Transaction Systems Architects Reports Fiscal 2006 Second Quarter Results

"We had a very strong second quarter, with a 19 percent growth inrevenue and a 34 percent increase in diluted earnings per share," saidPhilip G. Heasley, CEO. "Factors that are serving to make olderpayment systems obsolete - regulatory change, rapidly growing paymentvolumes, industry consolidation and a view towards paymentsconvergence - are all creating opportunities for TSA. Ourinternational business is growing nicely, and we're having goodsuccess cross-selling a wide range of solutions into our customerbase. Important industry mandates such as the Single European PaymentsArea (SEPA) and the EMV smart card initiative are creating newopportunities for us across the range of our enterprise paymentsportfolio."

The Company added seven new customers during the quarter and sold15 new applications to existing customers. In addition, 25 customerslicensed capacity upgrades each valued at a $100 thousand or more.Activity during the quarter included the licensing of BASE24(R) to twoTier 1 world banks in Asia, capacity upgrades by several Tier 1 worldbanks, retailers and payments processors and a new license for theCompany's Smart Chip Manager(TM) solution by a current Tier 1 bankcustomer in the Middle East.

"We're essentially complete with the business reorganization, andhave now rebranded all of our solutions under the ACI Worldwidebrand," added Heasley. "The power of the brand is beginning to paydividends in terms of new business opportunities, both in specificgeographic regions and with global players. The themes of paymentsconvergence and improving overall productivity in electronic paymentssystems are resonating, with both our customers and the market ingeneral."

Revenues

Revenue was $89.8 million in the second quarter, a 19 percentincrease over the same period last year and an increase of 6 percentover the first quarter of fiscal 2006. "In particular, our EMEAbusiness continues to perform well, with revenue growing 49 percentyear-over-year," said Heasley. "Our overall international business wasalso strong, with revenue increasing 30 percent over the same periodlast year, and it continues to comprise about two-thirds of our totalrevenue. We experienced good growth in professional services revenue,as we continue to work with our customers to enhance the productivityand performance of their mission-critical payments systems. We alsohad a good quarter licensing our cross-industry solutions to a widerange of customers in various industries."

Revenues for the Americas region were $43.6 million, as comparedto $42.7 million for the second quarter of fiscal 2005. The Americasrevenues consisted of U.S. revenues of $29.7 million and Americasinternational revenues of $13.9 million, as compared to $29.4 millionand $13.3 million, respectively, for the same period last year.Revenues for the Europe/Middle East/Africa region were $37.3 million,as compared to $25.1 million for the second quarter of fiscal 2005.Asia-Pacific revenues were $8.9 million, as compared to $7.8 millionfor the second quarter of 2005. Total international revenues were$60.1 million, or 67 percent of total revenues, as compared to $46.2million, or 61 percent of total revenues, for the second quarter offiscal 2005.

Revenues were comprised of software license fees of $47.7 million,maintenance fees of $24.7 million and services of $17.4 million.Monthly recurring revenue was $45.0 million, compared to $43.3 millionduring the same period last year. Monthly recurring revenue wascomprised of monthly license fees of $16.9 million, maintenance feesof $24.7 million and services (facilities management fees) of $3.4million. Monthly recurring revenue comprised 50 percent of totalrevenues in the quarter.

Operating Expenses

Operating expenses for the quarter were $68.6 million, compared to$59.6 million in the second quarter of fiscal 2005 and $70.6 millionin the first quarter of fiscal 2006. Included in the second quarter offiscal 2006 expenses were an additional $0.8 million for salescommissions associated with higher-than-expected sales activity.

Operating Income

Operating income was $21.2 million with an operating margin of23.6 percent. This compared to operating income of $16.0 million withan operating margin of 21.2 percent for the second quarter of fiscal2005, and $14.5 million with an operating margin of 17.1 percent forthe first quarter of fiscal 2006. "We've begun to recognize theaccretion we expected from the S2 acquisition with a positivecontribution from that business in the second quarter," added Heasley.

Other Income

Other income for the quarter was $1.9 million, compared to $1.0million in the second quarter of fiscal 2005.

Taxes

The Company's effective tax rate for the quarter was 35.0 percent.Tax provision for the quarter was $8.1 million. The Company continuesto estimate an effective tax rate of 35 percent for the remainder ofthe fiscal year. That estimated rate could change based on continuingtax optimization efforts by the Company.

Net Income and Diluted Earnings Per Share

Net income for the quarter was $15.0 million, or $0.39 per dilutedshare, compared to $11.2 million, or $0.29 per diluted share duringthe same period last year, an increase of 34 percent.

Operating Cash Flow and Cash Balance

Operating cash flow was $29.7 million compared to operating cashflow of $15.5 million in the second quarter of fiscal 2005. Includedin the quarterly cash flow was the receipt from the Internal RevenueService of $10.9 million reflecting a previously disclosed expectedtax refund. The Company's cash, cash equivalents and marketablesecurities as of March 31, 2006, were $189.7 million. "Our operatingcash flow was very strong this quarter," added Heasley. "Our healthybalance sheet positions us well to seek out opportunities in themarket, in order to add to our solutions portfolio and continue toincrease our international reach."

During the quarter, the Company repurchased 10,723 shares of itscommon stock for approximately $0.3 million. From the inception of theCompany's stock repurchase plan through March 31, 2006, the Companyhas repurchased a total of 1,955,086 shares for approximately $47.0million. Total shares outstanding were 37.4 million as of March 31,2006. During the second quarter, the Company received $3.7 million inproceeds from employee stock option exercises.

Backlog

As of March 31, 2006, the Company's 12-month backlog was $257.5million, as compared to $254.4 million for the quarter ended December31, 2005. The monthly recurring portion of backlog, which includesmonthly license fees, maintenance fees and facilities management fees,amounted to $186.9 million. The non-recurring portion of backlog,which totaled $70.6 million, includes other software license fees andservices.

As of March 31, 2006, the Company's estimated 60-month backlog was$1.050 billion. For comparison purposes, as of December 31, 2005, theCompany's estimated 60-month backlog was $1.035 billion. "Theincreases in our 12-month and 60-month backlogs were a direct resultof continued strong sales activity, particularly in our internationalmarkets," added Heasley.

Guidance

The Company has revised its revenue estimate for fiscal 2006 froma range of $345 million to $360 million to a range of $348 million to$360 million. The Company has revised its diluted earnings per shareestimate from a range of $1.46 to $1.58 to a range of $1.51 to $1.63.

About Transaction Systems Architects, Inc.

The Company's software facilitates electronic payments byproviding consumers and companies access to their money. Its productsare used to process transactions involving credit cards, debit cards,secure electronic commerce, mobile commerce, smart cards, secureelectronic document delivery and payment, checks, high-value moneytransfers, bulk payment clearing and settlement, and enterprisee-infrastructure. The Company's solutions are used on more than 1,960product systems in 83 countries on six continents.

Forward-Looking Statements

This press release contains forward-looking statements based oncurrent expectations that involve a number of risks and uncertainties.Generally, forward-looking statements do not relate strictly tohistorical or current facts and may include words or phrases such asthe Company "believes," "expects," "looks forward to," and words andphrases of similar impact, and include but are not limited tostatements regarding future operations, business strategy and businessenvironment and specifically include amounts estimated in the 12-monthand 60-month backlogs and the Company's revenue and earnings guidance.The forward-looking statements are made pursuant to safe harborprovisions of the Private Securities Litigation Reform Act of 1995.Forward-looking statements in this press release include, but are notlimited to, statements regarding the:

-- Company's 12-month and 60-month backlog estimates

-- Company's calculation of recurring and non-recurring backlog

-- Company's revenues and EPS estimates for fiscal 2006

-- Company's belief that factors that are serving to make older payment systems obsolete and industry mandates are creating opportunities for the Company

-- Company's belief that rebranding solutions under a common ACI Worldwide name will pay dividends or result in new business opportunities

-- Expectation regarding the prospects of the former S2 business

-- Company's belief that our healthy balance sheet positions us well to seek out opportunities in the market, in order to add to our solutions portfolio and continue to increase our international reach

-- Company's belief that the Company's estimated tax rate could change based on continuing tax optimization efforts

Any or all of the forward-looking statements may turn out to bewrong. They can be affected by the judgments and estimates underlyingsuch assumptions or by known or unknown risks and uncertainties. Manyof these factors will be important in determining the Company's actualfuture results. Consequently, no forward-looking statement can beguaranteed. Actual future results may vary materially from thoseexpressed or implied in any forward-looking statements. In addition,the Company disclaims any obligation to update any forward-lookingstatements after the date of this release.

All of the foregoing forward-looking statements are expresslyqualified by the risk factors discussed in the Company's filings withthe Securities and Exchange Commission. For a detailed discussion ofthese risk factors, parties that are relying on the forward-lookingstatements should review the Company's filings with the Securities andExchange Commission, including the Company's Form 10-K filed onDecember 14, 2005, the Company's Form 10-Q filed on February 9, 2006,and specifically the section entitled "Factors That May Affect theCompany's Future Results or the Market Price of the Company's CommonStock."

The risks identified in the Company's filings with the Securitiesand Exchange Commission include:

-- Risks associated with the restructuring of the Company's organization

-- Risks inherent in making an estimate of the Company's backlog which involve substantial judgment and estimates; such risks relate to the Company's 12-month and 60-month backlogs

-- Risks associated with tax positions taken by the Company which require substantial judgment and with which taxing authorities may not agree

-- Risks associated with various lawsuits against the Company, including the lawsuits filed against the Company and certain directors and officers relating to its restatement of prior consolidated financial results, including the adequacy of insurance coverage and the possibility of additional litigation

-- Risks associated with litigation in the software industry regarding intellectual property rights

-- Risks associated with the Company's ability to protect its proprietary rights

-- Risks associated with the Company's concentration of business in the financial services industry

-- Risks associated with fluctuations in quarterly operating results and resulting stock price volatility

-- Risks associated with conducting international operations

-- Risks regarding the Company's new BASE24-es product

-- Risks associated with the Company's dependence on its BASE24 solution

-- Risks associated with the Company's dependence on the licensing of software products that operate on Hewlett-Packard NonStop servers

-- Risks associated with the complexity of the Company's software products

-- Risks associated with the Company's acquisition of new products and services or enhancement of existing products and services through acquisitions of other companies, product lines, technologies and personnel, or through investments in other companies

-- Risks associated with the acquisition of S2 Systems and the integration of its operations and customers, including, without limitation, the risks described in the Company's Form 8-K filed July 1, 2005

-- Risks associated with new accounting standards, or revised interpretations or guidance regarding existing standards

-- Risks associated with the assessment and maintenance of internal controls over the Company's financial reporting

Backlog Estimates

The Company's 12-month and 60-month backlog estimates are based onthe Company's judgment about future events which, as described above,involve a number of risks and uncertainties. The Company estimatesbacklog using the methodology described in the Company's Form 10-Qfiled on February 9, 2006 in the section entitled "Backlog" under Item2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS -- and on the Company's website atwww.tsainc.com.

TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

March 31, September 30,
2006 2005
------------- -------------
(unaudited)
ASSETS

Current assets:
Cash and cash equivalents $113,539 $83,693
Marketable securities 76,182 72,819
Billed receivables, net 59,110 63,530
Accrued receivables 8,547 5,535
Recoverable income taxes - 3,474
Deferred income taxes, net 4,509 2,552
Other 11,959 13,009
------------- -------------

Total current assets 273,846 244,612

Property and equipment, net 9,642 9,089
Software, net 4,275 4,930
Goodwill 66,248 66,169
Other intangible assets, net 12,481 13,573
Deferred income taxes, net 21,566 21,884
Other 2,737 3,123
------------- -------------

Total assets $390,795 $363,380
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of debt - financing
agreements $308 $2,165
Accounts payable 6,316 9,521
Accrued employee compensation 15,967 19,296
Income taxes payable 8,999 -
Deferred revenue 80,134 81,374
Accrued and other liabilities 10,666 11,662
------------- -------------

Total current liabilities 122,390 124,018

Debt - financing agreements - 154
Deferred revenue 20,429 20,450
Other 1,854 1,640
------------- -------------

Total liabilities 144,673 146,262
------------- -------------

Stockholders' equity:
Common stock 204 202
Treasury stock, at cost (82,251) (68,596)
Additional paid-in capital 287,059 274,344
Retained earnings 50,505 20,329
Accumulated other comprehensive loss (9,395) (9,161)
------------- -------------

Total stockholders' equity 246,122 217,118
------------- -------------

Total liabilities and stockholders'
equity $390,795 $363,380
============= =============



TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)

Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------

Revenues:
Software license fees $47,730 $42,953 $91,122 $90,759
Maintenance fees 24,746 22,649 50,064 44,729
Services 17,357 10,024 33,722 20,744
--------- --------- --------- ---------

Total revenues 89,833 75,626 174,908 156,232
--------- --------- --------- ---------

Expenses:
Cost of software license
fees 7,505 5,725 14,440 11,631
Cost of maintenance and
services 19,056 13,818 39,947 27,654
Research and development 9,978 10,223 19,730 20,138
Selling and marketing 16,529 15,368 32,541 30,669
General and administrative 15,563 14,449 32,533 28,012
--------- --------- --------- ---------

Total expenses 68,631 59,583 139,191 118,104
--------- --------- --------- ---------

Operating income 21,202 16,043 35,717 38,128
--------- --------- --------- ---------

Other income (expense):
Interest income 1,586 864 4,513 1,448
Interest expense (87) (137) (116) (305)
Other, net 354 255 (12) (992)
--------- --------- --------- ---------

Total other income
(expense) 1,853 982 4,385 151
--------- --------- --------- ---------

Income before income taxes 23,055 17,025 40,102 38,279
Income tax provision (8,069) (5,832) (9,926) (14,163)
--------- --------- --------- ---------

Net income $14,986 $11,193 $30,176 $24,116
========= ========= ========= =========


Earnings per share information:

Weighted average shares
outstanding:

Basic 37,241 38,121 37,247 37,949
========= ========= ========= =========

Diluted 38,065 38,903 38,041 38,731
========= ========= ========= =========

Earnings per share:

Basic $0.40 $0.29 $0.81 $0.64
========= ========= ========= =========

Diluted $0.39 $0.29 $0.79 $0.62
========= ========= ========= =========



TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

Six Months Ended March 31,
---------------------------
2006 2005
------------- -------------

Cash flows from operating activities:
Net income $30,176 $24,116
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 2,042 1,945
Amortization 1,861 441
Deferred income taxes (1,631) (5,285)
Share-based compensation expense 2,884 -
Tax benefit of stock options
exercised 681 2,526
Changes in operating assets and
liabilities:
Billed and accrued receivables,
net 1,094 (3,464)
Other current assets 1,044 (1,540)
Other assets (6) (1,785)
Accounts payable (3,121) 734
Accrued employee compensation (2,729) (1,322)
Accrued liabilities (697) (180)
Current income taxes 12,474 8,062
Deferred revenue (946) 6,044
Other current and noncurrent
liabilities 102 215
------------- -------------

Net cash provided by
operating activities 43,228 30,507
------------- -------------

Cash flows from investing activities:
Purchases of property and equipment (3,049) (1,577)
Purchases of software (255) (912)
Purchases of marketable securities (36,062) (76,875)
Sales of marketable securities 32,703 3,778
Acquisition of business (59) -
------------- -------------

Net cash used in investing
activities (6,722) (75,586)
------------- -------------


Cash flows from financing activities:
Proceeds from issuance of common stock 589 487
Proceeds from exercises of stock
options 7,055 7,892
Excess tax benefit of stock options
exercised 1,506 -
Purchases of common stock (13,978) (7,249)
Payments on debt - financing
arrangements (2,002) (4,984)
Other 122 397
------------- -------------

Net cash used in financing
activities (6,708) (3,457)
------------- -------------

Effect of exchange rate fluctuations on
cash 48 1,837
------------- -------------

Net increase (decrease) in cash and cash
equivalents 29,846 (46,699)
Cash and cash equivalents, beginning of
period 83,693 134,198
------------- -------------

Cash and cash equivalents, end of period $113,539 $87,499
============= =============