##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2008
 or
 o
    
    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: 000-24931
 S1 CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    58-2395199(I.R.S. Employer
Identification No.)705 Westech Drive 
Norcross, Georgia(Address of principal executive offices)
    
    30092(Zip Code)
 (404) 923-3500
 (Former name if changed since last report.)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



S1 CORPORATION
 QUARTERLY PERIOD ENDED MARCH 31, 2008
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income for the Three
Months ended March 31, 2008 and 2007
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 6.
    
    Exhibits
    
    
    23Signature
    
    
    25EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 
 S1 CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    55,123
    
    
    $
    45,011Short-term investments
    
    
    18,048
    
    
    
    23,855Accounts receivable, net
    
    
    44,744
    
    
    
    39,969Prepaid expenses
    
    
    3,770
    
    
    
    3,354Other current assets
    
    
    2,020
    
    
    
    6,389Total current assets
    
    
    123,705
    
    
    
    118,578Property and equipment, net
    
    
    21,175
    
    
    
    20,906Intangible assets, net
    
    
    10,212
    
    
    
    11,240Goodwill, net
    
    
    125,270
    
    
    
    125,281Other assets
    
    
    6,086
    
    
    
    5,839Total assets
    
    $
    286,448
    
    
    $
    281,844LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,473
    
    
    $
    2,300Accrued compensation and benefits
    
    
    9,551
    
    
    
    10,649Accrued restructuring
    
    
    3,199
    
    
    
    3,043Accrued other expenses
    
    
    9,208
    
    
    
    8,198Deferred revenues
    
    
    26,259
    
    
    
    26,345Current portion of debt obligation
    
    
    3,751
    
    
    
    3,725Total current liabilities
    
    
    55,441
    
    
    
    54,260Debt obligation, excluding current portion
    
    
    7,846
    
    
    
    8,805Accrued restructuring, excluding current portion
    
    
    5,138
    
    
    
    6,181Other liabilities
    
    
    2,860
    
    
    
    2,693Total liabilities
    
    
    71,285
    
    
    
    71,939Stockholders equity:Preferred stock
    
    
    10,000
    
    
    
    10,000Common stock
    
    
    566
    
    
    
    567Additional paid in capital
    
    
    1,810,958
    
    
    
    1,810,783Accumulated deficit
    
    
    (1,604,617
    )
    
    
    (1,609,807
    )Accumulated other comprehensive loss:Net gain (loss) on derivative financial instruments
    
    
    16
    
    
    
    (97
    )Cumulative foreign currency translation adjustment
    
    
    (1,760
    )
    
    
    (1,541
    )Total stockholders equity
    
    
    215,163
    
    
    
    209,905Total liabilities and stockholders equity
    
    $
    286,448
    
    
    $
    281,844Preferred shares issued and outstanding
    
    
    749,064
    
    
    
    749,064Common shares issued and outstanding
    
    
    56,612,353
    
    
    
    56,748,906
  1




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S1 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Revenues:Software licenses
    
    $
    9,339
    
    
    $
    5,762Support and maintenance
    
    
    11,704
    
    
    
    10,475Professional services
    
    
    21,070
    
    
    
    19,432Data center
    
    
    12,267
    
    
    
    11,700Other
    
    
    293
    
    
    
    197Total revenues
    
    
    54,673
    
    
    
    47,566Operating expenses:Cost of software licenses (1)
    
    
    980
    
    
    
    892Cost of professional services, support and maintenance (1)
    
    
    17,475
    
    
    
    16,002Cost of data center (1)
    
    
    6,557
    
    
    
    5,799Cost of other revenue
    
    
    29
    
    
    
    142Selling and marketing
    
    
    8,216
    
    
    
    7,398Product development
    
    
    6,755
    
    
    
    6,004General and administrative
    
    
    6,435
    
    
    
    6,699Depreciation
    
    
    1,942
    
    
    
    1,834Amortization of other intangible assets
    
    
    283
    
    
    
    327Total operating expenses (2)
    
    
    48,672
    
    
    
    45,097Operating income
    
    
    6,001
    
    
    
    2,469Interest and other income, net
    
    
    294
    
    
    
    871Income before income tax expense
    
    
    6,295
    
    
    
    3,340Income tax expense
    
    
    (1,105
    )
    
    
    (373
    )Net income
    
    $
    5,190
    
    
    $
    2,967Earnings per share:Basic
    
    $
    0.09
    
    
    $
    0.05Diluted
    
    $
    0.09
    
    
    $
    0.05Weighted average common shares outstanding  basic
    
    
    56,530,569
    
    
    
    61,505,306Weighted average common shares outstanding  fully diluted
    
    
    57,102,409
    
    
    
    61,801,948
 
 (1)
    
    Excludes charges for depreciation. Cost of software license includes amortization of
purchased technology.(2)
    
    Includes stock-based compensation expenses of $1.9 million for the three months ended March
31, 2008 and 2007. For further discussion, please refer to Note 11 of the unaudited condensed
consolidated financial statements.  2




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S1 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    5,190
    
    
    $
    2,967Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,970
    
    
    
    2,980Provision for doubtful accounts receivable and billing adjustments
    
    
    343
    
    
    
    682Stock-based compensation expense
    
    
    1,888
    
    
    
    1,905Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (5,265
    )
    
    
    4,076Decrease (increase) in prepaid expenses and other assets
    
    
    107
    
    
    
    (2,703
    )Increase (decrease) in accounts payable
    
    
    1,026
    
    
    
    (640
    )Decrease in accrued expenses and other liabilities
    
    
    (1,325
    )
    
    
    (4,671
    )Decrease in deferred revenues
    
    
    (140
    )
    
    
    (4,274
    )Net cash provided by operating activities
    
    
    4,794
    
    
    
    322Cash flows from investing activities:Maturities of short-term investment securities
    
    
    5,855
    
    
    
    21,076Purchases of short-term investment securities
    
    
    (48
    )
    
    
    (7,863
    )Amounts held in escrow related to sale of business
    
    
    3,712
    
    
    
    Purchases of property, equipment and technology
    
    
    (2,211
    )
    
    
    (403
    )Net cash provided by investing activities
    
    
    7,308
    
    
    
    12,810Cash flows from financing activities:Proceeds from exercise of employee stock options
    
    
    775
    
    
    
    1,403Payments on stock appreciation rights awards
    
    
    (168
    )
    
    
    Payments on capital leases and debt obligations
    
    
    (933
    )
    
    
    (834
    )Repurchase of common stock
    
    
    (1,739
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (2,065
    )
    
    
    569Effect of exchange rate changes on cash and cash equivalents
    
    
    75
    
    
    
    19Net increase in cash and cash equivalents
    
    
    10,112
    
    
    
    13,720Cash and cash equivalents at beginning of period
    
    
    45,011
    
    
    
    69,612Cash and cash equivalents at end of period
    
    $
    55,123
    
    
    $
    83,332
  3




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S1 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity
    
    
    IncomeBalance at December 31, 2006
    
    
    749,064
    
    
    $
    10,000
    
    
    
    61,290,973
    
    
    $
    613
    
    
    $
    1,845,529
    
    
    $
    (1,629,302
    )
    
    $
    (2,611
    )
    
    $
    224,229Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,967
    
    
    
    
    
    
    
    2,967
    
    
    
    2,967Change in net unrealized loss on cash flow hedges.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9
    
    
    
    9Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    93
    
    
    
    93Common stock issued upon the exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    336,897
    
    
    
    3
    
    
    
    1,400
    
    
    
    
    
    
    
    
    
    
    
    1,403
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,111
    
    
    
    
    
    
    
    
    
    
    
    1,111
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,069Balance at March 31, 2007
    
    
    749,064
    
    
    $
    10,000
    
    
    
    61,627,870
    
    
    $
    616
    
    
    $
    1,848,040
    
    
    $
    (1,626,335
    )
    
    $
    (2,509
    )
    
    $
    229,812Balance at December 31, 2007
    
    
    749,064
    
    
    $
    10,000
    
    
    
    56,748,906
    
    
    $
    567
    
    
    $
    1,810,783
    
    
    $
    (1,609,807
    )
    
    $
    (1,638
    )
    
    $
    209,905Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,190
    
    
    
    
    
    
    
    5,190
    
    
    
    5,190Change in net unrealized loss on cash flow hedges.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    113
    
    
    
    113Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (219
    )
    
    
    (219
    )
    
    
    (219
    )Common stock issued upon the exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    181,647
    
    
    
    2
    
    
    
    773
    
    
    
    
    
    
    
    
    
    
    
    775
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,138
    
    
    
    
    
    
    
    
    
    
    
    1,138
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (318,200
    )
    
    
    (3
    )
    
    
    (1,736
    )
    
    
    
    
    
    
    
    
    
    
    (1,739
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,084Balance at March 31, 2008
    
    
    749,064
    
    
    $
    10,000
    
    
    
    56,612,353
    
    
    $
    566
    
    
    $
    1,810,958
    
    
    $
    (1,604,617
    )
    
    $
    (1,744
    )
    
    $
    215,163
  4




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##### Table of Contents



S1 CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. BACKGROUND AND BASIS OF PRESENTATION
   2. RECENT ACCOUNTING PRONOUNCEMENTS
   5




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3. DISCONTINUED OPERATIONS
  4. INVESTMENTS
  March 31,
    
    
    December 31,2008
    
    
    2007Certificates of deposit
    
    $
    10,953
    
    
    $
    12,961Mutual fund trust
    
    
    7,095
    
    
    
    10,894Total
    
    $
    18,048
    
    
    $
    23,855
 5. FAIR VALUE MEASUREMENTS
  6




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Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableCarrying
    
    Identical Assets
    
    Observable Inputs
    
    InputsValue
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Mutual fund trust
    
    
    $7,095
    
    
    
    $
    
    
    
    $7,095
    
    
    
    $Derivative assets
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    Total
    
    
    $7,111
    
    
    
    $
    
    
    
    $7,111
    
    
    
    $
 6. GOODWILL AND INTANGIBLE ASSETS
  Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValuePurchased and acquired technology
    
    $
    21,938
    
    
    $
    (17,235
    )
    
    $
    4,703Customer relationships
    
    
    12,000
    
    
    
    (6,491
    )
    
    
    5,509Total
    
    $
    33,938
    
    
    $
    (23,726
    )
    
    $
    10,212
 7




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2008
    
    2009
    
    2010
    
    2011
    
    2012Enterprise
    
    $
    329
    
    
    $
    245
    
    
    $
    245
    
    
    $
    245
    
    
    $
    184Postilion
    
    $
    3,326
    
    
    $
    2,445
    
    
    $
    1,335
    
    
    $
    1,282
    
    
    $
    706
  Enterprise
    
    
    Postilion
    
    
    TotalBalance, December 31, 2007
    
    $
    49,616
    
    
    $
    75,665
    
    
    $
    125,281Utilization of acquisition related
income tax benefits
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Balance March 31, 2008
    
    $
    49,605
    
    
    $
    75,665
    
    
    $
    125,270
 7. RESTRUCTURING CHARGES
 2003 and Prior Restructuring Plans.
 Lease CostsBalance, December 31, 2007
    
    $
    2,290Amounts utilized
    
    
    (200
    )Balance, March 31, 2008
    
    $
    2,090
 2005 Restructuring Plan.
 Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2007
    
    $
    33
    
    
    $
    2,356
    
    
    $
    2,389Amounts utilized
    
    
    
    
    
    
    (281
    )
    
    
    (281
    )Balance, March 31, 2008
    
    $
    33
    
    
    $
    2,075
    
    
    $
    2,108
 2006 Restructuring Plan.
 Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2007
    
    $
    833
    
    
    $
    3,712
    
    
    $
    4,545Amounts utilized
    
    
    (77
    )
    
    
    (329
    )
    
    
    (406
    )Balance, March 31, 2008
    
    $
    756
    
    
    $
    3,383
    
    
    $
    4,139
 8




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##### Table of Contents



8. ACCRUED OTHER EXPENSES
  March 31,
    
    
    December 31,2008
    
    
    2007Accrued service fees payable
    
    $
    2,845
    
    
    $
    3,190Accrued third party products and royalties
    
    
    1,089
    
    
    
    1,359Sales and income taxes payable
    
    
    2,464
    
    
    
    1,035Accrued contract losses
    
    
    667
    
    
    
    720Other
    
    
    2,143
    
    
    
    1,894Total
    
    $
    9,208
    
    
    $
    8,198
 9. CONTINGENCIES AND DEBT
 Litigation.
 Guarantees.
 Long-term Debt.
 March 31,
    
    
    December 31,2008
    
    
    2007Capital leases
    
    $
    6,133
    
    
    $
    7,030Note payable on property
    
    
    5,199
    
    
    
    5,214Other notes payable
    
    
    265
    
    
    
    286Total debt
    
    $
    11,597
    
    
    $
    12,530Less current portion
    
    
    (3,751
    )
    
    
    (3,725
    )Total long-term debt
    
    $
    7,846
    
    
    $
    8,805
 10. INCOME TAXES
  9




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11. STOCK OPTION PLANS
     Three Months Ended March 31,2008
    
    2007Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    44.8
    %
    
    
    46.0
    %Risk-free interest rate
    
    
    2.3
    %
    
    
    5.0
    %Expected life
    
    4.4 years
    
    4.0 years
  March 31,2008
    
    2007Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    43.6
    %
    
    
    47.0
    %Risk-free interest rate
    
    
    1.9
    %
    
    
    5.0
    %Expected life
    
    3.3 years
    
    4.4 years
 10




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Three Months Ended March 31,2008
    
    
    2007Operating expenses:Cost of professional services, support and maintenance
    
    $
    46
    
    
    $
    87Cost of data center
    
    
    25
    
    
    
    15Selling and marketing
    
    
    724
    
    
    
    919Product development
    
    
    322
    
    
    
    342General and administrative
    
    
    771
    
    
    
    542Total stock-based compensation expense
    
    $
    1,888
    
    
    $
    1,905
  Unrecognized
    
    WeightedExpense
    
    Average Period(in thousands)
    
    (in years)Stock Options
    
    $
    4,460
    
    
    
    1.1Restricted Stock
    
    
    550
    
    
    
    0.7Stock Appreciation Rights
    
    
    1,530
    
    
    
    0.3
 12. STOCKHOLDERS EQUITY
  11




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13. SEGMENT REPORTING AND MAJOR CUSTOMERS
    Three Months Ended March 31, 2008Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    1,423
    
    
    $
    7,916
    
    
    
    9,339Support and maintenance
    
    
    3,723
    
    
    
    7,981
    
    
    
    11,704Professional services
    
    
    17,090
    
    
    
    3,980
    
    
    
    21,070Data center
    
    
    7,057
    
    
    
    5,210
    
    
    
    12,267Other revenue
    
    
    195
    
    
    
    98
    
    
    
    293Total revenue
    
    $
    29,488
    
    
    $
    25,185
    
    
    $
    54,673Operating expenses:Direct costs
    
    
    14,911
    
    
    
    10,130
    
    
    
    25,041Selling and marketing
    
    
    4,187
    
    
    
    4,029
    
    
    
    8,216Product development
    
    
    4,099
    
    
    
    2,656
    
    
    
    6,755General and administrative
    
    
    3,250
    
    
    
    3,185
    
    
    
    6,435Depreciation
    
    
    1,155
    
    
    
    787
    
    
    
    1,942Amortization of other intangible assets
    
    
    
    
    
    
    283
    
    
    
    283Total operating expenses
    
    
    27,602
    
    
    
    21,070
    
    
    
    48,672Operating income
    
    $
    1,886
    
    
    $
    4,115
    
    
    $
    6,001
 Three Months Ended March 31, 2007Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    1,055
    
    
    $
    4,707
    
    
    $
    5,762Support and maintenance
    
    
    3,416
    
    
    
    7,059
    
    
    
    10,475Professional services
    
    
    15,473
    
    
    
    3,959
    
    
    
    19,432Data center
    
    
    5,705
    
    
    
    5,995
    
    
    
    11,700Other revenue
    
    
    155
    
    
    
    42
    
    
    
    197Total revenue
    
    $
    25,804
    
    
    $
    21,762
    
    
    $
    47,566Operating expenses:Direct costs
    
    
    13,547
    
    
    
    9,288
    
    
    
    22,835Selling and marketing
    
    
    3,184
    
    
    
    4,214
    
    
    
    7,398Product development
    
    
    3,015
    
    
    
    2,989
    
    
    
    6,004General and administrative
    
    
    3,810
    
    
    
    2,889
    
    
    
    6,699Depreciation
    
    
    1,219
    
    
    
    615
    
    
    
    1,834Amortization of other intangible assets
    
    
    45
    
    
    
    282
    
    
    
    327Total operating expenses
    
    
    24,820
    
    
    
    20,277
    
    
    
    45,097Operating income
    
    $
    984
    
    
    $
    1,485
    
    
    $
    2,469
 Geography.
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Major Customer.
 14. NET INCOME PER COMMON SHARE
   Three Months EndedMarch 31,2008
    
    
    2007(in thousands, except per share data)Basic earnings per share:Net Income
    
    $
    5,190
    
    
    $
    2,967Amount allocated to participating preferred stockholders
    
    
    (96
    )
    
    
    (51
    )Net income available to common stockholders
    
    $
    5,094
    
    
    $
    2,916Weighted average common shares outstanding
    
    
    56,530
    
    
    
    61,505Basic earnings per share
    
    $
    0.09
    
    
    $
    0.05Diluted earnings per share:Net income
    
    $
    5,190
    
    
    $
    2,967Amount allocated to participating preferred stockholders
    
    
    (96
    )
    
    
    (51
    )Net income available to common stockholders
    
    $
    5,094
    
    
    $
    2,916Weighted average common shares outstanding
    
    
    56,530
    
    
    
    61,505Weighted average effect of common stock equivalent
stock options and restricted stock
    
    
    572
    
    
    
    297Weighted average diluted shares outstanding
    
    
    57,102
    
    
    
    61,802Diluted earnings per share
    
    $
    0.09
    
    
    $
    0.05
 13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations






Executive Overview




Enterprise
    
    PostilionBrands
    
    S1 Enterprise
    
    Postilion
    
    FSBRetail OnlinePersonal Banking
    
    Global
    
    US
    
    Business Banking
    
    Global
    
    US
    
    Mobile Banking and Payments
    
    Global
    
    Global
    
    Voice Banking
    
    Global
    
    US
    
    Treasury OnlineCorporate Banking
    
    Global
    
    
    
    Trade Finance
    
    Global
    
    
    
    Insurance
    
    US
    
    
    
    Payments
    
    
    
    Global
    
    Branch BankingTeller
    
    Global
    
    
    
    USSales and Service
    
    Global
    
    
    
    USCall Center
    
    Global
    
    
    
    USLending
    
    
    
    
    
    USBill pay services
    
    US
    
    US
    
    




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##### Table of Contents



Geography and Significant Customers
  Recent Accounting Pronouncements and Critical Accounting Policies and Estimates
  Comparison of the Three Months Ended March 31, 2008 and 2007
 Revenues.
 Three Months Ended March 31, 2008
    
    
    Three Months Ended March 31, 2007Enterprise
    
    
    Postilion
    
    
    Total
    
    
    Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    1,423
    
    
    $
    7,916
    
    
    $
    9,339
    
    
    $
    1,055
    
    
    $
    4,707
    
    
    $
    5,762Support and maintenance
    
    
    3,723
    
    
    
    7,981
    
    
    
    11,704
    
    
    
    3,416
    
    
    
    7,059
    
    
    
    10,475Professional services
    
    
    17,090
    
    
    
    3,980
    
    
    
    21,070
    
    
    
    15,473
    
    
    
    3,959
    
    
    
    19,432Data center
    
    
    7,057
    
    
    
    5,210
    
    
    
    12,267
    
    
    
    5,705
    
    
    
    5,995
    
    
    
    11,700Other revenue
    
    
    195
    
    
    
    98
    
    
    
    293
    
    
    
    155
    
    
    
    42
    
    
    
    197Total revenue
    
    $
    29,488
    
    
    $
    25,185
    
    
    $
    54,673
    
    
    $
    25,804
    
    
    $
    21,762
    
    
    $
    47,566
  15




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16




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##### Table of Contents



Stock-based compensation costs.
 Three Months Ended March 31,2008
    
    
    2007Operating expenses:Cost of professional services, support and maintenance
    
    $
    46
    
    
    $
    87Cost of data center
    
    
    25
    
    
    
    15Selling and marketing
    
    
    724
    
    
    
    919Product development
    
    
    322
    
    
    
    342General and administrative
    
    
    771
    
    
    
    542Total stock-based compensation expense
    
    $
    1,888
    
    
    $
    1,905
 Direct costs.
    Selling and marketing expenses.
 17




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##### Table of Contents



Product development expenses .
  General and administrative expenses.
 Depreciation.
 Amortization of other intangible assets.
 Interest and other income, net.
 Income tax expense.
    18




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##### Table of Contents




    
    for tax expense in certain subsidiaries or jurisdictions for which we do not have NOLs
to utilize;
    
    in the United States due to limitations on the use of our federal NOLs for alternative
minimum tax purposes which will be paid in cash; or
    
    if there are no NOLs that were acquired as part of a business combination, upon which we
placed a valuation allowance at acquisition date. This results in non-cash income tax
expense as goodwill is reduced and the valuation allowance is released.
 Liquidity and Capital Resources
  Three Months Ended March 31,2008
    
    
    2007Net cash provided by operating activities beforechanges in operating assets and liabilities
    
    $
    10,391
    
    
    $
    8,534Change in operating assets and liabilities
    
    
    (5,597
    )
    
    
    (8,212
    )Net cash provided by operating activities
    
    
    4,794
    
    
    
    322Net cash provided by investing activities
    
    
    7,308
    
    
    
    12,810Net cash (used in) provided by financing activities
    
    
    (2,065
    )
    
    
    569Effect of exchange rates on cash and cash equivalents
    
    
    75
    
    
    
    19Net increase in cash and cash equivalents
    
    $
    10,112
    
    
    $
    13,720
 As ofMarch 31, 2008
    
    December 31, 2007Cash and cash equivalents
    
    $
    55,123
    
    
    $
    45,011Short term investments
    
    
    18,048
    
    
    
    23,855Working capital
    
    
    68,264
    
    
    
    64,318Total assets
    
    
    286,448
    
    
    
    281,844Total stockholders equity
    
    
    215,163
    
    
    
    209,905
 Operating Activities.
  
    
    our net income of $5.2 million;
    
    depreciation and amortization expense of $3.0 million;
    
    stock based compensation expense of $1.9 million;
    
    an increase of $5.3 million in accounts receivable primarily due to an increase in
unbilled receivables;
    
    an increase in accounts payable of $1.0 million due to the timing of invoices;
    
    a decrease of $2.4 million for payments made from the restructuring reserve and
changes in the bonus obligation; and
    
    an increase of $1.4 million for sales and income taxes payable.
  19




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##### Table of Contents




    
    our net income of $3.0 million;
    
    depreciation and amortization expense of $3.0 million;
    
    stock based compensation expense of $1.9 million;
    
    a decrease in accrued expenses and other liabilities of $8.1 million as a result of
payments made from our restructuring reserve and changes in the bonus obligation;
    
    a decrease of $4.1 million in accounts receivable as a result of collections from
our largest customer; and
    
    a decrease of $4.3 million in deferred revenues due to work completed for our
largest customer.
 Investing Activities.
  
    
    converted $5.8 million, net, from short-term investments to cash and cash
equivalents;
    
    received $3.7 million from the release of escrow related to the sale of our Risk and
Compliance segment; and
    
    purchased $2.2 million of property and equipment for hardware expenditures and
building improvements.
  
    
    converted $13.2 million, net, from short-term investments to cash and cash
equivalents; and
    
    purchased $0.4 million of property and equipment.
 Financing Activities.
  
    
    paid $1.7 million for the repurchase of our common stock pursuant to an authorized
stock repurchase program;
    
    received $0.6 million from the sale of common stock under our employee stock option
plans offset by payments for the exercise of stock appreciation rights; and
    
    paid $0.9 million for capital lease and debt obligations.
  
    
    received $1.4 million from the sale of common stock under our employee stock option
plans; and
    
    paid $0.8 million for capital lease and debt obligations.
 Investments.
 Stock Repurchase Program.
 Restructuring
 20




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##### Table of Contents



Stock Appreciation Rights Awards.
 Capital Requirements.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
      
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls.
 21




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Changes in Internal Control over Financial Reporting.
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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c)
    
    The following table provides information with respect to any purchase made by or on
behalf of the Company or any affiliated purchaser, as defined in Section 240.10b-18(a)(3)
of the Securities Exchange Act of 1934, of shares of our common stock.
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Total number of
    
    
    Approximate dollarshares purchased
    
    
    value of shares thatTotal number
    
    
    
    
    
    
    as part of a publicly
    
    
    may yet be purchasedof shares
    
    
    Average price
    
    
    announced plan or
    
    
    under the plan orPeriod
    
    purchased
    
    
    paid per share
    
    
    program
    
    
    programJanuary 1, 2008 - January 31, 2008
    
    
    316,500
    
    
    $
    5.45
    
    
    
    316,500
    
    
    $
    8,017,012February 1, 2008 - February 29,
2008
    
    
    1,700
    
    
    $
    5.50
    
    
    
    1,700
    
    
    $
    8,007,662March 1, 2008 - March 31,
2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    8,007,662Total
    
    
    318,200
    
    
    $
    5.45
    
    
    
    318,200
  
 Item 6. Exhibits
 ExhibitNo.
    
    Exhibit Description3.1
    
    Amended and Restated Certificate of Incorporation of S1 Corporation (S1) (filed as Exhibit
1 to S1s Registration Statement on Form 8-A filed with the Securities and Exchange Commission
(the SEC) on September 30, 1998 and incorporated herein by reference).3.2
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated
June 3, 1999 (filed as Exhibit 4.2 to S1s Registration Statement on Form S-8 (File No.
333-82369) filed with the SEC on July 7, 1999 and incorporated herein by reference).
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##### Table of Contents



ExhibitNo.
    
    Exhibit Description3.3
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated
November 10, 1999 (filed as Exhibit 3.3 to S1s Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 and incorporated herein by reference).3.4
    
    Certificate of Designation for S1s Series B Redeemable Convertible Preferred Stock (filed as
Exhibit 2 to S1s Registration Statement on Form 8-A filed with the SEC on September 30, 1998
and incorporated herein by reference).3.5
    
    Amended and Restated Bylaws of S1, as amended (filed as Exhibit 3.6 to S1s Quarterly Report
on Form 10-Q filed with the SEC on May 8, 2006 and incorporated herein by reference).4.1
    
    Specimen certificate for S1s common stock (filed as Exhibit 4 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference).4.2
    
    Specimen certificate for S1s Series B Redeemable Convertible Preferred Stock (filed as
Exhibit 4.3 to S1s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002
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##### Table of Contents



SIGNATURE
  S1 CORPORATIONBy:
    /s/ JOHN A. STONEJohn A. StoneChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) 25