S1 Corporation Reports Second Quarter 2010 Financial Results

Sales Bookings in Payments and Banking: Large FI Segments Increased 27% in First Half 2010 Compared to Second Half 2009

Revenue backlog in Payments and Banking: Large FI Segments Increased to $48.2 Million, a 23% Increase Compared to December 31, 2009

Generated $23.3 Million in Net Cash from Operations in First Half 2010, a 41% Increase Compared to First Half 2009

NORCROSS, Ga., Aug. 4, 2010 (GLOBE NEWSWIRE) -- S1 Corporation (Nasdaq:SONE), a leading global provider of payments and financial services software solutions, today announced financial results for the second quarter ended June 30, 2010.

Financial Results and Operating Highlights

• Total revenue decreased 15% to $51.8 million in the second quarter of 2010 compared with $60.8 million in the second quarter of 2009. The decrease in revenue was primarily attributed to a $4.8 million reduction in revenue from State Farm and the custom development for an international branch customer ("Custom Projects"), the impact of recognizing a lower amount of software licenses upon software delivery, and changes in estimates for certain project implementations. Total revenue for the six months ended June 30, 2010 decreased 14% to $102.9 million from $119.1 million in the six months ended June 30, 2009. 
• U.S. GAAP net loss was $1.8 million, or $0.03 per share (diluted), in the second quarter of 2010 compared with U.S. GAAP net income of $4.6 million, or $0.08 per share (diluted), in the second quarter of 2009. U.S. GAAP net loss was $2.8 million, or $0.05 per share (diluted), in the six months ended June 30, 2010 compared with U.S. GAAP net income of $13.6 million, or $0.25 per share (diluted), in the six months ended June 30, 2009. These figures include stock-based compensation expense of $0.8 million and $3.1 million in the second quarter of 2010 and 2009, respectively, and $1.2 million and $0.6 million in the six months ended June 30, 2010 and 2009, respectively.
• Adjusted EBITDA was $3.2 million in the second quarter of 2010 compared with $11.6 million in the second quarter of 2009. Adjusted EBITDA in the six months ended June 30, 2010 was $6.0 million compared with $22.2 million in the six months ended June 30, 2009. Adjusted EBITDA does not include stock-based compensation expense and is described below and reconciled to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP in Tables 4, 5, 6 and 7, provided below.
• Net cash provided by operating activities increased 41% to $23.3 million in the six months ended June 30, 2010 compared with $16.5 million in the six months ended June 30, 2009. 
• As of June 30, 2010, the Company had cash and cash equivalents of $51.7 million.
• Revenue backlog, which is discussed in further detail below, in the Company's Payments and Banking: Large Financial Institution segments increased 23% to $48.2 million as of June 30, 2010 compared with $39.2 million as of December 31, 2009.
• Notable second quarter 2010 contract signings include:

• A top 5 U.S. bank for S1's corporate online banking solution;
• One of the largest financial services groups in Asia for S1's corporate, business, consumer and trade finance online banking solutions and S1's mobile solution;
• One of the world's leading producers and distributors of non-alcoholic beverages for S1's payments solution;
• One of the largest building societies in Australia for S1's payments solution; and
• Three new customers in Africa for S1's payments solution.

"As evidenced by our bookings, the increase in revenue backlog in our Payments and Banking: Large Financial Institution segments, and cash flow, we are achieving sales goals that are not yet transferring to our bottom line," said Johann Dreyer, Chief Executive Officer. "Last quarter I communicated that we were experiencing a shift to recognizing more software license revenue using the percentage of completion method as we targeted larger and more complex sales opportunities, particularly with our payments and corporate online banking solutions. Since then, we have seen this shift continue and now anticipate that an even greater percentage of software licenses will be accounted for using the percentage of completion method during the remainder of 2010 and beyond. With the increase in the amount of revenue backlog and a strong pipeline of new business opportunities, we believe we are on course to achieve more sustainable long-term growth. However, although we expect to gain greater visibility and predictability in our business model once this transition is completed, it has negatively impacted our current and near-term financial results and made it more difficult to forecast our 2010 financial performance. Consequently, we are withdrawing our prior annual financial guidance."

Mr. Dreyer continued, "While it can be somewhat difficult to predict exactly when some of the larger and more complex sales opportunities will be signed, we expect to enter 2011 with a greater amount of revenue backlog, which we believe will translate to our bottom line in future periods, and we expect some normalization in our Adjusted EBITDA by the end of the fourth quarter. Our fundamentals remain strong and we are confident in our growth prospects and in our ability to close business as we continue to win new contracts with some of the leading financial institutions and retailers in the world," Mr. Dreyer concluded.

Conference Call, Webcast and Slide Information

Management will host a conference call to discuss its second quarter 2010 results on Wednesday, August 4, 2010, at 5:00 p.m. ET. Participants may access the call by dialing (877) 899-9075 (United States) or (706) 758-0819 (international) and entering passcode 90239853. Investors also may access a slide presentation and live audio webcast of this conference call by visiting www.s1.com and entering the Investor Relations section under "About S1".

A replay of the webcast will be available approximately two hours after the conclusion of the call. A telephone replay also will be available approximately two hours after the conclusion of the call through August 18, 2010. To access the replay, please dial (800) 642-1687 or (706) 645-9291 and enter passcode 90239853.

Non-GAAP Measures and Reconciliation to U.S. GAAP

Our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In addition to U.S. GAAP financial measures, we use non-GAAP measures to evaluate our financial performance, assist management decisions, and in communications with our Board of Directors, stockholders, analysts and investors concerning our financial performance. Although we believe that our presentation of non-GAAP financial measures provide useful supplemental information to investors regarding our results of operations, our non-GAAP financial measures should only be considered in addition to, and not as a substitute for or superior to, our financial measures prepared in accordance with U.S. GAAP. The use of non-GAAP financial measures is subject to inherent limitations because they do not include all the expenses that must be included under U.S. GAAP and because they involve the exercise of management's 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 U.S. GAAP financial results. Our non-GAAP financial measures may be different from such measures used by other companies.

We are presenting Adjusted EBITDA, a non-GAAP financial measure, below and reconciling to the most directly comparable U.S. GAAP equivalent of which is Net income for our consolidated results and Operating income for our segment results. We define Adjusted EBITDA as, in the case of our consolidated results, Net income plus interest and other expense (income), plus income taxes or, in the case of our segment results, Operating income, in each case adjusted for depreciation, amortization of intangibles, and stock-based compensation expense. We believe that excluding depreciation, amortization, stock-based compensation expense, interest and other expense (income) and income taxes provides supplemental information and an alternative presentation useful to investors understanding our 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's 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 U.S. GAAP earnings based in part on the closing price of our stock on the last day of the quarter. Consequently, fluctuations in our stock price can have a significant impact on our reported U.S. GAAP earnings. See Tables 4, 5, 6 and 7 for reconciliations of non-GAAP Adjusted EBITDA.

We are presenting Cash earnings per share, a non-GAAP financial measure, below and reconciling to the most directly comparable U.S. GAAP equivalent of which is Net income and earnings per share. We define Cash earnings as Net income plus amortization of intangibles, stock-based compensation and deferred income taxes. We calculate Cash earnings per share by adding back the per share impact of adjustments from diluted earnings per share. We believe Cash earnings per share is a useful financial measure which provides supplemental information and an alternative presentation useful to investors understanding trends of our income. Amortization of intangibles is generally expensed over several periods and may not be indicative of current cash expenditures. We believe the exclusion of stock-based compensation provides useful supplemental information to help understand the changes in our earnings per share due to the fluctuations of our cash-settled stock appreciation rights included in stock compensation. We exclude the impact of deferred income taxes on earnings as the temporary differences and the changes in valuation allowances may be misleading for trend analysis. See Table 1 for reconciliation of non-GAAP Cash earnings per share to U.S. GAAP Diluted earnings per share.

We are presenting an estimate of revenue backlog for our Payments and Banking: Large Financial Institution segments which is defined as an estimate of revenue for software licenses, including term licenses, professional services, and hosting services, in each case as specified in executed contracts that we believe will be recognized in revenue over the next 12 months. The portion of the estimate from our Banking: Large Financial Institution segment does not include revenue associated with the Company's Custom Projects. We believe that presenting this estimate provides supplemental information and an alternative presentation useful to investors understanding trends in our business including the shift we are experiencing toward recognizing more software license revenue using the percentage of completion method.

Our estimate of revenue backlog requires substantial judgment of our management, is based on a number of assumptions, which may turn out to be inaccurate or wrong, and is subject to a number of factors and uncertainties, many of which are outside of our control. Such assumptions, factors and uncertainties include, but are not limited to, the following:

• Revenue for term licenses and hosting services are the annualized amount expected over the next 12 months as of the date presented;
• Foreign currency exchange rates are assumed to remain constant over the 12 month period for contracts stated in currencies other than the U.S. Dollar;
• Perpetual licenses and professional services are based on current estimates of project completion over the next 12 months;
• Our 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 within their industries or geographic locations;
• We may experience delays in the development or delivery of products or services specified in customer contracts; and
• Our estimate is based on constant hosting transaction volumes, and changes in hosting transaction volumes may impact the amount of revenue actually recognized in future periods.

Estimates of future financial results are inherently unreliable. Accordingly, there can be no assurance that the amounts included in our estimate of revenue backlog will be recognized over the next 12 months, or at all. Additionally, because our estimate of revenue backlog is an operating metric, it is not subject to the same level of internal review or control as a U.S. GAAP financial measure.

About S1 Corporation

Leading banks, credit unions, retailers, and processors need technology that adapts to the complex and challenging needs of their businesses. These organizations want solutions that can respond quickly to changes in the marketplace and help grow their businesses.  For more than 20 years, S1 Corporation (Nasdaq:SONE) has been a leader in developing software products that offer flexibility and reliability. Over 3,000 organizations worldwide depend on S1 for payments, online banking, mobile banking, voice banking, branch banking and lending solutions that deliver a competitive advantage. More information is available at www.s1.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, revenue backlog, 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.