Q3 2006 Transaction Systems Architects Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: At this time, I would like to welcome everyone to the TSA 2006 Third Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].

Thank you, Mr. Hoelting. You may begin your conference.

WILLIAM HOELTING, VP OF INVESTOR RELATIONS, TRANSACTION SYSTEMS ARCHITECTS INCORPORATED: Thank you and good afternoon. The participants for TSA's third quarter fiscal 2006 conference call are Phil Heasley, CEO; Dave Bankhead, CFO; Mark Vipond, President-ACI Worldwide Product Group; and Jeff Hale, Chief Marketing Officer.

As a reminder, some of the comments made in the conference call by the Company, including any guidance about future periods and any responses to your questions may contain forward-looking information. Such statements are subject to risks and uncertainties as described in the Safe Harbor language contained in the Company's press releases and filings with the SEC. Please refer to the Safe Harbor language contained therein. The Company disclaims any duty to update such forward-looking statements.

The agenda for the call will be as follows: Mark Vipond will provide the highlights for the business this quarter, Dave Bankhead will then provide the financial results, and Phil Heasley will close our prepared remarks, at which time we will open up the call to your questions.

I'll now turn the call over to Mark Vipond.

MARK VIPOND, SVP AND PRESIDENT OF ACI WORLDWIDE, TRANSACTION SYSTEMS ARCHITECTS INCORPORATED: Good afternoon everyone. Before we cover the financial results for the quarter, I'd like to spend a few minutes telling you about how the business operated in Q3. First, in the third quarter, we added seven new customers, licensed 20 new applications to existing customers, and signed 12 capacity upgrades of over $100,000.

Included were new sales of BASE24-es to the largest bank in the Philippines and a large bank in Malaysia, a license of our Smart Chip Manager product to a large Italian bank, and a license of our Payments Manager Settlement and Reconciliation System to a top-five US bank. In addition, we signed significant capacity deals with two top US banks, a major Canadian processor, and a large Italian payments processor. The mix of deals on this list shows the continued international diversity of our business.

During the quarter, we closed on the acquisition of Electronic Payment Systems in Germany. The integration of the strategic acquisition has commenced. This acquisition puts us in a leadership position in Germany, gives us a strong footprint with which to cross sell new solutions into the Germanic marketplace, provide some new products that we can drive through our international distribution channels, and serves as a kick start to our efforts to develop an offshore development and services capability in Romania. All these are key elements in our continued globalization of TSA's business.

We continue to see good interest in the market for our new online processing solution, BASE24-es. I am happy to report that the project in Europe to use BASE24-es to replace legacy switch at Visa has now gone live in pilot mode, and Visa is gradually converting more transaction volumes to the new system.

Thus far, the system has been operating very well, and the pace of the pilot conversion is ahead of Visa's original plans. This system is operating on the Sun Solaris platform, showing that we can indeed support very significant requirements for scale and reliability on an open systems platforms.

Early in July, another of our customers went live on BASE24-es, and we now have eight standalone customers in production on this system. And we continue to progress towards our goal of BASE24-es being considered a category A product.

Certainly, payments fraud continues to be a hot topic in our history. One of our customers, ABN AMRO in Brazil was given an award for the best fraud detection system in the country at a recent industry show.

ABN AMRO uses our Proactive Risk Management product to monitor fraud across the entire enterprise. And already this month, we have signed significant new PRM licenses with two top 20 US banks, as they seek to strengthen their fraud detection and prevention infrastructures.

As we have noted, we are also seeing strong activity in the wholesale banking space, particularly in Europe, as banks seek to replace aging payments infrastructure and address the SEPA incentive. This should be a good incremental growth driver for the Company and should dovetail nicely with our offshore development activities in Europe.

And finally, activity across our cross industry infrastructure tools remains robust, as we signed several major deals in the quarter for ACI Communication Services, GoldenGate and Network Express products.

The Company continues to be strongly positioned to address demands in the market for convergence and payments productivity. Our differentiated offerings and skill sets represent compelling value proposition and we continue to refine our global strategies for product development, customer support, and technical services to deliver this value to our clients.

With that, I'll turn it over to Dave Bankhead for a review of the third quarter financial results.

DAVE BANKHEAD, SVP, TREASURER AND CFO, TRANSACTION SYSTEMS ARCHITECTS INCORPORATED: Thanks very much, Mark, and good afternoon everyone. Today, I will be discussing our third quarter financial results. I will start by highlighting some key milestones that we achieved during the quarter. Total revenues were 84.8 million, representing a 9% increase from the third quarter of fiscal 2005.

Revenues for each of the geographic regions were as follows: Americas 47 million, which consists of United States 29.3 million and Americas International 17.7 million; Europe, Middle East and Africa 29.7 million; and Asia-Pacific 8.1 million.

Revenue growth was driven by strong contributions from the Americas International channel, whose revenues increased 62% year-over-year. EMEA's revenues increased 7%. Asia/Pacific was up 2%. And US revenues decreased 7%.

The 84.8 million of revenue is composed of the following: software license fees of 42 million, maintenance fees of 26 million, and services of $16.8 million. The license fee revenue of 42 million was composed of 24.3 million in initial fees and 17.7 million of monthly license fees.

Operating expenses for the quarter was 69.2 million compared to 62.8 million last year, an increase of approximately …