##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2010
 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, former address and former fiscal year, if changed since last report.)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



S1 CORPORATION
 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    1Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended
September 30, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2010 and 2009
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 6. Exhibits
    
    
    23Signature
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 S1 CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (IN THOUSANDS, EXCEPT SHARE DATA)
 (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    52,082
    
    
    $
    61,784Accounts receivable, net
    
    
    54,044
    
    
    
    64,470Prepaid expenses
    
    
    5,147
    
    
    
    4,729Other current assets
    
    
    9,313
    
    
    
    4,931Total current assets
    
    
    120,586
    
    
    
    135,914Property and equipment, net
    
    
    21,691
    
    
    
    23,018Intangible assets, net
    
    
    12,619
    
    
    
    4,895Goodwill, net
    
    
    148,055
    
    
    
    126,605Other assets
    
    
    8,192
    
    
    
    9,634Total assets
    
    $
    311,143
    
    
    $
    300,066LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    10,536
    
    
    $
    7,707Accrued compensation and benefits
    
    
    8,356
    
    
    
    11,569Current portion of debt obligation
    
    
    5,188
    
    
    
    1,170Current portion of accrued restructuring
    
    
    2,106
    
    
    
    2,096Income taxes payable
    
    
    3,152
    
    
    
    1,586Deferred revenues
    
    
    36,722
    
    
    
    26,837Other current liabilities
    
    
    1,908
    
    
    
    2,007Total current liabilities
    
    
    67,968
    
    
    
    52,972Debt obligation, excluding current portion
    
    
    
    
    
    
    5,026Accrued restructuring, excluding current portion
    
    
    
    
    
    
    1,381Other liabilities
    
    
    2,884
    
    
    
    2,046Total liabilities
    
    
    70,852
    
    
    
    61,425Stockholders equity:Preferred stock
    
    
    
    
    
    
    10,000Common stock
    
    
    531
    
    
    
    517Additional paid-in-capital
    
    
    1,800,894
    
    
    
    1,787,772Accumulated deficit
    
    
    (1,559,472
    )
    
    
    (1,557,534
    )Accumulated other comprehensive loss
    
    
    (1,662
    )
    
    
    (2,114
    )Total stockholders equity
    
    
    240,291
    
    
    
    238,641Total liabilities and stockholders equity
    
    $
    311,143
    
    
    $
    300,066Preferred shares issued and outstanding
    
    
    
    
    
    
    749,064Common shares issued and outstanding
    
    
    53,115,181
    
    
    
    51,712,710
   1




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##### Table of Contents



S1 CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue:Software licenses
    
    $
    6,764
    
    
    $
    7,444
    
    
    $
    17,335
    
    
    $
    26,218Support and maintenance
    
    
    15,648
    
    
    
    14,919
    
    
    
    46,436
    
    
    
    43,697Professional services
    
    
    17,382
    
    
    
    25,787
    
    
    
    52,682
    
    
    
    72,952Hosting
    
    
    13,886
    
    
    
    12,187
    
    
    
    40,160
    
    
    
    36,600Total revenue
    
    
    53,680
    
    
    
    60,337
    
    
    
    156,613
    
    
    
    179,467Operating expenses:Cost of software licenses (1)
    
    
    803
    
    
    
    623
    
    
    
    1,754
    
    
    
    2,735Cost of professional services, support and maintenance (1)
    
    
    21,311
    
    
    
    19,200
    
    
    
    61,386
    
    
    
    55,997Cost of hosting (1)
    
    
    7,181
    
    
    
    7,079
    
    
    
    20,742
    
    
    
    21,169Selling and marketing
    
    
    6,452
    
    
    
    7,214
    
    
    
    20,007
    
    
    
    23,143Product development
    
    
    9,099
    
    
    
    8,996
    
    
    
    26,572
    
    
    
    26,141General and administrative
    
    
    5,746
    
    
    
    5,864
    
    
    
    18,721
    
    
    
    18,189Depreciation and amortization
    
    
    2,589
    
    
    
    2,298
    
    
    
    7,610
    
    
    
    7,298Total operating expenses
    
    
    53,181
    
    
    
    51,274
    
    
    
    156,792
    
    
    
    154,672Operating income (loss)
    
    
    499
    
    
    
    9,063
    
    
    
    (179
    )
    
    
    24,795Interest income
    
    
    53
    
    
    
    101
    
    
    
    164
    
    
    
    335Interest expense
    
    
    (112
    )
    
    
    (161
    )
    
    
    (350
    )
    
    
    (521
    )Other non-operating expenses
    
    
    (395
    )
    
    
    (456
    )
    
    
    (867
    )
    
    
    (848
    )Interest and other expense, net
    
    
    (454
    )
    
    
    (516
    )
    
    
    (1,053
    )
    
    
    (1,034
    )Income (loss) before income tax benefit (expense)
    
    
    45
    
    
    
    8,547
    
    
    
    (1,232
    )
    
    
    23,761Income tax benefit (expense)
    
    
    847
    
    
    
    (1,637
    )
    
    
    (706
    )
    
    
    (3,276
    )Net income (loss)
    
    $
    892
    
    
    $
    6,910
    
    
    $
    (1,938
    )
    
    $
    20,485Net income (loss) per share:Basic
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    (0.04
    )
    
    $
    0.38Diluted
    
    $
    0.02
    
    
    $
    0.12
    
    
    $
    (0.04
    )
    
    $
    0.37Weighted average common shares outstanding  basic
    
    
    53,087,495
    
    
    
    52,598,922
    
    
    
    52,228,006
    
    
    
    52,766,275Weighted average common shares outstanding  fully diluted
    
    
    53,455,282
    
    
    
    53,452,888
    
    
    
    52,228,006
    
    
    
    53,494,437
 
 (1)
    
    Excludes charges for depreciation. Cost of software licenses includes amortization of
acquired technology.   2




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##### Table of Contents



S1 CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 (Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net (loss) income
    
    $
    (1,938
    )
    
    $
    20,485Adjustments to reconcile net (loss) income to net cash from operating activities:Depreciation and amortization
    
    
    8,373
    
    
    
    8,650Provision for doubtful accounts receivable and billing adjustments
    
    
    1,540
    
    
    
    534Deferred income taxes
    
    
    (657
    )
    
    
    240Stock-based compensation expense
    
    
    1,431
    
    
    
    421Changes in assets and liabilities:Decrease (increase) in accounts receivable
    
    
    10,347
    
    
    
    (13,926
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (2,305
    )
    
    
    294Increase (decrease) in accounts payable and other liabilities
    
    
    158
    
    
    
    (912
    )Decrease in accrued compensation and benefits
    
    
    (1,899
    )
    
    
    (1,127
    )Increase (decrease) in income taxes payable
    
    
    1,360
    
    
    
    (938
    )Increase in deferred revenue
    
    
    9,660
    
    
    
    5,429Net cash provided by operating activities
    
    
    26,070
    
    
    
    19,150Cash flows from investing activities:Maturities of investment securities
    
    
    1,384
    
    
    
    2,504Purchases of investment securities
    
    
    (1,117
    )
    
    
    (3,224
    )Purchases of restricted investment securities
    
    
    
    
    
    
    (2,000
    )Acquisitions, net of acquired cash
    
    
    (31,198
    )
    
    
    Purchases of property, equipment and technology
    
    
    (4,140
    )
    
    
    (6,364
    )Net cash used in investing activities
    
    
    (35,071
    )
    
    
    (9,084
    )Cash flows from financing activities:(Payments) proceeds from exercise of employee stock awards
    
    
    (26
    )
    
    
    192Payments on capital leases and debt obligations
    
    
    (1,008
    )
    
    
    (2,921
    )Repurchase and retirement of common stock
    
    
    
    
    
    
    (4,971
    )Net cash used in financing activities
    
    
    (1,034
    )
    
    
    (7,700
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    333
    
    
    
    1,201Net (decrease) increase in cash and cash equivalents
    
    
    (9,702
    )
    
    
    3,567Cash and cash equivalents at beginning of period
    
    
    61,784
    
    
    
    63,840Cash and cash equivalents at end of period
    
    $
    52,082
    
    
    $
    67,407
   3




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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
   4




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##### Table of Contents



3. BUSINESS COMBINATIONS
    PMSC
    
    
    Reseller AssetsCash
    
    $
    751
    
    
    $
    51Accounts receivables
    
    
    908
    
    
    
    379Indentifiable intangible assets:Trade names
    
    
    121
    
    
    
    Acquired technology
    
    
    3,390
    
    
    
    Customer relationships
    
    
    5,986
    
    
    
    230Goodwill
    
    
    19,695
    
    
    
    1,726Property and equipment
    
    
    502
    
    
    
    281Other assets
    
    
    506
    
    
    
    6Deferred revenue
    
    
    (622
    )
    
    
    Liabilities
    
    
    (1,163
    )
    
    
    (673
    )Total
    
    $
    30,074
    
    
    $
    2,000
  5




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##### Table of Contents



4. FAIR VALUE MEASUREMENTS
   September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueCash and cash equivalents
    
    $
    52,082
    
    
    $
    52,082
    
    
    $
    61,784
    
    
    $
    61,784Included in other current assets:Fixed term deposits
    
    
    
    
    
    
    
    
    
    
    318
    
    
    
    318Restricted fixed term deposit
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000Debt obligation, excluding current portion
    
    
    
    
    
    
    
    
    
    
    5,026
    
    
    
    4,911
 5. ACCOUNTS RECEIVABLE
  September 30,
    
    
    December 31,2010
    
    
    2009Billed receivables
    
    $
    39,032
    
    
    $
    42,862Unbilled receivables
    
    
    18,476
    
    
    
    23,907Allowance for doubtful accounts and
billing adjustments
    
    
    (3,464
    )
    
    
    (2,299
    )Total
    
    $
    54,044
    
    
    $
    64,470
   6




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##### Table of Contents



6. OTHER CURRENT ASSETS
  September 30,
    
    
    December 31,2010
    
    
    2009Restricted cash and escrow
deposits
    
    $
    3,871
    
    
    $
    2,059Short-term investments
    
    
    
    
    
    
    318Taxes receivable
    
    
    2,621
    
    
    
    557Deferred tax assets, net
    
    
    1,841
    
    
    
    1,079Other
    
    
    980
    
    
    
    918Total
    
    $
    9,313
    
    
    $
    4,931
 7. GOODWILL AND OTHER INTANGIBLE ASSETS
    Banking:
    
    
    Banking:Payments
    
    
    Large FI
    
    
    Community FI
    
    
    TotalGoodwill, net as of December 31, 2009
    
    $
    32,836
    
    
    $
    52,047
    
    
    $
    41,722
    
    
    $
    126,605Acquisition of PMSC
    
    
    
    
    
    
    
    
    
    
    19,695
    
    
    
    19,695Acquisition August 2010
    
    
    1,726
    
    
    
    
    
    
    
    
    
    
    
    1,726Effect of foreign currency translations
    
    
    155
    
    
    
    (126
    )
    
    
    
    
    
    
    29Goodwill, net as of September 30, 2010
    
    $
    34,717
    
    
    $
    51,921
    
    
    $
    61,417
    
    
    $
    148,055
  As of September 30, 2010Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValueTrade names
    
    $
    121
    
    
    $
    (71
    )
    
    $
    50Acquired technology
    
    
    25,328
    
    
    
    (21,354
    )
    
    
    3,974Customer lists
    
    
    18,215
    
    
    
    (9,620
    )
    
    
    8,595Total
    
    $
    43,664
    
    
    $
    (31,045
    )
    
    $
    12,619
  7




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##### Table of Contents



As of December      31, 2009Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValueAcquired technology
    
    $
    21,938
    
    
    $
    (20,592
    )
    
    $
    1,346Customer lists
    
    
    12,000
    
    
    
    (8,451
    )
    
    
    3,549Total
    
    $
    33,938
    
    
    $
    (29,043
    )
    
    $
    4,895
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Trade names
    
    $
    30
    
    
    $
    
    
    
    $
    71
    
    
    $
    Acquired technology
    
    
    292
    
    
    
    457
    
    
    
    763
    
    
    
    915Customer lists
    
    
    424
    
    
    
    283
    
    
    
    1,168
    
    
    
    565Total
    
    $
    746
    
    
    $
    740
    
    
    $
    2,002
    
    
    $
    1,480
  2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014Payments
    
    $
    502
    
    
    $
    528
    
    
    $
    528
    
    
    $
    528
    
    
    $
    446Banking: Large FI
    
    
    245
    
    
    
    245
    
    
    
    183
    
    
    
    
    
    
    
    Banking: Community FI
    
    
    2,010
    
    
    
    2,089
    
    
    
    1,493
    
    
    
    1,277
    
    
    
    1,277Total
    
    $
    2,757
    
    
    $
    2,862
    
    
    $
    2,204
    
    
    $
    1,805
    
    
    $
    1,723
 8. DEFERRED REVENUE
  September 30,
    
    
    December 31,2010
    
    
    2009Software licenses
    
    $
    7,887
    
    
    $
    2,861Professional services
    
    
    8,470
    
    
    
    7,317Support and maintenance
    
    
    20,365
    
    
    
    16,659Deferred revenue, current
    
    
    36,722
    
    
    
    26,837Deferred revenue, non-current (1)
    
    
    494
    
    
    
    41Total deferred revenue
    
    $
    37,216
    
    
    $
    26,878
 (1)
    
    Non-current deferred revenue is included in Long-term Other liabilities.   8




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##### Table of Contents



9. INCOME TAXES
  10. STOCK-BASED COMPENSATION PLANS
   Grants available under 2003 Stock Incentive Plan
    
    
    1,109Stock options outstanding
    
    
    6,362Restricted stock
    
    
    1,288Total
    
    
    8,759
   9




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating expenses:Cost of professional services, support and maintenance
    
    $
    88
    
    
    $
    6
    
    
    $
    229
    
    
    
    67Cost of hosting
    
    
    33
    
    
    
    35
    
    
    
    97
    
    
    
    78Selling and marketing
    
    
    (124
    )
    
    
    (364
    )
    
    
    (111
    )
    
    
    (437
    )Product development
    
    
    35
    
    
    
    36
    
    
    
    26
    
    
    
    142General and administrative
    
    
    217
    
    
    
    148
    
    
    
    1,190
    
    
    
    571Total stock-based compensation expense (benefit)
    
    $
    249
    
    
    $
    (139
    )
    
    $
    1,431
    
    
    $
    421Grant type:Stock options
    
    $
    388
    
    
    $
    607
    
    
    $
    1,267
    
    
    $
    1,821Restricted stock
    
    
    668
    
    
    
    607
    
    
    
    1,894
    
    
    
    1,169Stock appreciation rights
    
    
    (807
    )
    
    
    (1,353
    )
    
    
    (1,730
    )
    
    
    (2,569
    )Total stock-based compensation expense (benefit)
    
    $
    249
    
    
    $
    (139
    )
    
    $
    1,431
    
    
    $
    421
 11. SEGMENT REPORTING AND MAJOR CUSTOMERS
  Three Months Ended September 30, 2010
    
    
    Three Months Ended September 30, 2009Banking:
    
    
    Banking:
    
    
    
    
    
    
    
    
    
    
    Banking:
    
    
    Banking:Payments
    
    
    Large FI
    
    
    Community FI
    
    
    Total
    
    
    Payments
    
    
    Large FI
    
    
    Community FI
    
    
    TotalRevenue:Software licenses
    
    $
    3,437
    
    
    $
    1,806
    
    
    $
    1,521
    
    
    $
    6,764
    
    
    $
    3,913
    
    
    $
    2,069
    
    
    $
    1,462
    
    
    $
    7,444Support and
maintenance
    
    
    5,531
    
    
    
    5,155
    
    
    
    4,962
    
    
    
    15,648
    
    
    
    4,833
    
    
    
    5,189
    
    
    
    4,897
    
    
    
    14,919Professional services
    
    
    4,157
    
    
    
    12,047
    
    
    
    1,178
    
    
    
    17,382
    
    
    
    5,705
    
    
    
    18,847
    
    
    
    1,235
    
    
    
    25,787Hosting
    
    
    314
    
    
    
    6,379
    
    
    
    7,193
    
    
    
    13,886
    
    
    
    207
    
    
    
    6,932
    
    
    
    5,048
    
    
    
    12,187Total revenue
    
    $
    13,439
    
    
    $
    25,387
    
    
    $
    14,854
    
    
    $
    53,680
    
    
    $
    14,658
    
    
    $
    33,037
    
    
    $
    12,642
    
    
    $
    60,337Operating expenses:Cost of software licenses
    
    
    
    
    
    
    482
    
    
    
    321
    
    
    
    803
    
    
    
    337
    
    
    
    150
    
    
    
    136
    
    
    
    623Cost of professional services,
support and maintenance
    
    
    5,096
    
    
    
    10,628
    
    
    
    5,587
    
    
    
    21,311
    
    
    
    4,405
    
    
    
    10,445
    
    
    
    4,350
    
    
    
    19,200Cost of hosting
    
    
    221
    
    
    
    3,727
    
    
    
    3,233
    
    
    
    7,181
    
    
    
    190
    
    
    
    3,980
    
    
    
    2,909
    
    
    
    7,079Selling and marketing
    
    
    2,592
    
    
    
    2,344
    
    
    
    1,516
    
    
    
    6,452
    
    
    
    2,939
    
    
    
    2,517
    
    
    
    1,758
    
    
    
    7,214Product development
    
    
    1,700
    
    
    
    3,834
    
    
    
    3,565
    
    
    
    9,099
    
    
    
    1,610
    
    
    
    5,209
    
    
    
    2,177
    
    
    
    8,996General and administrative
    
    
    1,754
    
    
    
    2,531
    
    
    
    1,461
    
    
    
    5,746
    
    
    
    1,462
    
    
    
    2,906
    
    
    
    1,496
    
    
    
    5,864Depreciation and amortization
    
    
    500
    
    
    
    1,103
    
    
    
    986
    
    
    
    2,589
    
    
    
    363
    
    
    
    1,168
    
    
    
    767
    
    
    
    2,298Total operating expenses
    
    
    11,863
    
    
    
    24,649
    
    
    
    16,669
    
    
    
    53,181
    
    
    
    11,306
    
    
    
    26,375
    
    
    
    13,593
    
    
    
    51,274Operating income (loss)
    
    $
    1,576
    
    
    $
    738
    
    
    $
    (1,815
    )
    
    $
    499
    
    
    $
    3,352
    
    
    $
    6,662
    
    
    $
    (951
    )
    
    $
    9,063
  10




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##### Table of Contents



Nine Months Ended September 30, 2010
    
    
    Nine Months Ended September 30, 2009Banking:
    
    
    Banking:
    
    
    
    
    
    
    
    
    
    
    Banking:
    
    
    Banking:Payments
    
    
    Large FI
    
    
    Community FI
    
    
    Total
    
    
    Payments
    
    
    Large FI
    
    
    Community FI
    
    
    TotalRevenue:Software licenses
    
    $
    9,121
    
    
    $
    3,712
    
    
    $
    4,502
    
    
    $
    17,335
    
    
    $
    14,447
    
    
    $
    5,853
    
    
    $
    5,918
    
    
    $
    26,218Support and maintenance
    
    
    15,993
    
    
    
    15,335
    
    
    
    15,108
    
    
    
    46,436
    
    
    
    13,565
    
    
    
    15,523
    
    
    
    14,609
    
    
    
    43,697Professional services
    
    
    12,675
    
    
    
    36,559
    
    
    
    3,448
    
    
    
    52,682
    
    
    
    13,792
    
    
    
    55,104
    
    
    
    4,056
    
    
    
    72,952Hosting
    
    
    883
    
    
    
    18,969
    
    
    
    20,308
    
    
    
    40,160
    
    
    
    549
    
    
    
    21,132
    
    
    
    14,919
    
    
    
    36,600Total revenue
    
    $
    38,672
    
    
    $
    74,575
    
    
    $
    43,366
    
    
    $
    156,613
    
    
    $
    42,353
    
    
    $
    97,612
    
    
    $
    39,502
    
    
    $
    179,467Operating expenses:Cost of software licenses
    
    
    121
    
    
    
    918
    
    
    
    715
    
    
    
    1,754
    
    
    
    1,225
    
    
    
    663
    
    
    
    847
    
    
    
    2,735Cost of professional services,
support and maintenance
    
    
    14,059
    
    
    
    30,885
    
    
    
    16,442
    
    
    
    61,386
    
    
    
    11,498
    
    
    
    32,707
    
    
    
    11,792
    
    
    
    55,997Cost of hosting
    
    
    612
    
    
    
    11,127
    
    
    
    9,003
    
    
    
    20,742
    
    
    
    473
    
    
    
    12,023
    
    
    
    8,673
    
    
    
    21,169Selling and marketing
    
    
    8,353
    
    
    
    7,153
    
    
    
    4,501
    
    
    
    20,007
    
    
    
    8,682
    
    
    
    9,144
    
    
    
    5,317
    
    
    
    23,143Product development
    
    
    4,574
    
    
    
    12,027
    
    
    
    9,971
    
    
    
    26,572
    
    
    
    3,980
    
    
    
    15,891
    
    
    
    6,270
    
    
    
    26,141General and administrative
    
    
    5,411
    
    
    
    8,439
    
    
    
    4,871
    
    
    
    18,721
    
    
    
    4,321
    
    
    
    9,167
    
    
    
    4,701
    
    
    
    18,189Depreciation and amortization
    
    
    1,462
    
    
    
    3,320
    
    
    
    2,828
    
    
    
    7,610
    
    
    
    1,182
    
    
    
    3,705
    
    
    
    2,411
    
    
    
    7,298Total operating expenses
    
    
    34,592
    
    
    
    73,869
    
    
    
    48,331
    
    
    
    156,792
    
    
    
    31,361
    
    
    
    83,300
    
    
    
    40,011
    
    
    
    154,672Operating income (loss)
    
    $
    4,080
    
    
    $
    706
    
    
    $
    (4,965
    )
    
    $
    (179
    )
    
    $
    10,992
    
    
    $
    14,312
    
    
    $
    (509
    )
    
    $
    24,795
 Major Customer.
 Geography
 Revenue
    
    
    Revenue
    
    
    Property and EquipmentThree Months Ended September 30,
    
    
    Nine Months Ended September 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Americas
    
    $
    37,157
    
    
    $
    42,517
    
    
    $
    111,144
    
    
    $
    128,200
    
    
    $
    19,080
    
    
    $
    20,451International:EMEI
    
    
    7,456
    
    
    
    9,485
    
    
    
    21,536
    
    
    
    27,629
    
    
    
    1,022
    
    
    
    985Africa
    
    
    3,395
    
    
    
    2,814
    
    
    
    9,909
    
    
    
    8,277
    
    
    
    1,433
    
    
    
    1,494APAC
    
    
    5,672
    
    
    
    5,521
    
    
    
    14,024
    
    
    
    15,361
    
    
    
    156
    
    
    
    88Total
    
    $
    53,680
    
    
    $
    60,337
    
    
    $
    156,613
    
    
    $
    179,467
    
    
    $
    21,691
    
    
    $
    23,018
  11




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##### Table of Contents



12. NET INCOME (LOSS) PER COMMON SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic income (loss) per share:Net income (loss)
    
    $
    892
    
    
    $
    6,910
    
    
    $
    (1,938
    )
    
    $
    20,485Amount allocated to participating preferred stockholders
    
    
    
    
    
    
    (135
    )
    
    
    
    
    
    
    (403
    )Amount allocated to participating restricted stockholders
    
    
    (21
    )
    
    
    (134
    )
    
    
    
    
    
    
    (236
    )Net income (loss) available to common stockholders
    
    $
    871
    
    
    $
    6,641
    
    
    $
    (1,938
    )
    
    $
    19,846Basic weighted average common shares outstanding
    
    
    53,087
    
    
    
    52,599
    
    
    
    52,228
    
    
    
    52,766Basic income (loss) per share
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    (0.04
    )
    
    $
    0.38Diluted income (loss) per share:Net income (loss)
    
    $
    892
    
    
    $
    6,910
    
    
    $
    (1,938
    )
    
    $
    20,485Amount allocated to participating preferred stockholders
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    (397
    )Amount allocated to participating restricted stockholders
    
    
    (21
    )
    
    
    (132
    )
    
    
    
    
    
    
    (233
    )Net income (loss) available to common stockholders
    
    $
    871
    
    
    $
    6,645
    
    
    $
    (1,938
    )
    
    $
    19,855Basic weighted average common shares outstanding
    
    
    53,087
    
    
    
    52,599
    
    
    
    52,228
    
    
    
    52,766Dilutive effect of employee stock options
    
    
    368
    
    
    
    854
    
    
    
    
    
    
    
    728Diluted weighted average common shares outstanding
    
    
    53,455
    
    
    
    53,453
    
    
    
    52,228
    
    
    
    53,494Diluted income (loss) per share
    
    $
    0.02
    
    
    $
    0.12
    
    
    $
    (0.04
    )
    
    $
    0.37
 13. CONVERTIBLE PREFERRED STOCK
  14. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    892
    
    
    $
    6,910
    
    
    $
    (1,938
    )
    
    $
    20,485Other comprehensive income:Currency translation adjustment
    
    
    2,604
    
    
    
    477
    
    
    
    452
    
    
    
    3,657Realized gain on securities, net of tax
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    (69
    )Total other comprehensive income
    
    
    2,604
    
    
    
    396
    
    
    
    452
    
    
    
    3,588Comprehensive income (loss)
    
    $
    3,496
    
    
    $
    7,306
    
    
    $
    (1,486
    )
    
    $
    24,073
  12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Executive Overview
      13




---



##### Table of Contents



Summary financial results.
   Revenue from Significant Customers
  Revenue Backlog
   14




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##### Table of Contents



CONSOLIDATED RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    ChangeRevenue:Software licenses
    
    $
    6,764
    
    
    $
    7,444
    
    
    
    -9
    %
    
    $
    17,335
    
    
    $
    26,218
    
    
    
    -34
    %Support and maintenance
    
    
    15,648
    
    
    
    14,919
    
    
    
    5
    %
    
    
    46,436
    
    
    
    43,697
    
    
    
    6
    %Professional services
    
    
    17,382
    
    
    
    25,787
    
    
    
    -33
    %
    
    
    52,682
    
    
    
    72,952
    
    
    
    -28
    %Hosting
    
    
    13,886
    
    
    
    12,187
    
    
    
    14
    %
    
    
    40,160
    
    
    
    36,600
    
    
    
    10
    %Total revenue
    
    
    53,680
    
    
    
    60,337
    
    
    
    -11
    %
    
    
    156,613
    
    
    
    179,467
    
    
    
    -13
    %Operating Expenses:Cost of software licenses (1)
    
    
    803
    
    
    
    623
    
    
    
    29
    %
    
    
    1,754
    
    
    
    2,735
    
    
    
    -36
    %Cost of professional services,
support and maintenance (1)
    
    
    21,311
    
    
    
    19,200
    
    
    
    11
    %
    
    
    61,386
    
    
    
    55,997
    
    
    
    10
    %Cost of hosting (1)
    
    
    7,181
    
    
    
    7,079
    
    
    
    1
    %
    
    
    20,742
    
    
    
    21,169
    
    
    
    -2
    %Selling and marketing
    
    
    6,452
    
    
    
    7,214
    
    
    
    -11
    %
    
    
    20,007
    
    
    
    23,143
    
    
    
    -14
    %Product development
    
    
    9,099
    
    
    
    8,996
    
    
    
    1
    %
    
    
    26,572
    
    
    
    26,141
    
    
    
    2
    %General and administrative
    
    
    5,746
    
    
    
    5,864
    
    
    
    -2
    %
    
    
    18,721
    
    
    
    18,189
    
    
    
    3
    %Depreciation and amortization
    
    
    2,589
    
    
    
    2,298
    
    
    
    13
    %
    
    
    7,610
    
    
    
    7,298
    
    
    
    4
    %Total operating expenses
    
    
    53,181
    
    
    
    51,274
    
    
    
    4
    %
    
    
    156,792
    
    
    
    154,672
    
    
    
    1
    %Operating income (loss)
    
    
    499
    
    
    
    9,063
    
    
    
    -94
    %
    
    
    (179
    )
    
    
    24,795
    
    
    
    -101
    %Interest and other expense, net
    
    
    (454
    )
    
    
    (516
    )
    
    
    -12
    %
    
    
    (1,053
    )
    
    
    (1,034
    )
    
    
    2
    %Income (loss) before income tax benefit (expense)
    
    
    45
    
    
    
    8,547
    
    
    
    -99
    %
    
    
    (1,232
    )
    
    
    23,761
    
    
    
    -105
    %Income tax benefit (expense)
    
    
    847
    
    
    
    (1,637
    )
    
    
    -152
    %
    
    
    (706
    )
    
    
    (3,276
    )
    
    
    -78
    %Net income (loss)
    
    $
    892
    
    
    $
    6,910
    
    
    
    -87
    %
    
    $
    (1,938
    )
    
    $
    20,485
    
    
    
    -109
    %Net income (loss) per share:Basic
    
    $
    0.02
    
    
    $
    0.13
    
    
    
    
    
    
    $
    (0.04
    )
    
    $
    0.38Diluted
    
    $
    0.02
    
    
    $
    0.12
    
    
    
    
    
    
    $
    (0.04
    )
    
    $
    0.37Effective tax rate
    
    
    -1882
    %
    
    
    19
    %
    
    
    
    
    
    
    -57
    %
    
    
    14
    %Operating expenses as a percent of revenue:Cost of software licenses (2)
    
    
    12
    %
    
    
    8
    %
    
    
    
    
    
    
    10
    %
    
    
    10
    %Cost of professional services,
support and maintenance (2)
    
    
    65
    %
    
    
    47
    %
    
    
    
    
    
    
    62
    %
    
    
    48
    %Cost of hosting (2)
    
    
    52
    %
    
    
    58
    %
    
    
    
    
    
    
    52
    %
    
    
    58
    %Selling and marketing
    
    
    12
    %
    
    
    12
    %
    
    
    
    
    
    
    13
    %
    
    
    13
    %Product development
    
    
    17
    %
    
    
    15
    %
    
    
    
    
    
    
    17
    %
    
    
    15
    %General and administrative
    
    
    11
    %
    
    
    10
    %
    
    
    
    
    
    
    12
    %
    
    
    10
    %Depreciation and amortization
    
    
    5
    %
    
    
    4
    %
    
    
    
    
    
    
    5
    %
    
    
    4
    %Operating income
    
    
    1
    %
    
    
    15
    %
    
    
    
    
    
    
    0
    %
    
    
    14
    %Net income (loss)
    
    
    2
    %
    
    
    11
    %
    
    
    
    
    
    
    -1
    %
    
    
    11
    %
 (1)
    
    The Cost of software licenses, professional services, support and maintenance,
and hosting excludes charges for depreciation. The Cost of software licenses includes
amortization of acquired technology.(2)
    
    Each cost of revenue is a percentage of the applicable revenue type for the
periods presented.  15




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##### Table of Contents



RESULTS OF OPERATIONS  COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2010
AND 2009
 Banking:
    
    
    Banking:(In thousands)
    
    Payments
    
    
    Large FI
    
    
    Community FI
    
    
    TotalTotal revenueThree months ended September 30, 2010
    
    $
    13,439
    
    
    $
    25,387
    
    
    $
    14,854
    
    
    $
    53,680Three months ended September 30, 2009
    
    
    14,658
    
    
    
    33,037
    
    
    
    12,642
    
    
    
    60,337Revenue (decline) growth
    
    
    (1,219
    )
    
    
    (7,650
    )
    
    
    2,212
    
    
    
    (6,657
    )Percentage change
    
    
    -8
    %
    
    
    -23
    %
    
    
    17
    %
    
    
    -11
    %Total operating income (loss)Three months ended September 30, 2010
    
    $
    1,576
    
    
    $
    738
    
    
    $
    (1,815
    )
    
    $
    499Three months ended September 30, 2009
    
    
    3,352
    
    
    
    6,662
    
    
    
    (951
    )
    
    
    9,063Change in operating income (loss)
    
    
    (1,776
    )
    
    
    (5,924
    )
    
    
    (864
    )
    
    
    (8,564
    )Percentage change
    
    
    -53
    %
    
    
    -89
    %
    
    
    -91
    %
    
    
    -94
    %
 Revenue.
    Operating income (loss).
   16




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##### Table of Contents



Interest and other expense, net.
 Income tax expense
 RESULTS OF OPERATIONS  COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2010
AND 2009
 Banking:
    
    
    Banking:(In thousands)
    
    Payments
    
    
    Large FI
    
    
    Community FI
    
    
    TotalTotal revenueNine months ended September 30,
2010
    
    $
    38,672
    
    
    $
    74,575
    
    
    $
    43,366
    
    
    $
    156,613Nine months ended September 30, 2009
    
    
    42,353
    
    
    
    97,612
    
    
    
    39,502
    
    
    
    179,467Revenue (decline) growth
    
    
    (3,681
    )
    
    
    (23,037
    )
    
    
    3,864
    
    
    
    (22,854
    )Percentage change
    
    
    -9
    %
    
    
    -24
    %
    
    
    10
    %
    
    
    -13
    %Total operating income (loss)Nine months ended September 30, 2010
    
    $
    4,080
    
    
    $
    706
    
    
    $
    (4,965
    )
    
    $
    (179
    )Nine months ended September 30, 2009
    
    
    10,992
    
    
    
    14,312
    
    
    
    (509
    )
    
    
    24,795Change in operating income (loss)
    
    
    (6,912
    )
    
    
    (13,606
    )
    
    
    (4,456
    )
    
    
    (24,974
    )Percentage change
    
    
    -63
    %
    
    
    -95
    %
    
    
    -875
    %
    
    
    -101
    %
 Revenue.
    17




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##### Table of Contents



Operating income (loss).
    Interest and other expense, net.
 Income tax expense
  18




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##### Table of Contents



Liquidity and Capital Resources
  Nine Months ended September 30,2010
    
    
    2009Net cash provided by operating activities before
changes in operating assets and liabilities
    
    $
    8,749
    
    
    $
    30,330Change in operating assets and liabilities
    
    
    17,321
    
    
    
    (11,180
    )Net cash provided by operating activities
    
    
    26,070
    
    
    
    19,150Net cash used in investing activities
    
    
    (35,071
    )
    
    
    (9,084
    )Net cash used in financing activities
    
    
    (1,034
    )
    
    
    (7,700
    )Effect of exchange rates on cash and cash equivalents
    
    
    333
    
    
    
    1,201Net (decrease) increase in cash and cash equivalents
    
    $
    (9,702
    )
    
    $
    3,567
 September 30,
    
    
    December 31,2010
    
    
    2009Cash and cash equivalents
    
    $
    52,082
    
    
    $
    61,784Working capital (1)
    
    
    52,618
    
    
    
    82,942Total assets
    
    
    311,143
    
    
    
    300,066Total stockholders equity
    
    
    240,291
    
    
    
    238,641
 (1)
    
    Working capital includes deferred revenue of $36.7
million and $26.8 million as of September 30, 2010 and December
31, 2009, respectively. Operating Activities
 Investing Activities
 Financing Activities
  19




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##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements.
 Restructuring.
 Stock appreciation rights awards.
 Capital requirements.
 Recent Accounting Pronouncements
   Critical Accounting Policies and Estimates
   20




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##### Table of Contents




    
    revenue recognition;
    
    estimation of our allowance for doubtful accounts and billing adjustments;
    
    valuation and recoverability of long-lived assets, including goodwill;
    
    determination of the fair value of stock-based compensation;
    
    recognition of costs in connection with restructuring plans; and
    
    income taxes.
 Revenue recognition.
 Stock-based compensation.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating expenses:Cost of professional services, support and maintenance
    
    $
    88
    
    
    $
    6
    
    
    $
    229
    
    
    
    67Cost of hosting
    
    
    33
    
    
    
    35
    
    
    
    97
    
    
    
    78Selling and marketing
    
    
    (124
    )
    
    
    (364
    )
    
    
    (111
    )
    
    
    (437
    )Product development
    
    
    35
    
    
    
    36
    
    
    
    26
    
    
    
    142General and administrative
    
    
    217
    
    
    
    148
    
    
    
    1,190
    
    
    
    571Total stock-based compensation expense (benefit)
    
    $
    249
    
    
    $
    (139
    )
    
    $
    1,431
    
    
    $
    421Grant type:Stock options
    
    $
    388
    
    
    $
    607
    
    
    $
    1,267
    
    
    $
    1,821Restricted stock
    
    
    668
    
    
    
    607
    
    
    
    1,894
    
    
    
    1,169Stock appreciation rights
    
    
    (807
    )
    
    
    (1,353
    )
    
    
    (1,730
    )
    
    
    (2,569
    )Total stock-based compensation expense (benefit)
    
    $
    249
    
    
    $
    (139
    )
    
    $
    1,431
    
    
    $
    421
  21




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##### Table of Contents



Effects of Foreign Currencies
  Three Months Ended September 30, 2010
    
    
    Nine Months Ended September 30, 2010At Prior Year
    
    
    
    
    
    
    
    
    
    
    At Prior YearExchange
    
    
    Exchange Rate
    
    
    
    
    
    
    Exchange
    
    
    Exchange RateRates (1)
    
    
    Effect
    
    
    As reported
    
    
    Rates (1)
    
    
    Effect
    
    
    As reportedRevenue
    
    $
    53,310
    
    
    $
    370
    
    
    $
    53,680
    
    
    $
    154,893
    
    
    $
    1,720
    
    
    $
    156,613Operating expenses
    
    
    53,021
    
    
    
    160
    
    
    
    53,181
    
    
    
    154,692
    
    
    
    2,100
    
    
    
    156,792Operating income (loss)
    
    
    289
    
    
    
    210
    
    
    
    499
    
    
    
    201
    
    
    
    (380
    )
    
    
    (179
    )Net income (loss)
    
    
    592
    
    
    
    300
    
    
    
    892
    
    
    
    (1,918
    )
    
    
    (20
    )
    
    
    (1,938
    )Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    
    
    
    $
    (0.04
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    
    
    
    $
    (0.04
    )
 (1)
    
    Current year results translated into U.S. Dollars using prior years period average
exchange rates. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control over Financial Reporting.
  22




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  You should consider carefully the Risk Factors. If any of these risks actually occur, our
business, financial condition or results of operations would likely suffer. In that case, the
trading price of our common stock could decline, and you may lose all or a part of the money you
paid to buy our common stock.
 
 Item 6. Exhibits
 Exhibit No.
    
    Exhibit Description2.1
    
    
    Stock Purchase Agreement dated as of March 4, 2010 by and among S1 Corporation (S1),
PM Systems Corporation, James A. Krakeel and Robert M. Broadwell, Jr. (filed as Exhibit 2.1
to S1s Current Report on Form 8-K filed with the Securities and Exchange Commission
(theSEC) on March 10, 2010 and incorporated herein by reference).3.1
    
    
    Amended and Restated Certificate of Incorporation of S1 (filed as Exhibit 1 to S1s
Registration Statement on Form 8-A (File No. 000-24931) filed with 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).3.3
    
    
    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 filed with
the SEC on March 30, 2000 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 (File No. 000-24931) 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 for the quarterly period ended September 30, 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 September 30, 2000 and incorporated herein by
reference).31.1
    
    
    Certification of Chief Executive Officer.31.2
    
    
    Certification of Chief Financial Officer.32.1
    
    
    Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002.
  23




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##### Table of Contents



SIGNATURE
  S1 CORPORATIONBy:
    /s/ PAUL M. PARRISHPaul M. ParrishChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)  24