UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

For the Quarterly Period Ended September 30, 2004

or

Commission File Number: 000-24931

S1 CORPORATION

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

          Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

          Shares of common stock outstanding as of November 3, 2004: 73,713,718

S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

TABLE OF CONTENTS

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PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

S1 CORPORATION AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES

     1. BACKGROUND AND BASIS OF PRESENTATION

          S1 Corporation provides integrated front-office software solutions for financial services organizations, including banks, credit unions, investment firms and insurance companies around the world. Our solutions help financial institutions automate and integrate their customer interaction channels and market segments. These interaction channels include:

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Branch and call center channels, which banks primarily use to provide personalized service and relationship selling through the teller, agent desktop and call center;

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Internet channel, which financial institutions use as a low-cost way to enable customers to conduct transactions in a self-service manner anytime, anywhere; and

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Voice channel, which enables financial institutions to efficiently interact with their customers for simple transactions, like balance inquiries and payment information.

Through our applications, which can be sold standalone as best-of-breed applications or as an integrated suite across the enterprise, S1 helps financial institutions better service and sell financial products to all of their market segments, ranging from retail consumers and small businesses to global corporations. S1 applications also help financial institutions lower the costs associated with supporting their infrastructure and servicing their customers and employees by providing a single platform on which all of their front-office applications and customer information can reside. S1’s customer relationship management (CRM) software enables institutions to better understand their customers, segment their needs, and more effectively cross-sell services and improve customer satisfaction.

          We sell our solutions to small, mid-sized and large financial organizations in two geographic regions: (i) the Americas region and (ii) the International region, consisting primarily of Europe, the Middle East region and Africa (EMEA) and the Asia-Pacific region and Japan (APJ) region. We refer to our core business segment as the “Financial Institutions” business.

          Through our Edify subsidiary, S1 delivers voice and speech solutions for the enterprise. For 14 years, Edify has helped more than 2,000 companies automate their customer service facilities, improve customer satisfaction and create new revenue generating opportunities, while reducing operational costs. Voice and speech applications built with Edify are scalable, multilingual and flexible, allowing companies to easily integrate multiple backend systems with a variety of contact interfaces. Edify’s voice and speech solutions combine speech recognition, speaker verification, text-to-speech, fax, and touch-tone automation with a powerful application development environment and natural language capabilities to help organizations optimize customer service while lowering costs. Edify’s open, standards-based platform manages millions of customer interactions every day across a broad range of industries.

          S1 is headquartered in Atlanta, Georgia, USA, with additional domestic offices in Boston, Massachusetts; Charlotte, North Carolina; Austin, Texas; Rochester and New York, New York; West Hills and Santa Clara, California; and additional international offices in Brussels, Dublin, Hong Kong, Lisbon, London, Luxembourg, Madrid, Munich, Paris, Pune and Rotterdam. S1 is incorporated in Delaware.

          We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of our financial condition as of September 30, 2004 and our results of operations for the three and nine months ended September 30, 2004 and cash flows for the nine months ended September 30, 2004. The data in the condensed consolidated balance sheet as of December 31, 2003 was derived from our audited consolidated balance sheet as of December 31, 2003, as presented in our Annual Report on Form 10-K for the year ended December 31, 2003. The condensed consolidated financial statements include the accounts of S1 and its wholly owned subsidiaries after the elimination of

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all significant intercompany accounts and transactions. Our operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2004.

     2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies

          Our significant accounting policies are included in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2003.

Stock–based compensation

          We account for our stock option plans in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations and comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” As such, we record compensation expense on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Additionally, if a modification is made to an existing grant, any related compensation expense is calculated on the date both parties accept the modification and recorded on the date the modification becomes effective. Otherwise, we do not record stock compensation expense when we grant stock options to S1 employees.

          In the three and nine months ended September 30, 2003, we recognized compensation expense of approximately $0 million and $0.3 million, respectively, relating to stock options granted with exercise prices less than the market price on the date of grant. Had we determined compensation expense based on the fair value at the grant date for our stock options and stock purchase rights under SFAS No. 123, our net income (loss) would have changed to the unaudited pro forma amounts indicated below:

          The effect of applying SFAS No. 123 for providing these pro forma disclosures is not necessarily representative of the effects on reported net income (loss) in future periods.

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          The fair value of our stock-based option awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:

Recent Accounting Pronouncements

          In March 2004, the Emerging Issue Task Force (“EITF”) reached consensus on EITF Issue No. 03-06, “Participating Securities and the Two-Class Method under Statement of Financial Accounting Standards No. 128, Earnings Per Share.” EITF Issue No. 03-06 provides guidance in applying the two-class method of calculating earnings per share and clarifies what constitutes a participating security. The consensus significantly expands the notion of participation right from previous practice. EITF Issue No. 03-06 is effective for fiscal periods beginning after March 31, 2004. We have adopted EITF Issue No. 03-06 as of April 1, 2004, with no material impact on our consolidated financial statements. We determined that our preferred shares outstanding are participating securities as defined in EITF Issue No. 03-06 and we have restated prior period earnings per share amounts to ensure comparability.

     3. BUSINESS ACQUISITIONS

          On August 4, 2004, we purchased the outstanding stock of X/Net Associates, Inc., a Rochester, New York based provider of lending solutions to financial institutions. We believe this acquisition will strengthen our product offering around lending solutions and accelerate the development of our lending functionality. We paid cash consideration of $4.0 million for this business and incurred approximately $0.1 million of expenses in connection with the acquisition. Under the agreement, additional consideration may be paid to one shareholder of X/Net if certain financial metrics are achieved. There is a maximum of $1.0 million that can be earned in the year period from August 1, 2004 through July 31, 2005 and $2.0 million that can be earned in the year period from August 1, 2005 through July 31, 2006. We will record this contingent consideration as compensation expense in the period it is estimated to have been earned. We have included the results of X/Net in our results of operations from the date of the acquisition.

          On May 16, 2004, we purchased a business unit from vMoksha Technologies, Private Limited, an Indian-based provider of software development, programming, infrastructure development and related services. This business unit previously provided services to us under several software development agreements. We believe this acquisition will reduce our costs and allow us to have greater control over the quality of the development efforts undertaken. We paid cash consideration of approximately $1.2 million for the business unit, of which we paid $1.0 million in the quarter ended June 30, 2004 and $0.2 million in July 2004. We have included the results of the business in our consolidated results of operations from the date of acquisition. In connection with this acquisition, we acquired approximately 240 employees.

          We accounted for these acquisitions using the purchase accounting method of accounting as prescribed by SFAS No. 141, “Business Combinations”. We assigned the total purchase price to the net assets and liabilities of the businesses with the remaining amount assigned to goodwill. The value assigned to the identifiable intangible assets was based on an analysis performed as of the date of the acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

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          We did not present proforma results of operations for these acquisitions because their effect was not significant, individually or in the aggregate.

     4. GOODWILL AND OTHER INTANGIBLE ASSETS

          At September 30, 2004, our other intangible assets consisted of the following:

          We recorded amortization expense of $2.4 million and $4.9 million during the nine months ended September 30, 2004 and 2003, respectively. We estimate aggregate amortization expense for 2004 and the next four calendar years to be as follows (in thousands):

          The changes in the carrying value of our goodwill for the nine months ended September 30, 2004 are as follows:

     5. STOCKHOLDERS’ EQUITY

          In July 2002, our board of directors approved a $10.0 million stock repurchase program to enhance long-term shareholder value. We completed this program in January 2003. Under this program, we repurchased 2,051,862 shares of our common stock at an average price of $4.87 per share.

          In October 2003, our board of directors approved additional repurchases of up to $15.0 million to offset the dilution of our common stock from shares granted under our employee stock option plans. This program was funded from available cash and short-term investments. As of September 30, 2004, we had repurchased 1,449,899 shares of our common stock at a cost of $11.2 million under this program.

          As of September 30, 2004, we hold 3,501,761 shares of our common stock in treasury at a cost of $21.2 million.

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     6. COMPREHENSIVE INCOME (LOSS)

          The components of comprehensive income (loss) are as follows (in thousands):

     7. MERGER RELATED COSTS AND RESTRUCTURING CHARGES

          Components of merger related and restructuring costs in the income statement are as follows (in thousands):

          During the first nine months of 2003, we undertook several initiatives to align our cost structure with our anticipated 2004 revenues in both our financial institutions and Edify businesses. As a result, management approved restructuring plans to consolidate our data center operations in the United Kingdom into our global hosting center in Atlanta, reduce the work force, relocate and consolidate certain office facilities and sell certain corporate assets. In connection with these plans, we recorded restructuring charges of $21.6 million during the nine months ended September 30, 2003.

          In the first quarter of 2003, we decreased our merger related reserve for legal claims by $0.5 million, which was established in connection with our acquisition of FICS Group, N.V. in November 1999. We were able to resolve this legal matter during the first quarter of 2003 for less than previously estimated. In the second quarter of 2003, we further reduced our merger related accrual by $0.5 million when we determined that we had an alternate use for excess office space that was reserved when we completed the acquisition of Point in March 2002.

          In the second quarter of 2004, we adjusted our restructuring reserves as we re-occupied certain office space, re-hired certain employees who were previously terminated and adjusted our estimates based on sublease assumptions for certain vacant office space.

          The restructuring reserves as of December 31, 2003 and September 30, 2004 and their utilization for the nine months ended September 30, 2004 are summarized as follows: