Transaction Systems Architects Inc. said it will take longer than expected to make a profit from its acquisition of P&H Solutions Inc.
Transaction Systems reported net income in its fiscal fourth quarter, which ended Sept. 30, fell 74.6%, to $2.3 million, or 6 cents a share, though revenue rose 12%, to $88.5 million, from a year earlier.
Executives blamed the earnings decline in part on the way Transaction Systems accounts for sales of complex wire transfer, automated clearing house, and card processing software. The company, which markets its products under its ACI Worldwide brand, must categorize some sales as part of its backlog, and recognizes the revenue in a future quarter.
An $8.5 million settlement of a class-action lawsuit related to earnings restatements for 2003 shaved 14 cents a share from earnings. Transaction Systems' results were also clouded by a disclosure last month that it was reviewing its accounting for stock options, going back to 1995.
Despite all that, Philip G. Heasley, the president and chief executive, declared on a conference call with analysts Wednesday, "I don't think this company ever had a better year than last year."
Mr. Heasley called 2006 "clearly a transitional year," and noted that it included two other acquisitions besides that of P&H, a Newton, Mass., provider of Internet cash management software and services.
Henry C. Lyons, a senior vice president at Transaction Systems and its chief financial officer, said the P&H purchase would reduce earnings in fiscal 2007 by 17 to 19 cents; earlier the company had projected 14 to 16 cents.
Mr. Lyons attributed that to "an increase in the deferred revenue adjustment" but said that P&H, which has a substantial outsourcing business, "positions us for sustainable long-term growth."
Transaction Systems trimmed its guidance for next year slightly. It had projected revenue of $431 million to $443 million and per-share earnings of $1.49 to $1.64; it now expects the top line to come in at $430 million to $442 million and the bottom at $1.46 to $1.61 per share.
Transaction Systems, which is moving its headquarters to New York from Omaha, historically sold its software products to the largest banking companies in the world. The P&H business, which it is branding Software as a Service, gives it more potential with smaller institutions, especially in North America, where P&H is strongest.
Mr. Heasley said Transaction Systems may not be finished buying. "We have two or three things on our list that we would call 'Category A' acquisition candidates," he said.
But he said he may choose to spend the company's money on its own shares. In fiscal 2006, Transaction Systems repurchased 2.7 million of its shares for $73.5 million, and "we still have a strong appetite to buy back our stock," Mr. Heasley said.
The company reported in October that it was reviewing previous financial results over the handling of stock options, Mr. Lyons said most of the earnings impact will probably be for the period of 1995 to 2001. He said the company does not expect much impact on current results, except for the cost of conducting the review.
Transaction Systems said sales were driven by changes in the payments business, such as the Single European Payment Area initiative and the adoption of chip-based payment cards. Mark R. Vipond, a senior vice president and the president of the ACI Worldwide unit, said that Royal Bank of Canada's licensing of ACI Worldwide Smart Chip Manager software, announced last week, was the first sale of that product in North America.
Susan Feinberg, the research director in the wholesale banking group at TowerGroup in Needham, Mass., a market research unit of MasterCard International, said the complicated quarter could confuse the market at a time when many strategies are changing.
In fact, investors reacted harshly to the earnings announcement, which came out after the market closed Tuesday; Transaction Systems' shares fell 4.9% Wednesday, to close at $32.52. But investors regained their confidence in the stock, and it climbed steadily through the end of the week. It closed Friday at $35.61.
"They have so many different things going on it's hard to keep things straight," Ms. Feinberg said. "The company is actually making some bold moves."
