UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the Quarterly Period Ended June 30, 2002 | ||
| 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 | 58-2395199 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 3500 Lenox Road, Suite 200 | ||
| Atlanta, Georgia | 30326 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (404) 923-3500
NOT APPLICABLE
(Former name if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Shares of common stock outstanding as of August 9, 2002: 70,243,229
S1 CORPORATION AND SUBSIDIARIES
QUARTERLY PERIOD ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements: | |||
| Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 | 3 | |||
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001 | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 | 5 | |||
| Notes to Condensed Consolidated Financial Statements as of June 30, 2002 | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 | ||
| PART II — OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 27 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 27 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 27 | ||
| Signature | 28 |
2
PART 1 — FINANCIAL INFORMATION
Item 1 — Financial Statements
S1 CORPORATION AND SUBSIDIARIES
| June 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | ||||||||||||
| ASSETS | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 123,732 | $ | 119,632 | ||||||||
Short-term investments |
23,088 | 28,818 | ||||||||||
Accounts receivable, net |
62,033 | 56,502 | ||||||||||
Prepaid expenses |
6,036 | 3,906 | ||||||||||
Other current assets |
3,144 | 3,996 | ||||||||||
Total current assets |
218,033 | 212,854 | ||||||||||
Property and equipment, net |
37,372 | 41,253 | ||||||||||
Intangible assets, net |
24,963 | 31,500 | ||||||||||
Goodwill, net |
108,888 | 79,723 | ||||||||||
Other assets |
9,347 | 6,707 | ||||||||||
Total assets |
$ | 398,603 | $ | 372,037 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 12,620 | $ | 4,617 | ||||||||
Accrued compensation and benefits |
15,888 | 19,884 | ||||||||||
Accrued restructuring |
3,763 | 5,165 | ||||||||||
Accrued other expenses |
23,853 | 19,937 | ||||||||||
Deferred revenues |
34,252 | 27,499 | ||||||||||
Capital lease obligation |
4,473 | 5,925 | ||||||||||
Total current liabilities |
94,849 | 83,027 | ||||||||||
Deferred revenues |
3,470 | 288 | ||||||||||
Capital lease obligation, excluding current portion |
342 | 1,450 | ||||||||||
Deferred income tax liability |
2,537 | 5,615 | ||||||||||
Accrued restructuring, excluding current portion |
5,580 | 6,189 | ||||||||||
Other liabilities |
914 | 850 | ||||||||||
Total liabilities |
107,692 | 97,419 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock |
18,328 | 241,975 | ||||||||||
Common stock |
709 | 614 | ||||||||||
Additional paid-in capital |
1,894,889 | 1,640,972 | ||||||||||
Accumulated deficit |
(1,619,501 | ) | (1,607,148 | ) | ||||||||
Accumulated other comprehensive loss |
(3,514 | ) | (1,795 | ) | ||||||||
Total stockholders’ equity |
290,911 | 274,618 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 398,603 | $ | 372,037 | ||||||||
Preferred shares issued and outstanding |
1,398,244 | 1,635,744 | ||||||||||
Common shares issued and outstanding |
70,902,663 | 61,444,554 | ||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
S1 CORPORATION AND SUBSIDIARIES
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Revenues: |
|||||||||||||||||||
Software licenses |
$ | 25,061 | $ | 17,329 | $ | 46,230 | $ | 31,135 | |||||||||||
Support and maintenance |
14,503 | 8,627 | 29,545 | 17,672 | |||||||||||||||
Professional services |
24,861 | 27,786 | 49,679 | 57,347 | |||||||||||||||
Data center |
10,569 | 11,857 | 21,677 | 22,095 | |||||||||||||||
Other |
316 | 493 | 749 | 948 | |||||||||||||||
Total revenues |
75,310 | 66,092 | 147,880 | 129,197 | |||||||||||||||
Operating Expenses: |
|||||||||||||||||||
Cost of software licenses |
1,545 | 1,128 | 2,758 | 2,505 | |||||||||||||||
Cost of professional services, support and maintenance |
22,678 | 21,098 | 43,939 | 48,286 | |||||||||||||||
Cost of data center |
5,665 | 6,306 | 10,871 | 13,056 | |||||||||||||||
Cost of other revenue |
302 | 298 | 582 | 658 | |||||||||||||||
Selling and marketing |
15,122 | 13,084 | 28,639 | 24,906 | |||||||||||||||
Product development |
13,076 | 13,081 | 25,523 | 25,656 | |||||||||||||||
General and administrative, including stock compensation
expense of $224 and $899 in the three and six months
ended June 30, 2002, respectively, and $339
and $584 in the three and six months ended
June 30, 2001, respectively |
12,842 | 11,126 | 26,126 | 23,959 | |||||||||||||||
Depreciation and amortization |
5,944 | 7,275 | 11,987 | 14,648 | |||||||||||||||
Merger related costs and restructuring charges |
— | 9,211 | 2,022 | 9,211 | |||||||||||||||
Acquired in-process research and development |
— | — | 350 | — | |||||||||||||||
Amortization of acquisition intangibles |
4,964 | 20,405 | 9,696 | 40,811 | |||||||||||||||
Total operating expenses |
82,138 | 103,012 | 162,493 | 203,696 | |||||||||||||||
Operating loss |
(6,828 | ) | (36,920 | ) | (14,613 | ) | (74,499 | ) | |||||||||||
Interest and other income, net |
643 | 1,125 | 1,278 | 3,771 | |||||||||||||||
Loss on sale of subsidiaries |
— | (884 | ) | — | (53,186 | ) | |||||||||||||
Equity interest in net loss of affiliate |
— | (8,598 | ) | — | (13,627 | ) | |||||||||||||
| (6,185 | ) | (45,277 | ) | (13,335 | ) | (137,541 | ) | ||||||||||||
Income tax benefit |
538 | 1,689 | 982 | 1,891 | |||||||||||||||
Net loss |
$ | (5,647 | ) | $ | (43,588 | ) | $ | (12,353 | ) | $ | (135,650 | ) | |||||||
Basic and diluted net loss per common share |
$ | (0.08 | ) | $ | (0.74 | ) | $ | (0.19 | ) | $ | (2.32 | ) | |||||||
Weighted average common shares outstanding |
68,718,193 | 58,628,960 | 65,449,413 | 58,403,759 | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
S1 CORPORATION AND SUBSIDIARIES
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net loss |
$ | (12,353 | ) | $ | (135,650 | ) | |||||
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities: |
|||||||||||
Depreciation and amortization including acquisition intangibles |
21,683 | 55,459 | |||||||||
Acquired in-process research and development |
350 | — | |||||||||
Loss on sale of subsidiaries |
— | 53,186 | |||||||||
Equity interest in net loss of affiliate |
— | 13,627 | |||||||||
Compensation expense for stock options |
899 | 584 | |||||||||
Provision for doubtful accounts receivable and billing adjustments |
2,714 | 2,936 | |||||||||
Gain on the sale of investment securities available for sale |
— | (931 | ) | ||||||||
Benefit for deferred income taxes |
(759 | ) | (1,769 | ) | |||||||
Changes in assets and liabilities, excluding effects of divestitures
and acquisitions: |
|||||||||||
(Increase) decrease in accounts receivable |
(4,974 | ) | 16,542 | ||||||||
(Increase) decrease in prepaid expenses and other assets |
(1,098 | ) | 2,941 | ||||||||
Increase (decrease) in accounts payable |
6,807 | (6,645 | ) | ||||||||
Decrease in accrued expenses and other liabilities |
(8,007 | ) | (21,256 | ) | |||||||
Increase in deferred revenues |
3,940 | 14,529 | |||||||||
Net cash provided by (used in) operating activities |
9,202 | (6,447 | ) | ||||||||
Cash flows from investing activities: |
|||||||||||
Net cash paid in connection with acquisitions and divestitures |
(3,943 | ) | (15,073 | ) | |||||||
Maturities
of short-term investment securities |
29,812 | 25,750 | |||||||||
Purchases
of short-term investment securities |
(24,082 | ) | (37,108 | ) | |||||||
Purchase of long-term certificate of deposit |
(2,500 | ) | — | ||||||||
Proceeds from sales of investment securities available for sale |
— | 1,044 | |||||||||
Purchases of property and equipment |
(7,304 | ) | (7,124 | ) | |||||||
Net cash used in investing activities |
(8,017 | ) | (32,511 | ) | |||||||
Cash flows from financing activities: |
|||||||||||
Proceeds from sale of common stock under employee stock purchase and
option plans |
4,570 | 2,721 | |||||||||
Payments on capital lease obligations |
(2,598 | ) | (3,516 | ) | |||||||
Payments on borrowings |
— | (3,822 | ) | ||||||||
Net cash provided by (used in) financing activities |
1,972 | (4,617 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
943 | (379 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
4,100 | (43,954 | ) | ||||||||
Cash and cash equivalents at beginning of period |
119,632 | 153,505 | |||||||||
Cash and cash equivalents at end of period |
$ | 123,732 | $ | 109,551 | |||||||
Non-cash investing and financing activities: |
|||||||||||
Equity interest in affiliate received in connection with subsidiary sold |
$ | — | $ | 62,900 | |||||||
Conversion of preferred stock to common stock |
225,778 | — | |||||||||
Acquisition of businesses through issuance of common stock |
22,768 | — | |||||||||
Liabilities assumed |
9,990 | ||||||||||