for the nine months ended September 30, 2008 was $32.5 million compared to $28.0 million in the nine months ended September 30, 2007. Adjusted EBITDA does not include stock based compensation expense, and is described and reconciled to GAAP net income below. ⁽¹⁾

n Total revenue from international operations for the third quarter of 2008 increased 34 percent to $17.7 million from $13.2 million in the third quarter of 2007. Total revenue from international operations for the nine months ended September 30, 2008 increased 36 percent to $48.2 million from $35.5 million in the nine months ended September 30, 2007.

n Third quarter customer highlights include:

o S1 Enterprise licensed multiple applications to a financial institution in SE Asia in one of the largest agreements in the history of S1 Enterprise;

o S1 Enterprise licensed multiple applications to a top 40 bank in the U.S.; and

o Postilion licensed its payments software to its fourth top 10 retailer in the U.K.

n The Company expects approximately $42 million in revenue from State Farm in 2008. Additionally, the Company expects approximately $80 million in revenue from State Farm from 2009 until our work for State Farm concludes by the end of 2011, of which approximately $35 - $37 million in revenue is expected in 2009.

n A $10 million increase to the Company’s previously announced stock repurchase program was approved pursuant to which the Company may repurchase shares of its common stock from time to time in open market and privately negotiated transactions as market and business conditions warrant. The Company repurchased 1.3 million shares of its common stock for $8.4 million during the third quarter of 2008, and 2.2 million shares for $11.6 million during the month of October. The Company ended the third quarter of 2008 with $81.8 million in cash, cash equivalents and short-term investments.

“Despite the turmoil in the marketplace, we continued to execute effectively against our business plan in the third quarter and I am very pleased with our results,” said Johann Dreyer, Chief Executive Officer of S1. “I am particularly pleased with the number of net new customers we were able to sign in both our Enterprise and Postilion businesses. As we look to the remainder of 2008, we continue to expect full-year 2008 revenue and Adjusted EBITDA to be on the higher end of the guidance we previously provided.”

⁽¹⁾ Adjusted EBITDA Reconciliation

For the three months ended September 30, 2008

	Enterprise			Postilion			Total
Adjusted EBITDA	$	5,788		$	4,718		$	10,506
Depreciation		(1,127	)		(847	)		(1,974	)
Amortization		(62	)		(881	)		(943	)
Stock-based compensation expense		(214	)		(198	)		(412	)
Operating income	$	4,385		$	2,792		$	7,177
Interest and other income, net								296
Income tax expense								(1,282	)
Net income							$	6,191

For the nine months ended September 30, 2008

	Enterprise			Postilion			Total
Adjusted EBITDA	$	16,732		$	15,756		$	32,488
Depreciation		(3,392	)		(2,445	)		(5,837	)
Amortization		(269	)		(2,646	)		(2,915	)
Stock-based compensation expense		(2,934	)		(1,671	)		(4,605	)
Operating income	$	10,137		$	8,994		$	19,131
Interest and other income, net								714
Income tax expense								(3,328	)
Net income							$	16,517

See tables 4, 5 and 6 for reconciliations of Adjusted EBITDA

This press release includes references to Adjusted EBITDA, a non-GAAP financial measure, the most directly comparable GAAP equivalent of which is Net income. We define Adjusted EBITDA as Net income less net interest income, plus income taxes, depreciation, amortization of intangibles, and stock-based compensation expense. A reconciliation of our non-GAAP financial measure to the most directly comparable financial measure is detailed in the reconciliation of GAAP to non-GAAP financial measures above. We believe that the presentation of this non-GAAP financial measure provides useful information to investors regarding our results of operations.

We believe that excluding depreciation, amortization, stock-based compensation expense, net interest income and income tax expense provides supplemental information and an alternative presentation useful to investors' understanding of the Company's core operating results and trends. Not only are depreciation and amortization expenses based on historical costs of assets that may have little bearing on present or future replacement costs, but they are also based on management estimates of remaining useful lives. Additionally, while stock-based compensation is an important part of overall compensation expense, a portion of our stock-based compensation expense is the result of cash-settled stock appreciation rights that are revalued each quarter for GAAP earnings based on the closing price of the Company's stock on the last day of the quarter. Consequently, fluctuations in our stock price can have a significant impact on the Company's reported GAAP earnings.  Additionally, it is possible that the Company may begin recording income tax provisions for GAAP earnings despite being able to reduce taxes payable through the potential use of net operating loss carry forwards and other tax credits.

Although we believe, for the foregoing reasons, that our presentation of non-GAAP financial measure provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial results should only be considered in addition to, and not as a substitute for or superior to, our financial measures prepared in accordance with GAAP.

Use of non-GAAP financial measures is subject to inherent limitations because they do not include all the expenses that must be included under GAAP and because they involve the exercise of judgment of which charges should properly be excluded from the non-GAAP financial measure. Management accounts for these limitations by not relying exclusively on non-GAAP financial measures, but only using such information to supplement GAAP financial results. We urge investors not to consider non-GAAP financial measures as a substitute for, or superior to, any measure of financial performance prepared in accordance with GAAP. Our non-GAAP financial measure may be different from such measures used by other companies.

Adjusted EBITDA is not a measure of liquidity calculated in accordance with accounting principles generally accepted in the United States, and should be viewed as a supplement to -- not a substitute for -- our results of operations presented on the basis of accounting principles generally accepted in the United States. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by accounting principles generally accepted in the United States. Our statement of cash flows presents our cash flow activity in accordance with accounting principles generally accepted in the United States. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.

We believe Adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that Adjusted EBITDA is widely used by investors to measure a company's operating performance without regard to items such as interest expense, taxes, depreciation and amortization, and stock-based compensation expense which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.

Our management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis; as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and in communications with the Board of Directors, stockholders, analysts and investors concerning our financial performance.

Conference Call Information

Company management will host a conference call for interested parties to discuss its third quarter results on Thursday, November 6, 2008, at 5:00 p.m. ET. A webcast of the call will be available through the Company's website, www.s1.com. The conference call will contain forward-looking statements and other material information. A replay of the call will be available for two weeks following the call on the Company's website.

About S1

S1 Corporation (Nasdaq: SONE) delivers customer interaction software for financial and payment services and offers unique solution sets for financial institutions, retailers, and processors under three brand names: Postilion, S1 Enterprise and FSB Solutions. Additional information about S1 solutions is available at www.s1.com <http://www.s1.com/>, www.postilion.com <http://www.postilion.com/>, www.S1enterprise.com <http://www.s1enterprise.com/>, and www.fsb-solutions.com <http://www.fsb-solutions.com/>. 

Forward Looking Statements

This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act. These statements include statements with respect to our financial condition, results of operations and business. The words "believes," "expects," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends" or similar terminology identify forward-looking statements. These statements, including without limitation statements regarding expected revenue from State Farm, are based on our beliefs as well as assumptions made using information currently available to us. Because these statements reflect our current views concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. The risk factors included in our reports filed with the Securities and Exchange Commission (and available on our web site at www.s1.com or the SEC's web site at www.sec.gov) provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Except as provided by law, we undertake no obligation to update any forward-looking statement.

Investor Contact:

Gregory D. Orenstein

SVP, Corporate Development and CLO

404.923.3500

greg.orenstein@s1.com

S1 Corporation

Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

Table 1

	Three Months Ended						Nine Months Ended
	9/30/2008			9/30/2007			9/30/2008			9/30/2007
Revenues:
Software licenses	$	9,129		$	8,291		$	26,523		$	21,808
Support and maintenance		12,244			11,695			36,532			33,397
Professional services		24,905			19,426			69,632			60,539
Data center		12,080			11,647			36,268			35,077
Other		291			255			855			657
Total revenues		58,649			51,314			169,810			151,478
Operating expenses:
Cost of software licenses (1)		927			975			2,997			2,807
Cost of professional services, support and maintenance (1)		19,405			16,999			54,888			49,723
Cost of data center (1)		6,639			6,333			19,597			18,522
Cost of other revenue		132			34			241			306
Selling and marketing		8,360			7,978			25,919			23,143
Product development		7,658			6,357			21,440			18,267
General and administrative		6,094			6,339			18,912			20,748
Depreciation		1,974			1,611			5,837			5,182
Amortization of other intangible assets		283			282			848			892
Total operating expenses (2)		51,472			46,908			150,679			139,590
Operating income		7,177			4,406			19,131			11,888
Interest and other income, net		296			855			714			2,510
Income tax expense		(1,282	)		(113	)		(3,328	)		(1,334	)
Net income	$	6,191		$	5,148		$	16,517		$	13,064
Earnings per share:
Basic	$	0.11		$	0.09		$	0.29		$	0.21
Diluted	$	0.11		$	0.08		$	0.28		$	0.21
Weighted average common shares outstanding - basic		56,559,777			58,841,870			56,577,987			60,511,758
Weighted average common shares outstanding - diluted		57,643,062			60,090,298			57,413,725			61,361,976

________________________

(1) Excludes charges for depreciation. Cost of software license includes amortization of purchased technology.

(2) Includes stock-based compensation expenses of $0.4 million and $2.9 million for the three months ended September 30, 2008 and 2007, respectively and $4.6 million and $7.9 million for the nine months ended September 30, 2008 and 2007, respectively.

Please refer to Tables 4, 5 and 6 for further details.

S1 Corporation

Consolidated Balance Sheets

(In thousands, except share data)

Table 2

	(Unaudited)
	September 30,			December 31,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	75,386		$	45,011
Short-term investments		6,454			23,855
Accounts receivable, net		43,647			39,969
Prepaid expenses		4,892			3,354
Other current assets		1,817			6,389
Total current assets		132,196			118,578
Property and equipment, net		22,342			20,906
Intangible assets, net		8,325			11,240
Goodwill, net		125,160			125,281
Other assets		4,220			5,839
Total assets	$	292,243		$	281,844
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,707		$	2,300
Accrued compensation and benefits		13,074			10,649
Accrued restructuring		2,073			3,043
Accrued other expenses		12,662			8,198
Deferred revenues		28,447			26,345
Current portion of debt obligation		3,153			3,725
Total current liabilities		62,116			54,260
Other liabilities		11,904			17,679
Total liabilities		74,020			71,939
Stockholders' equity:
Preferred stock		10,000			10,000
Common stock		558			567
Additional paid-in capital		1,807,732			1,810,783
Treasury stock		(2,362	)		-
Accumulated deficit		(1,593,290	)		(1,609,807	)
Accumulated other comprehensive income		(4,415	)		(1,638	)
Total stockholders' equity		218,223			209,905
Total liabilities and stockholders' equity	$	292,243		$	281,844
Preferred shares issued and outstanding		749,064			749,064
Common shares issued and outstanding		55,754,239			56,748,906
Common shares held in treasury		380,551			-

S1 Corporation

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Table 3

	Nine Months Ended
	September 30,			September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	16,517		$	13,064
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		8,752			8,224
Provision for doubtful accounts receivable and billing adjustments		(342	)		37
Stock based compensation expense		4,605			7,902
Changes in assets and liabilities
(Increase) decrease in accounts receivable		(3,610	)		5,130
Decrease (increase) in prepaid expenses and other assets		1,068			(3,485	)
Increase (decrease) in accounts payable		134			(629	)
Increase (decrease) in accrued expenses and other liabilities		1,977			(10,010	)
Increase (decrease) in deferred revenues		2,053			(2,340	)
Net cash provided by operating activities		31,154			17,893
Net cash provided by investing activities		13,840			8,356
Net cash used in financing activities		(12,262	)		(27,902	)
Effect of exchange rate changes on cash and cash equivalents		(2,357	)		579
Net increase (decrease) in cash and cash equivalents		30,375			(1,074	)
Cash and cash equivalents at beginning of period		45,011			69,612
Cash and cash equivalents at end of period	$	75,386		$	68,538

S1 Corporation

Consolidated Statements of Operations

(In thousands)

(Unaudited)

Table 4

	Three Months Ended						Nine Months Ended
	9/30/2008			9/30/2007			9/30/2008			9/30/2007
Revenues:
Software licenses	$	9,129		$	8,291		$	26,523		$	21,808
Support and maintenance		12,244			11,695			36,532			33,397
Professional services		24,905			19,426			69,632			60,539
Data center		12,080			11,647			36,268			35,077
Other		291			255			855			657
Total revenues		58,649			51,314			169,810			151,478
Operating expenses:
Cost of software licenses		927			975			2,997			2,807
Cost of professional services, support and maintenance *		19,405			16,999			54,888			49,723
Cost of data center *		6,639			6,333			19,597			18,522
Cost of other revenue		132			34			241			306
Selling and marketing *		8,360			7,978			25,919			23,143
Product development *		7,658			6,357			21,440			18,267
General and administrative *		6,094			6,339			18,912			20,748
Depreciation		1,974			1,611			5,837			5,182
Amortization of other intangible assets		283			282			848			892
Total operating expenses		51,472			46,908			150,679			139,590
Operating income		7,177			4,406			19,131			11,888
Interest and other income, net		296			855			714			2,510
Income tax expense		(1,282	)		(113	)		(3,328	)		(1,334	)
Net income	$	6,191		$	5,148		$	16,517		$	13,064
Reconciliation to Adjusted EBITDA:
Net income	$	6,191		$	5,148		$	16,517		$	13,064
Interest and other income, net		(296	)		(855	)		(714	)		(2,510	)
Income tax expense		1,282			113			3,328			1,334
Depreciation		1,974			1,611			5,837			5,182
Amortization		943			948			2,915			3,042
Stock based compensation expense		412			2,889			4,605			7,902
Adjusted EBITDA	$	10,506		$	9,854		$	32,488		$	28,014
* Includes stock based compensation expense of:
Cost of professional services, support and maintenance	$	31		$	180		$	104		$	458
Cost of data center		29			12			76			47
Selling and marketing		(5	)		1,478			1,601			3,892
Product development		15			644			599			1,651
General and administrative		342			575			2,225			1,854
	$	412		$	2,889		$	4,605		$	7,902

S1 Corporation

Enterprise Segment

Statements of Operations

(In thousands)

(Unaudited)

Table 5

	Three Months Ended					Nine Months Ended
	9/30/2008			9/30/2007		9/30/2008		9/30/2007
Revenues:
Software licenses	$	1,620		$	1,774	$	5,462	$	4,116
Support and maintenance		4,192			4,030		12,412		11,418
Professional services		19,737			15,709		54,932		48,485
Data center		7,107			6,301		21,077		18,095
Other		250			152		583		465
Total revenues		32,906			27,966		94,466		82,579
Operating expenses:
Cost of software licenses		236			318		977		977
Cost of professional services, support and maintenance *		11,696			10,015		33,285		30,586
Cost of data center *		3,911			3,638		11,591		10,652
Cost of other revenue		122			-		175		66
Selling and marketing *		3,643			3,085		11,614		9,814
Product development *		4,584			3,127		13,154		9,107
General and administrative *		3,202			3,707		10,141		11,465
Depreciation		1,127			1,016		3,392		3,377
Amortization of other intangible assets		-			-		-		45
Total operating expenses		28,521			24,906		84,329		76,089
Operating income	$	4,385		$	3,060	$	10,137	$	6,490
Reconciliation to Adjusted EBITDA:
Operating income	$	4,385		$	3,060	$	10,137	$	6,490
Depreciation		1,127			1,016		3,392		3,377
Amortization		62			127		269		536
Stock based compensation expense		214			1,634		2,934		4,425
Adjusted EBITDA	$	5,788		$	5,837	$	16,732	$	14,828
* Includes stock based compensation expense of:
Cost of professional services, support and maintenance	$	51		$	159	$	89	$	395
Cost of data center		7			7		30		35
Selling and marketing		(36	)		788		1,092		2,063
Product development		(29	)		367		478		926
General and administrative		221			313		1,245		1,006
	$	214		$	1,634	$	2,934	$	4,425

S1 Corporation

Postilion Segment

Statements of Operations

(In thousands)

(Unaudited)

Table 6

	Three Months Ended					Nine Months Ended
	9/30/2008			9/30/2007		9/30/2008		9/30/2007
Revenues:
Software licenses	$	7,509		$	6,517	$	21,061	$	17,692
Support and maintenance		8,052			7,665		24,120		21,979
Professional services		5,168			3,717		14,700		12,054
Data center		4,973			5,346		15,191		16,982
Other		41			103		272		192
Total revenues		25,743			23,348		75,344		68,899
Operating expenses:
Cost of software licenses		691			657		2,020		1,830
Cost of professional services, support and maintenance *		7,709			6,984		21,603		19,137
Cost of data center *		2,728			2,695		8,006		7,870
Cost of other revenue		10			34		66		240
Selling and marketing *		4,717			4,893		14,305		13,329
Product development *		3,074			3,230		8,286		9,160
General and administrative *		2,892			2,632		8,771		9,283
Depreciation		847			595		2,445		1,805
Amortization of other intangible assets		283			282		848		847
Total operating expenses		22,951			22,002		66,350		63,501
Operating income	$	2,792		$	1,346	$	8,994	$	5,398
Reconciliation to Adjusted EBITDA:
Operating income	$	2,792		$	1,346	$	8,994	$	5,398
Depreciation		847			595		2,445		1,805
Amortization		881			821		2,646		2,506
Stock based compensation expense		198			1,255		1,671		3,477
Adjusted EBITDA	$	4,718		$	4,017	$	15,756	$	13,186
* Includes stock based compensation expense of:
Cost of professional services, support and maintenance	$	(20	)	$	21	$	15	$	63
Cost of data center		22			5		46		12
Selling and marketing		31			690		509		1,829
Product development		44			277		121		725
General and administrative		121			262		980		848
	$	198		$	1,255	$	1,671	$	3,477