S1 (SONE) 8-K S1 Corporation Reports Fourth Quarter and Full Year 2008 Results

S1 Corporation Reports Fourth Quarter and Full Year 2008 Results

Revenue Increased 10% in the Fourth Quarter and 11% for the Full Year Compared to 2007

Provides 2009 Full Year Guidance

Norcross, Georgia, March 4, 2009 -- S1 Corporation (Nasdaq:SONE), a leading global provider of customer interaction financial and payment solutions, today announced financial results for the fourth quarter and full year ended December 31, 2008.

n   Total revenue for the fourth quarter of 2008 increased 10 percent to $58.6 million from $53.4 million in the fourth quarter of 2007.  Total revenue for the full year ended December 31, 2008 increased 11 percent to $228.4 million from $204.9 million in 2007.

n   GAAP earnings were $5.3 million or $0.10 per share (diluted) for the fourth quarter of 2008, a $0.01 decrease over GAAP earnings of $6.4 million or $0.11 per share (diluted) for the fourth quarter of 2007.  GAAP earnings were $21.9 million or $0.38 per share (diluted) for the full year ended December 31, 2008, a $0.06 increase over GAAP earnings of $19.5 million or $0.32 per share (diluted) in 2007.  These figures include stock based compensation expense of $3.5 million and $0.6 million in the fourth quarter of 2008 and 2007, respectively, and $8.1 million and $8.5 million for the full years ended December 31, 2008 and 2007, respectively.

n   Adjusted EBITDA for the fourth quarter of 2008 increased four percent to $10.5 million from $10.1 million in the fourth quarter of 2007.  Adjusted EBITDA for the full year ended December 31, 2008 increased 13 percent to $43.0 million from $38.1 million in 2007.  Adjusted EBITDA does not include stock based compensation expense, and is described below (1) and reconciled to GAAP net income in Tables 4, 5 and 6.

“We posted strong results in 2008 and ended the year with one of the best quarters of deal signings in several years,” said Johann Dreyer, Chief Executive Officer of S1.  “While we are not immune to the economic uncertainty and marketplace challenges, we believe our recurring revenue base, broad range of products and customers around the world, and strong balance sheet positions us to generate solid growth in revenue and profitability in this difficult economic environment.  With the opportunities we see in our sales pipeline, we are currently targeting 2009 revenue of $240 to $245 million and Adjusted EBITDA of $47 to $50 million.”

n   Fourth quarter customer highlights include:

o   Postilion licensed its payments processing and card management software to its fifth top 10 retailer in the U.K. and to Arab National Bank, one of the top banks in the Middle East; and

o   S1 Enterprise signed significant new work orders with three current customers and licensed multiple applications to a new customer in the U.S.

n   Total revenue from international operations for the fourth quarter of 2008 increased three percent to $15.5 million from $15.1 million in the fourth quarter of 2007.  Total revenue from international operations for the full year ended December 31, 2008 increased 26 percent to $63.8 million from $50.7 million in 2007.

n   Net cash provided by operating activities was $34.1 million for the full year ended December 31, 2008, a $2.8 million improvement over 2007.

n   The Company repurchased 2.8 million shares of its common stock for $14.9 million during the fourth quarter of 2008, and 4.4 million shares for $25.1 million for the full year ended December 31, 2008.  As of December 31, 2008, the Company had $65.3 million in cash, cash equivalents and short-term investments.

(1) Adjusted EBITDA

See Tables 4, 5 and 6 for reconciliations of Adjusted EBITDA to Net Income.

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 in Tables 4, 5 and 6.  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 a 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 fourth quarter and full year results on Thursday, March 5, 2009, at 8:30 a.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. Forward-looking statements may include projections of our revenue, expenses, Adjusted EBITDA, capital expenditures, earnings per share, product development projects, future economic performance or management objectives.  These statements 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 for any reason, even if new information becomes available.

Investor Contact:

Paul M. Parrish

Chief Financial Officer

404.923.3500

paul.parrish@s1.com

S1 Corporation

Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

TABLE 1

	Three Months Ended					Twelve Months Ended
	12/31/2008		12/31/2007			12/31/2008			12/31/2007
Revenue:
Software licenses	$	11,336	$	8,901		$	37,859		$	30,709
Support and maintenance		12,631		12,194			49,163			45,591
Professional services		22,613		19,215			92,245			79,754
Data center		11,568		12,719			47,836			47,796
Other		477		418			1,332			1,075
Total revenue		58,625		53,447			228,435			204,925
Operating expenses:
Cost of software licenses (1)		884		989			3,881			3,796
Cost of professional services, support and maintenance (1)		19,147		18,085			74,035			67,808
Cost of data center (1)		6,707		6,466			26,304			24,988
Cost of other revenue		28		69			269			375
Selling and marketing		10,513		8,161			36,432			31,304
Product development		7,831		5,471			29,271			23,738
General and administrative		6,914		5,511			25,826			26,259
Depreciation		2,099		1,841			7,936			7,023
Amortization of other intangible assets		282		283			1,130			1,175
Total operating expenses (2)		54,405		46,876			205,084			186,466
Operating income		4,220		6,571			23,351			18,459
Interest and other income (expense), net		39		(10	)		753			2,500
Income tax benefit (expense)		1,074		(130	)		(2,254	)		(1,464	)
Net income	$	5,333	$	6,431		$	21,850		$	19,495
Earnings per share:
Basic	$	0.10	$	0.11		$	0.38		$	0.32
Diluted	$	0.10	$	0.11		$	0.38		$	0.32
Weighted average common shares outstanding - basic		53,220,794		57,474,280			55,734,103			59,746,146
Weighted average common shares outstanding - diluted		53,909,274		58,594,523			56,541,534			60,680,130

________________________

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

(2)  Includes stock-based compensation expenses of $3.5 million and $0.6 million for the three months ended December 31, 2008 and 2007, respectively, and $8.1 million and $8.5 million for the twelve months ended December 31, 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)

(Unaudited)

TABLE 2

	December 31,			December 31,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	63,840		$	45,011
Short-term investments		1,493			23,855
Accounts receivable, net		42,561			39,969
Prepaid expenses		5,123			3,354
Other current assets		2,082			6,389
Total current assets		115,099			118,578
Property and equipment, net		23,015			20,906
Intangible assets, net		7,585			11,240
Goodwill, net		124,362			125,281
Other assets		8,625			5,839
Total assets	$	278,686		$	281,844
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,366		$	2,300
Accrued compensation and benefits		16,147			10,649
Accrued restructuring		2,323			3,043
Accrued other expenses		10,271			8,198
Deferred revenues		25,271			26,345
Current portion of debt obligation		3,917			3,725
Total current liabilities		59,295			54,260
Debt obligation, excluding current portion		6,196			8,805
Accrued restructuring, excluding current portion		3,443			6,181
Other liabilities		1,012			2,693
Total liabilities	$	69,946		$	71,939
Stockholders' equity:
Preferred stock		10,000			10,000
Common stock		528			567
Additional paid-in capital		1,791,924			1,810,783
Accumulated deficit		(1,587,957	)		(1,609,807	)
Accumulated other comprehensive income		(5,755	)		(1,638	)
Total stockholders' equity		208,740			209,905
Total liabilities and stockholders' equity	$	278,686		$	281,844
Preferred shares issued and outstanding		749,064			749,064
Common shares issued and outstanding		52,799,310			56,748,906

S1 Corporation

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

TABLE 3

	Twelve Months Ended
	December 31,			December 31,
	2008			2007
Cash flows from operating activities:
Net income	$	21,850		$	19,495
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		11,591			11,135
Provision for doubtful accounts receivable and billing adjustments		(159	)		1,894
Stock based compensation expense		8,092			8,522
Deferred income taxes		(1,895	)		-
Other than temporary impairments of investments		663			152
Changes in assets and liabilities
(Increase) decrease in accounts receivable		(2,777	)		11,509
Increase in prepaid expenses and other assets		(231	)		(828	)
Decrease in accounts payable		(1,278	)		(1,449	)
Decrease in accrued expenses and other liabilities		(432	)		(15,498	)
Decrease in deferred revenues		(1,277	)		(3,600	)
Net cash provided by operating activities		34,147			31,332
Net cash provided by (used in) investing activities		15,765			(13,893	)
Net cash used in financing activities		(27,488	)		(42,940	)
Effect of exchange rate changes on cash and cash equivalents		(3,595	)		900
Net increase (decrease) in cash and cash equivalents		18,829			(24,601	)
Cash and cash equivalents at beginning of period		45,011			69,612
Cash and cash equivalents at end of period	$	63,840		$	45,011

S1 Corporation

Consolidated Statements of Operations

(In thousands)

(Unaudited)

TABLE 4

	Three Months Ended						Twelve Months Ended
	12/31/2008			12/31/2007			12/31/2008			12/31/2007
Revenue:
Software licenses	$	11,336		$	8,901		$	37,859		$	30,709
Support and maintenance		12,631			12,194			49,163			45,591
Professional services		22,613			19,215			92,245			79,754
Data center		11,568			12,719			47,836			47,796
Other		477			418			1,332			1,075
Total revenue		58,625			53,447			228,435			204,925
Operating expenses:
Cost of software licenses		884			989			3,881			3,796
Cost of professional services, support and maintenance *		19,147			18,085			74,035			67,808
Cost of data center *		6,707			6,466			26,304			24,988
Cost of other revenue		28			69			269			375
Selling and marketing *		10,513			8,161			36,432			31,304
Product development *		7,831			5,471			29,271			23,738
General and administrative *		6,914			5,511			25,826			26,259
Depreciation		2,099			1,841			7,936			7,023
Amortization of other intangible assets		282			283			1,130			1,175
Total operating expenses		54,405			46,876			205,084			186,466
Operating income		4,220			6,571			23,351			18,459
Interest and other income (expense), net		39			(10	)		753			2,500
Income tax benefit (expense)		1,074			(130	)		(2,254	)		(1,464	)
Net income	$	5,333		$	6,431		$	21,850		$	19,495
Reconciliation to Adjusted EBITDA:
Net income	$	5,333		$	6,431		$	21,850		$	19,495
Interest and other (income) expense, net		(39	)		10			(753	)		(2,500	)
Income tax (benefit) expense		(1,074	)		130			2,254			1,464
Depreciation		2,099			1,841			7,936			7,023
Amortization		740			1,071			3,655			4,112
Stock based compensation expense		3,487			620			8,092			8,522
Adjusted EBITDA	$	10,546		$	10,103		$	43,034		$	38,116
* Includes stock based compensation expense of:
Cost of professional services, support and maintenance	$	240		$	56		$	344		$	514
Cost of data center		24			23			100			70
Selling and marketing		1,348			92			2,949			3,984
Product development		435			18			1,034			1,669
General and administrative		1,440			431			3,665			2,285
	$	3,487		$	620		$	8,092		$	8,522

S1 Corporation

Enterprise Segment

Statements of Operations

(In thousands)

(Unaudited)

TABLE 5

	Three Months Ended				Twelve Months Ended
	12/31/2008		12/31/2007		12/31/2008		12/31/2007
Revenue:
Software licenses	$	3,223	$	2,289	$	8,685	$	6,405
Support and maintenance		4,485		4,653		16,897		16,071
Professional services		16,590		15,255		71,522		63,740
Data center		7,176		7,383		28,253		25,478
Other		409		92		992		557
Total revenues		31,883		29,672		126,349		112,251
Operating expenses:
Cost of software licenses		350		292		1,327		1,269
Cost of professional services, support and maintenance *		11,546		11,157		44,831		41,743
Cost of data center *		3,911		3,862		15,502		14,514
Cost of other revenue		-		18		175		84
Selling and marketing *		4,238		3,308		15,852		13,122
Product development *		5,075		2,542		18,229		11,649
General and administrative *		3,849		3,059		13,990		14,524
Depreciation		1,222		1,126		4,614		4,503
Amortization of other intangible assets		-		-		-		45
Total operating expenses		30,191		25,364		114,520		101,453
Operating income	$	1,692	$	4,308	$	11,829	$	10,798
Reconciliation to Adjusted EBITDA:
Operating income	$	1,692	$	4,308	$	11,829	$	10,798
Depreciation		1,222		1,126		4,614		4,503
Amortization		61		187		330		723
Stock based compensation expense		2,094		363		5,028		4,788
Adjusted EBITDA	$	5,069	$	5,984	$	21,801	$	20,812
* Includes stock based compensation expense of:
Cost of professional services, support and maintenance	$	37	$	34	$	126	$	429
Cost of data center		6		16		36		51
Selling and marketing		932		74		2,024		2,137
Product development		377		5		855		931
General and administrative		742		234		1,987		1,240
	$	2,094	$	363	$	5,028	$	4,788

S1 Corporation

Postilion Segment

Statements of Operations

(In thousands)

(Unaudited)

TABLE 6

	Three Months Ended				Twelve Months Ended
	12/31/2008		12/31/2007		12/31/2008		12/31/2007
Revenue:
Software licenses	$	8,113	$	6,612	$	29,174	$	24,304
Support and maintenance		8,146		7,541		32,266		29,520
Professional services		6,023		3,960		20,723		16,014
Data center		4,392		5,336		19,583		22,318
Other		68		326		340		518
Total revenues		26,742		23,775		102,086		92,674
Operating expenses:
Cost of software licenses		534		697		2,554		2,527
Cost of professional services, support and maintenance *		7,601		6,928		29,204		26,065
Cost of data center *		2,796		2,604		10,802		10,474
Cost of other revenue		28		51		94		291
Selling and marketing *		6,275		4,853		20,580		18,182
Product development *		2,756		2,929		11,042		12,089
General and administrative *		3,065		2,452		11,836		11,735
Depreciation		877		715		3,322		2,520
Amortization of other intangible assets		282		283		1,130		1,130
Total operating expenses		24,214		21,512		90,564		85,013
Operating income	$	2,528	$	2,263	$	11,522	$	7,661
Reconciliation to Adjusted EBITDA:
Operating income	$	2,528	$	2,263	$	11,522	$	7,661
Depreciation		877		715		3,322		2,520
Amortization		679		884		3,325		3,389
Stock based compensation expense		1,393		257		3,064		3,734
Adjusted EBITDA	$	5,477	$	4,119	$	21,233	$	17,304
* Includes stock based compensation expense of:
Cost of professional services, support and maintenance	$	203	$	22	$	218	$	85
Cost of data center		18		7		64		19
Selling and marketing		416		18		925		1,847
Product development		58		13		179		738
General and administrative		698		197		1,678		1,045
	$	1,393	$	257	$	3,064	$	3,734