UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

For the Quarterly Period Ended March 31, 2005

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 þ No o

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

          Shares of common stock outstanding as of May 5, 2005:   70,163,613  

S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED MARCH 31, 2005

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 is a global provider of enterprise software solutions for financial organizations including banks, credit unions, investment firms and insurance companies. We operate and manage S1 in two business segments: financial institutions, which is our core business segment, and the Edify business. Our financial institution solutions automate transactions and integrate the channels by which financial institutions interact with their customers. Our objective is to be the leading global provider of integrated enterprise solutions that enable financial institutions to improve the way they service their customers by integrating all delivery channels, expanding the total financial relationship and increasing profits. 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 of Europe, Middle East and Africa (EMEA) and Asia-Pacific and Japan (APJ).

          Through our Edify business segment, we deliver voice and speech solutions for the enterprise. Edify’s solutions help companies automate their customer service facilities, improve customer satisfaction and create new revenue generating opportunities, while reducing operational costs. Edify’s voice and speech applications are scalable, multilingual and flexible, allowing companies to easily integrate multiple back-end 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 products are sold across multiple vertical markets including financial services, travel, retail and telecommunications.

          We derive a significant portion of our revenues from licensing our solutions and providing professional services. We generate recurring data center revenues by charging our data center customers a monthly fixed fee or a fee based on the number of their end users who use the solutions we provide and the level of use of the solutions, subject to a minimum charge. We also generate recurring revenues by charging our customers a periodic fee for maintenance. We also generate recurring revenues by charging our customers a periodic fee for term licenses including the right-to-use software and receive maintenance and support for a specified period of time.

          S1 is headquartered in Atlanta, Georgia, USA, with additional domestic offices in Boston, Massachusetts; Charlotte, North Carolina; Austin, Texas; Deerfield Beach, Florida; Rochester, New York; West Hills, California and Santa Clara, California; and international offices in Brussels, Beijing, Capetown, Dublin, Hong Kong, Lisbon, London, Luxembourg, Madrid, Melbourne, Munich, Paris, Pune, Rotterdam and Singapore. 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, 2004. 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 March 31, 2005 and our results of operations for the three months ended March 31, 2005 and cash flows for the three months ended March 31, 2005. The data in the condensed consolidated balance sheet as of December 31, 2004 was derived from our audited consolidated balance sheet as of December 31, 2004, as presented in our Annual Report on Form 10-K for the year ended December 31, 2004. The condensed consolidated financial statements include the accounts of S1 and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions. We reclassified certain amounts in the prior years’ consolidated financial statements to conform to the current year presentation. Our operating results for the three months ended March 31, 2005 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2005.

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     2. RECENT ACCOUNTING PRONOUNCEMENTS AND 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, 2004.

          Recent accounting pronouncements

          On December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” (“SFAS 123R”) which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Statement 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. SFAS 123R requires all share-based payments to employees to be recognized in the income statement based on their grant date fair values over the corresponding service period and also requires an estimation of forfeitures when calculating compensation expense. We will adopt SFAS No. 123R on January 1, 2006 using the “modified prospective” method.

          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. 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 months ended March 31, 2004 and 2005, we did not recognize any compensation expense relating to stock options. 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 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:

     3. DISCONTINUED OPERATIONS

          On November 1, 2004, we completed the sale of our wholly owned subsidiary, Davidge Data Systems, Inc., a component of our financial institutions segment. We have accounted for the disposal of Davidge as discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As such, Davidge results for prior year periods are presented in the discontinued operations section of the consolidated statement of operations.

          Revenues and loss from discontinued operations are as follows (in thousands):

     4. GOODWILL AND OTHER INTANGIBLE ASSETS

          At March 31, 2005, our other intangible assets consisted of the following:

          We recorded amortization expense of $0.8 million and $1.2 million during the three months ended March 31, 2004 and 2005, respectively. We estimate aggregate amortization expense for 2005 and the next four calendar years to be as follows (in thousands):

          The changes in the carrying value of our goodwill for the three months ended March 31, 2005 are as follows:

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     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 a cost of $10.0 million and at an average price of $4.87 per share.

          In October 2003, our board of directors approved another $15.0 million stock repurchase program 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. During the first quarter of 2005, we repurchased 229,910 shares at a cost of $1.6 million. As of March 31, 2005, we had repurchased 1,722,159 shares of our common stock at a cost of $13.2 million under this program and at an average price of $7.69 per share. As of March 31, 2005, we are authorized to purchase an additional $1.8 million of our common stock at market prices.

          As of March 31, 2005, we hold 3,774,021 shares of our common stock in treasury at a cost of $23.2 million.

     6. COMPREHENSIVE INCOME

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

     7. DERIVATIVE FINANCIAL INSTRUMENTS

          We use derivative financial instruments to manage certain exposures to fluctuations in foreign currency to mitigate the risk that changes in exchange rates will adversely affect the eventual dollar cash flows resulting from the hedged transactions with a series of foreign currency options. Designation is performed on a specific exposure basis to support hedge accounting. The changes in fair value of these hedging instruments will be offset in part or in whole by corresponding changes in the cash flows of the underlying exposures being hedged. We do not hold or issue derivative financial instruments for trading purposes.

          We entered into a long-term hosting agreement with a customer wherein S1 will provide the customer with hosting services for a period of approximately four years. Our costs associated with those services are denominated in United States Dollars (USD) and the customer will pay us in British Pounds Sterling (GBP). In this arrangement, ordinary fluctuations in currency exchange rates could adversely impact our profit margin on the hosting agreement. Consequently, during the quarter ended March 31, 2005, we purchased a series of options to exchange USD for GBP at dates throughout the term of the agreement for amounts proportional to the minimum fees under the contract.

          The foreign currency options are designated as cash flow hedges and are deemed effective in the period ended March 31, 2005. Any mark-to-market gains or losses on these currency options are included in accumulated other comprehensive income (loss) to the extent effective, and reclassified into sales in the period during which a specific hedged transaction affects earnings.

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          For the quarter ended March 31, 2005, we recorded a decrease in Accumulated Other Comprehensive Income (AOCI) of approximately $34,000 related to losses on the foreign currency cash flow hedge. The following table summarizes activity in AOCI related to derivatives designated as cash flow hedges held by S1 during the applicable periods (in thousands):

          Financial instruments held as part of the hedging transaction discussed above are recorded at fair value based upon comparable market transactions as quoted by the broker. The fair value and carrying amount of the options totaled $245,000 as of March 31, 2005. The options have various maturity dates ranging from June 30, 2005 to March 31, 2009. Deferred currency option premiums are included in other assets.

     8. RESTRUCTURING CHARGES

          The restructuring reserves as of December 31, 2004 and March 31, 2005 and their utilization for the three months ended March 31, 2005 are summarized as follows:

          We expect to make future cash expenditures, net of anticipated sublease income, related to these restructuring activities of approximately $7.3 million, of which we anticipate to pay approximately $3.0 million within the next twelve months.

     9. CONTINGENCIES

     Litigation

          Except as noted below, there are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which S1, or any of its subsidiaries is a party or which their property is subject.

          As previously reported, S1 Corporation is involved in litigation with Tradecard, Inc. relating to a claim of infringement of U.S. Patent 6,151,588 filed in the U.S. District Court for the Southern District of New York. The action was filed in March 2003 against S1 Corporation, Bank of America Corporation and Bank of America National Association. We believe that the plaintiff’s claims are not meritorious and intend to vigorously defend the suit. There can be no assurance on the ultimate outcome of this matter. An adverse judgment could be material to our financial position and results of operations.

     Warranties

          We typically warrant to our customers that our product will substantially conform to our current specifications for 90 days from the delivery date. We also defend our customers from third party actions claiming of intellectual property infringement relating to the use of our products. Historically, costs related to these guarantees have not been significant and we are unable to estimate the potential impact of these guarantees on our future results of operations.

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10. SEGMENT REPORTING AND MAJOR CUSTOMERS

     We operate and manage S1 in two business segments: financial institutions, our core business segment, and the Edify business. The financial institutions segment develops, markets and implements integrated, transactional and brandable enterprise applications for small, mid-sized and large financial institutions and businesses interacting with these institutions worldwide, available as in-house or hosted solutions. The Edify business segment provides a variety of voice and speech recognition applications that help organizations globally in a wide range of industries (including retail, telecommunications and travel) increase customer retention through automation and improved operational effectiveness.

     We evaluate the performance of our operating segments based on their contribution before interest, other income and income taxes, as reflected in the tables presented below for the three months ended March 31, 2005 and 2004. We do not use any asset-based metrics to measure the operating performance of our segments.

     We have entered into reseller arrangements between our operating segments to sell the Edify IVR product to financial institutions and the S1 CRM application to non-financial institutions. Under these arrangements, intercompany revenues and intercompany expenses are recorded in each operating segment. These revenues and expenses are eliminated in consolidation. The table below represents intercompany revenues recorded in each business segment.

     The following table shows revenues by revenue type for our operating segments: