Our product brands, solutions and related markets are summarized below:

                                      Enterprise              Postilion
                                     S1 Enterprise       Postilion       FSB

             Self Service Banking
             Online Banking
             Personal Banking            Global               US            -
             Business Banking            Global               US            -
             Bill pay services             US                 US            -
             Corporate Banking           Global                 -           -
             Trade Finance               Global                 -           -
             Mobile Banking              Global             Global          -
             Voice Banking               Global               US            -

             Full Service Banking
             Teller                      Global                 -          US
             Sales and Service           Global                 -          US
             Call Center                 Global                 -          US
             Lending                           -                -          US

             Payments                          -            Global          -

             Insurance                     US                   -           -

Revenue from Significant Customers
Revenue from State Farm was 17% and 19% of our total revenue and 29% and 36% of our Enterprise segment revenue during the three months ended March 31, 2009 and 2008, respectively. In 2008, we announced that we expected our relationship with State Farm to conclude by the end of 2011. We expect approximately $80 million in revenue from State Farm from 2009 until our work for them concludes by the end of 2011, of which we expect approximately $35 - $37 million in revenue in 2009. Additional information about our business segments, geographic disclosures and major customers is presented in Note 10 to our unaudited condensed consolidated financial statements contained elsewhere in this report. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under other assumptions or conditions.
Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include those related to:
• revenue recognition;

• estimation of our allowance for doubtful accounts and billing adjustments;

• valuation and recoverability of long-lived assets, including goodwill;

• determination of technological feasibility and capitalization of software development costs;

• determination of the fair value of employee stock options and stock appreciation rights awards;

• recognition of costs in connection with restructuring plans;

• reserves for contingencies; and

• income taxes.

During the three months ended March 31, 2009, there were no significant changes in our critical accounting policies and estimates. You should refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2008 for a more complete discussion of our critical accounting policies and estimates. Recent Accounting Pronouncements
For a complete list of the recent accounting pronouncements, please refer to Note 2 in the unaudited condensed consolidated financial statements contained elsewhere in this report.
Effects of Foreign Currencies
Our revenue and net income were impacted by foreign exchange rate fluctuations mainly for transactions in the British Pound, South African Rand, Indian Rupee and the European Euro. Our operating expenses were impacted mainly for professional services and support, sales and marketing, product development, and general and administrative functions. Generally, expenses are denominated in the same currency as our revenue and the exposure to rate changes is naturally hedged for transactions in the British Pound and European Euro which minimizes the impact to net income. However, our development centers in India and South Africa are not naturally hedged as their costs are in the local currency but are funded in U.S. Dollars and British Pounds. We did not enter into material financial derivatives to hedge our currency risks in 2009 or 2008. Please refer to Item 7A of Part II, "Quantitative and Qualitative Disclosures about our Market Risk" of our Annual Report on Form 10-K for our fiscal year ended December 31, 2008 for a further discussion on potential foreign currency risks. The estimated effect on our consolidated statements of operations from changes in exchange rates versus the U.S. Dollar is as follows (in thousands, except per share data):

                                          Three Months Ended March 31, 2009
                                    At Prior
                                      Year
                                    Exchange           Exchange
                                    Rates (1)        Rate Effect       As reported

      Revenue                      $    61,128       $     (2,840 )   $      58,288
      Operating expenses                51,485             (3,330 )          48,155

      Operating income                   9,643                490            10,133
      Net income                         8,584                360             8,944
      Diluted earnings per share   $      0.16       $          -     $        0.16

(1) Current year results translated into U.S. Dollars using prior year's average exchange rates.

Comparison of the Three Months Ended March 31, 2009 and 2008 Revenue. The following table sets forth our revenue data for the three months ended March 31, 2009 and 2008. The table provides the percentage change of each revenue type for the periods presented (dollars in thousands):

                                                            Three Months Ended March 31,
                              Enterprise                              Postilion                                Total
                     2009          2008         Chg         2009          2008         Chg         2009          2008         Chg
Revenue:
Software
licenses           $  2,787      $  1,589         75 %    $  8,831      $  7,946         11 %    $ 11,618      $  9,535         22 %
Support and
maintenance           4,665         3,706         26 %       7,820         7,997         -2 %      12,485        11,703          7 %
Professional
services             18,574        17,090          9 %       4,501         4,032         12 %      23,075        21,122          9 %
Data center           7,240         7,103          2 %       3,870         5,210        -26 %      11,110        12,313        -10 %


Total revenue      $ 33,266      $ 29,488         13 %    $ 25,022      $ 25,185         -1 %    $ 58,288      $ 54,673          7 %

Total revenue increased by $3.6 million, or 7%, for the three months ended March 31, 2009 compared to the same period in 2008 mainly due to the Enterprise segment's growth in Software licenses, Support and maintenance, Professional services and Data center. The Postilion segment's total revenue was relatively unchanged for the three months ended March 31, 2009 compared to the same period in 2008. For the three months ended March 31, 2009, revenue was unfavorably impacted from foreign currency exchange rates for operations in Europe and South Africa by approximately $2.8 million when compared to the same period in 2008. Our Software licenses revenue includes subscription, or term based arrangements, which allow our customers the right to use our software during a specified period, typically three to five years. Generally, the amount of subscription fees is based on the number of end-users accessing the licensed system, subject in certain circumstances to minimum user levels. Subscription revenue is generally recognized ratably over the term of the arrangement and includes the rights to receive support services and unspecified upgrades and enhancements during the term. For certain Postilion customers, the subscription also entitles the customer to receive hosting services. As the number of customers on subscription arrangements increases, revenue for our support and maintenance, data center, and software licenses will be impacted. This transition reflects the acceptance of the Postilion segment's self service banking products on a subscription basis. Postilion's payments solutions are primarily sold on a perpetual license model. The Enterprise segment currently sells licenses on a perpetual basis, but has sold subscription licenses in the past. Our Software licenses revenue includes subscription revenue as follows (in thousands):

                                        Three Months Ended March 31,
                                          2009                2008
              Subscription revenue:
              Enterprise              $         696       $         547
              Postilion                       3,038               2,031

              Total Company           $       3,734       $       2,578

Since the sales cycle for large financial institutions and retailers can last from six to 18 months, Software licenses and Professional services revenue can be impacted by one or two large customer agreements. Accordingly, Professional services and Software licenses revenue can increase or decrease based on progress towards completion of projects, including project delays. Software licenses revenue may also fluctuate depending on the amount, timing and nature of customer licensing activity. When professional services are considered essential to the functionality of the software, we record revenue for the perpetual license and professional services over the implementation period using the contract accounting method on a contract by contract basis, typically measured by the percentage of cost incurred to date to estimated total costs to complete the contract. We typically use labor hours to estimate contract costs. Contract costs generally include direct labor, contractor costs and indirect costs identifiable with or allocable to the contract. Otherwise, perpetual license revenue is recognized upon delivery of the software provided that all other revenue recognition criteria are met.
Our Enterprise segment revenue increased $3.8 million, or 13%, for the three months ended March 31, 2009 compared to the same period in 2008. Software licenses revenue for our Enterprise segment increased $1.2 million for the three months ended March 31, 2009 from the same period in 2008, due primarily to increased demand for our corporate Internet banking solutions. Support and maintenance revenue for our Enterprise segment increased $1.0 million for the three months ended March 31, 2009 from the same period in 2008, due primarily to increased licensing activity of our personal, business and corporate Internet banking solutions. Professional services revenue for our Enterprise segment increased $1.5 million for the three months ended March 31, 2009 from the same period in 2008, due primarily to work related to a multi-channel implementation for a large international bank and growth in the number of projects for our personal, business and corporate Internet banking solutions, partially offset by a decline in projects with our largest customer and a $300 thousand unfavorable impact from foreign currency exchange rates for operations in Europe. Professional services revenue in any one quarter can be impacted by one or two large customer projects and therefore, can increase or decrease significantly based on the projects. Data center revenue for our Enterprise segment increased $100 thousand for the three months ended March 31, 2009 from the same period in 2008, due primarily to an increase in the number of transactions for existing customers partially offset by a $400 thousand unfavorable impact from foreign currency exchange rates for operations in Europe.

Our Postilion segment revenue was relatively unchanged for the three months ended March 31, 2009 compared to the same period in 2008. Software licenses revenue for our Postilion segment increased $900 thousand for the three months ended March 31, 2009 from the same period in 2008, due primarily to the conversion of self-service banking customers in North America from annual support and maintenance agreements to long-term subscription agreements, which in some cases included hosting services. Additionally, Software licenses revenue increased due to higher demand for our payments solutions by international customers offset by a $1.0 million unfavorable impact from foreign currency exchange rates for operations in Europe and South Africa. Support and maintenance revenue for the Postilion segment decreased $200 thousand for the three months ended March 31, 2009 from the same period in 2008, due primarily to a $500 thousand unfavorable impact from foreign currency exchange rates for operations in Europe and South Africa which offset the increased licensing activity for our payments solutions. Professional services revenue for the Postilion segment increased $500 thousand for the three months ended March 31, 2009 from the same period in 2008, primarily due to increased licensing of our payments solutions partially offset by a $400 thousand unfavorable impact from foreign currency exchange rates for operations in Europe and South Africa. Professional services revenue in any one quarter can be impacted by customer projects and therefore, can increase or decrease significantly based on the projects. Data center revenue for our Postilion segment decreased $1.3 million for the three months ended March 31, 2009 from the same period in 2008, due in part to customer attrition in our self service banking business and the conversion of some hosted customers to subscription agreements.
Stock-based compensation. Our stock-based compensation (benefit) expense relates to our stock options, restricted stock and cash-settled stock appreciation rights ("SARs"). The SARs expense is recalculated each quarter based on our updated valuation which includes, among other factors, our closing stock price for the period. Therefore, changes in our stock price during a period will cause our SARs expense to change thus impacting our stock based compensation expense until the SARs are settled. Our stock price was $5.15 as of March 31, 2009 compared to $7.89 as of December 31, 2008. This decrease in our stock price resulted in a reduction of our SARs liability by $3.3 million which is reflected in our stock-based compensation expense in the first quarter of 2009. Our stock-based compensation (benefit) expense included in Direct and operating expenses and by grant type is as follows (in thousands):

                                                             Three Months Ended March 31,
                                                               2009                 2008
Direct and operating expenses:
Cost of professional services, support and maintenance    $          (152 )     $          46
Cost of data center                                                    20                  25
Selling and marketing                                              (1,220 )               724
Product development                                                  (130 )               322
General and administrative                                         (1,049 )               771

Total stock-based compensation (benefit) expense          $        (2,531 )     $       1,888


Grant type:
Stock options                                             $           594       $         964
Restricted stock                                                      213                 174
Stock appreciation rights                                          (3,338 )               750

Total stock-based compensation (benefit) expense          $        (2,531 )     $       1,888

Direct costs. The following table sets forth our direct costs for the three months ended March 31, 2009 and 2008. The table provides each direct cost type as a percentage of the applicable revenue type for the periods presented (dollars in thousands):

                                                                                          Three Months Ended March 31,
                                                       Enterprise                                   Postilion                                     Total
                                           2009        %         2008        %         2009        %         2008        %         2009        %         2008        %
Direct costs:
Cost of software licenses                $    310       11 %   $    334       21 %   $    530        6 %   $    658        8 %   $    840        7 %   $    992       10 %
Cost of professional services, support
and maintenance                            11,591       50 %     10,632       51 %      6,760       55 %      6,860       57 %     18,351       52 %     17,492       53 %
Cost of data center                         4,016       55 %      3,945       56 %      2,865       74 %      2,612       50 %      6,881       62 %      6,557       53 %


Total direct costs                       $ 15,917       48 %   $ 14,911       51 %   $ 10,155       41 %   $ 10,130       40 %   $ 26,072       45 %   $ 25,041       46 %

Direct costs increased $1.0 million for the three months ended March 31, 2009 compared to the same period in 2008, mainly due to an increase in Cost of professional services in the Enterprise segment. As a percentage of revenue, direct costs were 45% and 46% for the three months ended March 31, 2009 and 2008, respectively. Direct costs exclude charges for depreciation of property and equipment. For the three months ended March 31, 2009, direct costs were favorably impacted from foreign currency exchange rates for operations in Europe, South Africa and India by approximately $1.0 million when compared to same period in 2008.
Cost of software licenses. Cost of software licenses for our products sold includes the cost of software components that we license from third parties as well as the amortization of purchased technology. In general, the Cost of software licenses for our products is minimal because we internally develop most of the software components, the cost of which is reflected in product development expense as incurred. The Cost of software licenses could increase in future periods as we license and install more of our products that include third party products. Purchased technology amortization was $500 thousand and $700 thousand for the three months ended March 31, 2009 and 2008, respectively. As the majority of Cost of software licenses is the amortization of purchased technology, software license costs are generally flat but can fluctuate with a large third party license sale or when purchased technology becomes fully amortized. Overall, the Cost of software licenses was 7% and 10% of Software licenses revenue for the three months ended March 31, 2009 and 2008, respectively.
Cost of professional services, support and maintenance. Cost of professional services, support and maintenance consists primarily of personnel and related infrastructure costs and excludes charges for depreciation of property and equipment. Direct costs associated with professional services, support and maintenance increased $900 thousand for the three months ended March 31, 2009 from the same period in 2008, primarily to support our customers and project growth partially offset by a $900 thousand favorable impact from foreign currency exchange rates for operations in Europe, South Africa and India. Additionally, our stock-based compensation expense decreased approximately $200 thousand. As a percentage of revenue, Cost of professional services, support and maintenance was 52% and 53% of Support and maintenance and Professional services revenue for the three months ended March 31, 2009 and 2008, respectively. Cost of data center. Cost of data center consists primarily of personnel costs, facility costs and related infrastructure costs necessary to support our data center business and excludes charges for depreciation of property and equipment. Cost of data center increased $300 thousand for the three months ended March 31, 2009 compared to the same period in 2008, due primarily to higher costs as we increased resources to support our customers. Additionally, the conversion of Postilion self service banking customers to subscription pricing and customer attrition in Postilion's self service banking business has unfavorably increased the Cost of data center as a percentage of Data center revenue. As a percentage of Data center revenue, Cost of data center was 62% and 53% for the three months ended March 31, 2009 and 2008, respectively.

Operating expenses. The following table sets forth our operating expenses for the three months ended March 31, 2009 and 2008. The table provides each type of . . .