UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 29, 2003
(Date of earliest event reported)
-------------------------
TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-25346 47-0772104
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
224 South 108th Avenue,
Omaha, Nebraska 68154
(Address of principal executive offices, including zip code)
(402) 334-5101
(Registrant's telephone number, including area code)
-------------------------
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
The following exhibits are filed with this report on Form 8-K:
Exhibit
Number Description
99.1 Press Release, dated April 29, 2003.
99.2 Transcript of quarterly financial performance teleconference
and web cast, held on April 29, 2003.
Item 9. Regulation FD Disclosure (pursuant to "Item 12. Results of Operations
and Financial Condition").
In accordance with SEC Release No. 33-8216, the following information,
intended to be furnished under "Item 12. Results of Operations and Financial
Condition," is instead furnished under "Item 9. Regulation FD Disclosure." The
information in this Form 8-K and the Exhibit attached hereto shall not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor
shall it be deemed incorporated by reference in any filing under the Securities
Act of 1933, except as shall be expressly set forth by specific reference in
such filing.
On April 29, 2003, Transaction Systems Architects, Inc. issued a press
release announcing its results for the quarterly period ending March 31, 2003. A
copy of this press release is attached hereto as Exhibit 99.1.
On April 29, 2003, Transaction Systems Architects, Inc. held a
teleconference and web cast announcing its financial performance for the
quarterly period ending March 31, 2003. A copy of this teleconference/web cast
is attached hereto as Exhibit 99.2.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: May 5, 2003 By: /s/ Dwight G. Hanson
------------------------------------
Dwight G. Hanson
Chief Financial Officer, Treasurer
and Senior Vice President
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release, dated April 29, 2003.
99.2 Transcript of quarterly financial performance teleconference and
web cast, held on April 29, 2003.
Exhibit 99.1
News Release
TRANSACTION SYSTEMS ARCHITECTS INC
224 SOUTH 108 AVENUE
OMAHA, NEBRASKA 68154
402.334.5101
FAX 402.390.8077
For more information contact:
William J. Hoelting
Vice President, Investor Relations
402.390.8990
FOR IMMEDIATE RELEASE
Transaction Systems Architects Reports
Second Quarter Results
Highlights -
o Revenue of $69.3 million and EPS of $.11
o Operating income of $11.3 million; operating margin of 16.3 percent
o Twelve month revenue backlog of $233.1 million
o Operating cash flow of $9.3 million; cash balance of $91.4 million
(OMAHA, Neb.-- April 29, 2003)-- Transaction Systems Architects, Inc. (Nasdaq:
TSAI), a leading global provider of enterprise e-payments and e-commerce
software, announced today that revenue for the second quarter of fiscal 2003 was
$69.3 million. Earnings per diluted share were $.11.
For the second quarter of fiscal 2003, revenue was $69.3 million with software
license fees of $38.2 million, maintenance fees of $19.5 million and services of
$11.6 million. The Company's recurring revenue was $42.7 million, or 61.6
percent of revenue, and non-recurring revenue was $26.6 million, or 38.4 percent
of revenue. Recurring revenue consists of monthly license fees of $21.9 million,
maintenance fees of $19.5 million and facilities management fees of $1.3
million. Operating income was $11.3 million with an operating margin of 16.3
percent. Operating cash flow was $9.3 million with a cash balance as of March
31, 2003 of $91.4 million. Net income for the quarter was $4.1 million or $.11
per diluted share.
The Company completed the second quarter of fiscal 2003 with $233.1 million in
backlog, consisting of $162.4 million in recurring revenue backlog and $70.7
million in non-recurring revenue backlog. The Company defines recurring revenue
backlog to be all monthly license fees, maintenance fees and facilities
management fees specified in executed contracts to the extent that the Company
believes that recognition of the related revenue will occur within one year. The
Company includes in its non-recurring revenue backlog all fees (other than
recurring) specified in executed contracts to the extent that the Company
believes that recognition of the related revenue will occur within one year.
Significant customers signed in the second quarter for ACI Worldwide, the
Company's largest business unit, include the following: a U.S. based card
processor purchased BASE24-es(TM) and ACI Payments Manager(TM); a top 500
financial institution in Spain selected ACI Proactive Risk Manager(TM) for debit
card fraud; a financial institution in Turkey selected ACI Proactive Risk
Manager(TM) for credit card and merchant fraud; and a top 500 financial
institution in Korea, signed an agreement for NET24(TM), ACI's middleware
solution. Additionally, a financial institution in the Netherlands expanded its
relationship with TSA through the purchase of BASE24-atm(R).
During the quarter, Insession Technologies, the Company's e-infrastructure
business unit, added five new customers. Solutions licensed include ICE(TM), a
data-communications software solution; Webgate(TM), a web server solution; and
Workpoint(R), a business process management solution.
IntraNet, the Company's international payments and message processing solutions
provider, signed a significant services deal with a leading Belgium financial
institution; completed the delivery of a multi-million dollar project with a
financial institution in Germany; and continued its customer migration projects
to Money Transfer Systems(TM)-AIX, which will position its customers to address
new business requirements in the future.
"In this difficult environment, we were able to hold our own," said Gregory
Derkacht, President and CEO. "We experienced weak demand across all geographic
channels. Overall, we were able to deliver solid revenue, EPS and cash flow due
to our backlog of contracted business, recurring revenue base and our expense
management. Assuming the economy remains challenging in the near term, we will
continue to take the appropriate actions to manage our business units by
controlling expenses and focusing on our growth initiatives, one of which is our
BASE24-es(TM) multi-platform solution."
The Company will provide further details regarding its financial performance for
the second quarter of fiscal 2003 in its scheduled teleconference to be held
Tuesday, April 29, 2003 at 4:00 pm CST. Interested persons may access a
real-time audio broadcast of the teleconference at: www.tsainc.com/ir/ir.asp.
The web cast will be archived for 10 days after the teleconference at the same
web address listed above.
About Transaction Systems Architects, Inc.
The Company's software facilitates electronic payments by providing consumers
and companies access to their money. Its products are used to process
transactions involving credit cards, debit cards, secure electronic commerce,
mobile commerce, smart cards, secure electronic document delivery and payment,
checks, high-value money transfers, bulk payment clearing and settlement, and
enterprise e-infrastructure. The Company's solutions are used on more than 1,650
product systems in 71 countries on six continents.
Forward-Looking Statements
This press release contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. Generally,
forward-looking statements do not relate strictly to historical or current
facts, and include words or phrases such as "management anticipates," "the
Company believes," "the Company anticipates," "the Company expects," "the
Company plans," "the Company will," and words and phrases of similar impact, and
include but are not limited to statements regarding future operations, business
strategy and business environment. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements included in this press release include
statements regarding (1) the Company's recurring and non-recurring backlog, and
(2) management of our business units in the future by controlling expenses and
focusing on growth initiatives. Actual results could differ materially from that
contained in the forward-looking statements. Factors that could cause actual
results to differ include, but are not limited to, the following:
o The Company's calculation of backlog is based on customer contracts that
exist on the date of the calculation. A number of factors may change after
the date of calculation that could result in actual revenues being less
than the amounts contained in backlog. The Company's customers may attempt
to renegotiate or terminate their contracts due to a number of factors,
including mergers, changes in their financial condition, or general changes
in economic conditions in the customer's industry or geographic location,
or the Company may experience delays in the development of products or
services specified in customer contracts. Accordingly, there can be no
assurance that contracts included in recurring or non-recurring revenue
backlog will actually generate the specified revenues or that the actual
revenues will be generated within the one-year period.
Any or all of the forward-looking statements may turn out to be wrong. They can
be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Many of these factors will be important in determining the
Company's actual future results. Consequently, no forward-looking statement can
be guaranteed. Actual future results may vary materially from those expressed or
implied in any forward-looking statements.
These cautionary statements and any other cautionary statements that may
accompany such forward-looking statements, whether written or oral, expressly
qualify all of the forward-looking statements. In addition, the Company
disclaims any obligation to update any forward-looking statements after the date
of this release unless applicable securities laws require it to do so.
For a detailed discussion of these and other risk factors, interested parties
should review the Company's filings with the Securities and Exchange Commission,
including the Company's Form 10-K filed on January 13, 2003 and the Company's
Form 10-Q filed on February 13, 2003.
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, September 30,
2003 2002
----------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 91,408 $ 87,894
Marketable securities 3,183 3,757
Billed receivables, net 43,985 35,755
Accrued receivables 7,337 13,132
Prepaid income taxes 2,374 -
Deferred income taxes, net 10,599 17,554
Other 5,650 4,560
----------- ----------
Total current assets 164,536 162,652
Property and equipment, net 10,071 11,597
Software, net 3,116 5,609
Goodwill, net 56,387 55,947
Deferred income taxes, net 22,469 27,546
Other 2,681 3,168
----------- ----------
Total assets $ 259,260 $ 266,519
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt - financing
agreements $ 17,106 $ 18,444
Accounts payable 6,442 7,348
Accrued employee compensation 7,095 7,583
Accrued liabilities 8,669 11,494
Income taxes payable - 7,847
Deferred revenue 72,950 59,598
Other 764 872
----------- ----------
Total current liabilities 113,026 113,186
Debt - financing agreements 15,228 24,866
Deferred revenue 19,463 23,860
Other 1,519 1,749
----------- ----------
Total liabilities 149,236 163,661
----------- ----------
Stockholders' equity:
Class A Common Stock 183 183
Treasury stock, at cost (35,258) (35,258)
Additional paid-in capital 229,037 228,465
Accumulated deficit (76,862) (83,927)
Accumulated other comprehensive
loss, net (7,076) (6,605)
----------- ----------
Total stockholders' equity 110,024 102,858
----------- ----------
Total liabilities and
stockholders' equity $ 259,260 $ 266,519
=========== ==========
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,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
(Restated) (Restated)
Revenues:
Software license fees $ 38,167 $ 39,615 $ 69,497 $ 80,446
Maintenance fees 19,461 18,699 38,065 37,481
Services 11,622 12,923 24,177 26,547
---------- ---------- ---------- ----------
Total revenues 69,250 71,237 131,739 144,474
---------- ---------- ---------- ----------
Expenses:
Cost of software license fees 6,289 7,947 12,228 17,165
Cost of maintenance and services 15,693 16,375 30,501 32,413
Research and development 8,357 8,918 16,307 17,967
Selling and marketing 14,188 13,481 27,924 27,738
General and administrative 13,445 14,800 26,028 27,696
---------- ---------- ---------- ----------
Total expenses 57,972 61,521 112,988 122,979
---------- ---------- ---------- ----------
Operating income 11,278 9,716 18,751 21,495
---------- ---------- ---------- ----------
Other income (expense):
Interest income 285 329 595 640
Interest expense (787) (1,444) (1,743) (3,063)
Other, net 79 8,069 (1,060) 3,598
---------- ---------- ---------- ----------
Total other income (expense) (423) 6,954 (2,208) 1,175
---------- ---------- ---------- ----------
Income before income taxes 10,855 16,670 16,543 22,670
Income tax provision (6,785) (9,879) (9,478) (13,462)
---------- ---------- ---------- ----------
Net income $ 4,070 $ 6,791 $ 7,065 $ 9,208
========== ========== ========== ==========
Earnings per share information:
Weighted average shares outstanding:
Basic 35,486 35,299 35,462 35,277
========== ========== ========== ==========
Diluted 35,573 35,531 35,562 35,496
========== ========== ========== ==========
Earnings per share:
Basic $ 0.11 $ 0.19 $ 0.20 $ 0.26
========== ========== ========== ==========
Diluted $ 0.11 $ 0.19 $ 0.20 $ 0.26
========== ========== ========== ==========
-end-
Exhibit 99.2
TRANSACTION SYSTEMS ARCHITECTS, INC.
TSA 2003 2nd Quarter Financial Results
4/29/03
Mitch: Good afternoon. My name is Mitch, and I
will be your conference facilitator
today. At this time I would like to
welcome everyone to Transaction Systems
Architects, Inc., 2nd Quarter 2003
financial results conference call. All
lines have been placed on mute to prevent
any background noise. After the speaker's
remarks, there will be a question and
answer period. If you would like to ask a
question during this time please press *
then the number 1 on your telephone
keypad. If you would like to withdraw
your question, press *, then the number
2. Thank you. I would now like to turn
the call over to your host for the
afternoon, Bill Hoelting, vice president
of investor relations. Mr. Hoelting,
please begin.
Bill: Thank you, and good afternoon.
Participants for TSA's 2nd quarter
earnings conference call are Greg Derkacht
President and CEO; Dwight Hanson, CFO;
Mark Vipond President of ACI Worldwide.
This conference call could constitute
forward-looking statements pursuant to the
Safe Harbor provisions of Section 12E of
the Securities Exchange Act of 1934.
Actual results might differ materially
from those projected in the
forward-looking statement. Statements
during the conference call that are not
strictly historical statements could
constitute forward-looking statements
which involved risks and uncertainties
which could cause the actual results to
materially differ from those in the
forward-looking statement.
Forward-looking statements include the
following; any statement dealing with the
future prospects or result of the company;
and the forward-looking statements
identified in our Form 10-K filed on January
13th, 2003, and our Form 10-Q filed on
February 13th, 2003.
The agenda for the call will be as follows:
Mark Vipond will discuss the Q2 highlights
for ACI Worldwide; Dwight Hanson will then
discuss the Q2 financials; Greg Derkacht
will then provide his closing comments, at
which time we will open up the call to your
questions. At this time, I would like to
introduce Mark Vipond.
Mark: Thank you, Bill. Good afternoon,
everyone. I am here to give you an update
on the 2nd quarter results for ACI
Worldwide. ACI'S revenue for the quarter
was $48.7 million. While economic
conditions throughout the world continue
to be challenging, ACI was able to sign
new business during the quarter. Some of
the highlights include system and capacity
upgrades, over $100,000 at nine
customers. These upgrades took place in
all of our geographic regions. While our
customers continue to see transaction
volumes increase, their desire to control
their spending has caused them to only
license capacity that's absolutely
necessary. ACI licensed five new
customers in the quarter. This included
one BASE24, one NET24, two Proactive Risk
Managers, and one large customer who
licensed our new BASE24-es solution on
Unix server technology. We continue to
see interest in our multi-platform payment
solution.
ACI licensed ten new applications to
existing clients during the quarter. This
included sales of our Automated Key
Distribution System, Smart Chip Manager,
Proactive Risk Manager, Payments Manager,
Commerce Gateway, and new BASE24 add-on
products. With the ACI Commerce framework
and our continued investment in
multi-platform integrated payment systems,
we believe we are well-positioned in our
market space. Our payment engine strategy to
evolve our BASE24 solution to our BASE24-es
technology, is being well-received by our
customers. In addition, the BASE24-es
multi-platform solution is generating
interest in new markets where we believe we
can drive increased market share over time.
Thank you for your continued interest. I
will now introduce Dwight Hanson to give a
TSA financial update.
Dwight: Thanks, Mark, and good afternoon. Today I
will be discussing our fiscal 2003 2nd
quarter financial results. First I'll
start by highlighting key financial
metrics that we achieved during the
quarter. Total revenue was 69.3 million.
Operating expenses were 58 million.
Operating income was 11.3 million, with an
operating margin of 16.3%. Net income was
4.1 million, and earnings per share was
$.11. Our operating cash flow was 9.3
million. Our cash balance was 91.4
million. And our 12-month backlog was
233.1 million.
The 69.3 million of revenue was comprised of
the following: software license fees of 38.2
million, of which 16.3 million were initial
license fees and 21.9 million were monthly
license fees; maintenance revenue was 19.5
million; and our services revenue was 11.6
million. Revenues for each of our geographic
channels was as follows: United States, 28
million; Americas International, 8.1
million; Europe, Middle East and Africa, 25
million; Asia-Pacific, 8.2 million. Revenue
for each business unit were as follows: ACI,
48.7 million; Insession 8.8 million; and
IntraNet, 11.8 million.
Total revenues of 69.3 million represent a
decrease of 2.8% as compared to the 2nd
quarter of last year, and an increase of
10.8% as compared to the 1st quarter of this
year. Year-over-year decrease was in our
software license fees and services revenues,
which is consistent with the trend that took
place in the 1st quarter of this year. In
addition, 821,000 or 1.2% was due to the
sale of Regency Systems, which took place in
the 2nd quarter of fiscal 2002.
The year-over-year decline in license fees
is primarily due to a shift in sales focus
to ACI's newer products such as BASE24-es,
and our payments management products. This
shift will generally result in a difference
in timing of revenue recognition, as revenue
from these newer products is specifically
not recognized until customers put the
product into production, whereas revenues
from ACI's more established products is
typically recognized upon delivery of the
product to the customer.
In addition, revenue from capacity upgrades
decreased year over year. Capacity upgrades
are typically recognizable as revenue in the
quarter in which they are sold. Offsetting
the decline caused by the shift in sales
focus of ACI's products, and the general
effect of the global economic conditions was
an increase in IntraNet's license fees. This
increase is due to the completion of the
final phase of a large international ACH
project which, allowed us to recognize
approximately 3.6 million of revenue.
Monthly license fees reflected
year-over-year growth of 4.1% and sequential
growth of 9.2%. These increases are the
results of the growth of our installed base
of customers, as well as the impact of a
number of contracts in which initial
licensees, for revenue recognition purposes,
are being recognized over the contract term.
Year-over-year decrease in services revenue
continued a trend we experienced last year,
and the 1st quarter of this year. As I
mentioned last quarter, customers are using
lower-cost service providers or in-house
resources to fulfill their consulting and
support needs. In addition, our newer
products such as BASE24-es are architected
in such a manner that there will be less of
a need for associated services work as
compared to the classic version of our
BASE24 product.
Operating expenses for the quarter were 58
million, which is a decrease of 5.7% as
compared to the 2nd quarter of last year.
This decline is primarily due to a reduction
in our software amortization of 2.2 million,
which is due to some items becoming fully
amortized over the course of the last 12
months, as well as the impact of reduced
staffing costs due to fewer employees this
year as compared to last year. We have 1600
employees this year as compared to 1800 last
year. In addition, approximately $900,000 of
expense was due to the sale of Regency. On a
sequential basis, total operating expenses
increased 5.4%, which is primarily due to
additional re-audit professional fees of 1.6
million associated with the completion of
the re-audit, as well as approximately
$900,000 of additional payroll taxes due to
the restart of the payroll year on January
1st.
On a pre-tax basis, our profit was 10.9
million. Our effective tax rate for the
quarter was 62.5%, which reflects the
true-up of our year-to-date tax accrual. Our
year-to-date effective tax rate is 57.3%.
The effective rate is impacted significantly
by operating losses in certain foreign
subsidiaries. These losses can't be utilized
in other tax-paying subsidiaries, and thus
have a negative impact on our tax situation.
We are currently analyzing alternatives that
are focused on reducing our overall
effective tax rate. Net of taxes, our profit
was 4.1 million, which resulted in earnings
per share of $.11 for the 2nd quarter. This
compares to earnings per share of $.19 in
the 2nd quarter of last year. Last year's
2nd quarter results included a gain of 8.3
million from the sale of Regency Systems.
From a cash flow perspective, we generated
positive operating cash flow of 9.3 million,
and our cash balance at the end of the
quarter was 91.4 million. Our ending backlog
was 233.1 million, which is comprised of
recurring backlog of 162.4 million, and
non-recurring backlog of 70.7 million. The
recurring components, are monthly license
fees of 81.2 million, maintenance fees of
76.3 million, and facilities management fees
of 4.9 million. The non-recurring components
are licensees of 44.5 million, and services
of 26.2 million. We include in backlog all
revenue specified in signed agreements to
the extent we believe that recognition of
the related revenue will occur within 12
months.
From a balance sheet perspective, the only
other area that I'd like to comment on today
is the balance of our goodwill. As you know,
we no longer amortize goodwill, but are
required to perform periodic assessments of
the carrying value of this asset. The
majority of our goodwill balance is
associated with the core ACI business. There
is a component of goodwill that is
associated with the Messaging Direct
business. Messaging Direct's core product is
a secure document delivery software product.
IT spending in this area continues to be
weak, and the adoption rates of this
technology are slower than expected. We will
continue to closely monitor activity of this
product and the related carrying value of
the Messaging Direct goodwill.
Thanks for your time this afternoon. I'll
now turn the call over to Greg for some
closing comments.
Greg: Thank you, Dwight, and good afternoon.
Overall, we held our own in a difficult
business environment. The results from
our geographic channels were mixed, with
Asia-Pacific being affected by a slow
economy and the SARs epidemic, and Europe
also experiencing difficult business
conditions. Like other software companies
in our sector, we are not forecasting a
rebound in the financial services sector
in the near term. With these business
conditions, our plan has been to one,
focus on managing our costs, and two,
continuing to invest in our newer
initiatives which we believe enhance our
current leadership position in the
e-payments marketplace.
As a reminder, our new additions are, ACI's
multi-platform solution BASE24-es; ACI's
Proactive Risk Manager, a credit & debit
card fraud solution; ACI's back office
solution, Payment Manager, that enables
financial institutions to move away from
manual back-office systems to automated
systems. To date, we have signed six
BASE24-es customers. We continue making
progress on the implementation of our
previously-licensed es products. In
addition, I am pleased to announce that we
recently signed our 50th Proactive Risk
Manager customer. We continue to make
progress on our business model analysis, and
had hoped to be in a position to provide
revenue and earnings guidance at this point
in time.
Unfortunately, we still have some work in
front of us regarding the review of our tax
situation. As we complete our analysis,
we'll be in a position once again to provide
revenue and earning guidance. I feel good
that our multi-platform solution is
attracting continued interest in the
marketplace. We continue to look for
additional sales opportunities, particularly
from our newer initiative, PRM- Proactive
Risk Manager, and Payments Manager.
Just a quick note about our other business
units. Insession continues to fill a niche
in providing infrastructure tools to
multiple verticals, and IntraNet continues
to convert its existing customer base to its
Money Transfer System, the AIX platform.
At this point in time, thank you for your
continued interest in TSA. I'd like to turn
it over for open questions. Thank you.
Mitch: Ladies and gentlemen, once again I would
like to remind everyone, in order to ask a
question, please press * then the number 1
on your telephone keypad. We will pause
for just a moment to compile the Q&A
roster. Your first question comes from
the line of Franco Turrinelli from William
Blair & Company.
Franco: Gentlemen, good afternoon. A couple of
questions for you, I think primarily for
Mark. Mark, you commented on if volumes
do continue to increase with your
customers. Do you get any sense that
we're kind of getting to the end of the
spare capacity that those guys might have,
and that we'll start to have a little bit
of a pick-up in capacity upgrades,
effectively?
Mark: Well, Franco, I don't think it's going to
change materially. We continue to have
upgrades, the volume has increased. The
thing that's probably been different in
the last year has been, typically when you
have those conversations with clients,
they will sometimes forecast out their
growth for the next few years, and try to
work out a capacity upgrade that can
contemplate those kinds of volumes. What
we're seeing now more than anything is, "I
just want to do it for the next six months
or twelve months. I don't want to spend
any more money than I have to." So, we
don't get into conversations for long-term
growth projections with most of our
clients right now because they are
hoarding their money just as everybody
else is in this environment. So I don't
think we see a material change relative to
volume growth. I don't anticipate that
somehow the logjam is going to free up
until the economic situation does.
Franco: Mark, does it make any difference, though,
to you ultimately, if a customer does one
big capacity upgrade or, you know, four
smaller ones over two years or whatever?
Mark: It just means you don't get the capacity
upgrade now, the money now, versus over
the next two years. Typically, if they're
willing to -- they want to discuss getting
the capacity in the next couple of years
now, you do it at a discount, right,
because you get your money up front. So,
no, ultimately over the long-term in
business, it doesn't matter to us.
Franco: Okay. Good. And then, it seems as
thought IntraNet had a one-time increase
in the revenue with the completion of that
large single project. So, should we still
be thinking of IntraNet as an 8.5 million
sort of business, excluding that item?
Did I understand, Dwight, the disclosure
correctly?
Dwight: The IntraNet revenue I talked about was
11.8 million. That included that large
ACH project. That, in effect, was a
one-time item. Obviously there's a lot of
projects going on, but that item kicked
off a lot of revenue in the current
quarter at an unusually high rate in
comparison to their other projects.
Franco: Good. And Dwight, I realize that this may
be difficult. But, should we think of the
go-forward tax rate as being somewhere in
that year-to-date number that you gave us?
Dwight: The data we have now is what you see on a
year-to-date basis. Obviously, like I
said, we're studying that. But until any
changes are made, that's the rate,
definitely.
Franco: Thank you very much.
Mitch: Your next question comes from the line of
James Armstrong with Henry Armstrong
Associates.
James: Hello, gentlemen. Sort of a broad
question for Mark and Greg, I guess.
Given that near-term visibility is poor,
and things are very sluggish, maybe we
could talk for a moment about what we
might be seeing in the long-term, say two
to four years out. Do you see -- a couple
of the big growth opportunities you talked
about in the past are, number one, those
that have in-house systems gradually
converting to TSA products. And do you
think that would continue to happen, what
forces would drive it? And then number
two, extending the products out
horizontally using other hardware
platforms that you have, do you see that
as a bigger or smaller growth opportunity
than the former? And which one's going to
happen sooner, do you think?
Mark: I would say they're related. In terms of
the long-term, yeah, we do believe the
in-house solutions, there will continue to
be pressure on the cost associated with
them. There is a considerable economic
benefit to using a vended solution as long
as it can support the flexibility and the
function the customers require. I think
over the last ten years we've seen the
number of percentage of in-house solutions
decreasing, and we'll continue to see that
trend going forward.
What would be the catalyst for that? It's
the same things that have been catalyses for
the last decade; it's mandated changes like
triple des, Smart card support, EMV support,
these things that cost a lot of money to
maintain these systems causes customers who
have in-house solutions in order to support
their current support of the environments
they have to make those investments. And we
make them for them, and can spread that cost
over a huge customer base. And it makes us
more cost-effective. So, we expect in-house
solutions will continue to become out for
bid as time goes on. We see a number of
systems are already up for bid today. We
also believe there'll be some replacement
systems or vended solutions that are
outdated or have not kept up, or the
companies have gone out of business.
Relative to the other platform issues, our
view on this is with our BASE24-es
strategies and multi-platform solution, it
does allow us to go after markets that we
couldn't go before.
Before we had an HP-NSK only base solution
with BASE24. It's still a very viable
platform, but Unix, IBM, other platforms,
there are certain customers who will only
deploy certain types of server technology.
And already, we have won some new business
based upon the fact that we have offerings
that run on Unix as well as the IBM
mainframe. And to some extent, back to the
in-house environment, if they run IBM today
in the in-house, they typically want to stay
in that technology with their new system, a
vended solution.
So, there is -- our long-term view is quite
bullish. We believe we're well-positioned
with the R&D and the solutions that we have.
As spending increases we believe we will get
our fair share of that spending within the
marketplace.
James: May I ask a follow-on question? If, given
that we're in this sort of a grinded out
type of period, let's say the next year or
two, and it sounds like you folks have
righted the ship and people are pulling in
the right direction, Greg, what can be
done to harvest value for the stockholders
in this environment over the next couple
of years, do you think?
Greg: Well, the best way I can kind of express
that is, I think we need to keep on
basically investing in our new
initiatives, our new product lines, which
we think as the economy turns are going to
help basically grow the top line of the
organization. As I said before, I think
there is other fuel for the fire,
basically, is, I talked about -- and I
would call it very synergistic --
acquisitions which I think now that we,
like I said, have turned the corner a
little bit, that at some point in time we
need to start looking at opportunities out
in the marketplace. So, I think there's
several growth initiatives which could
help the organization.
But I would say right now, we're going to be
very, very careful. We are keeping our
powder dry, and making sure we make
expenditures very judiciously to grow the
organization. But, it's -- as you said, it's
just a tough economy. And I think it's kind
of a "slug it out" right now. But I think
there are some opportunities out there.
James: Okay. Thank you.
Mitch: Once again, ladies and gentlemen, I would
like to remind everyone, if you do have a
question, please press * then the number 1
on your telephone keypad. Your next question
comes from the line of Brad Knuth with Smith
Hayes.
Brad: Just a couple of quick questions here.
Dwight, on the -- in the balance sheet, I
noticed billed receivables and accrued
receivables. When did you cease factoring
receivables? Would that have been in the
current quarter, or the previous quarter?
Dwight: No. Factoring isn't part of the
receivables base. We haven't done any
factoring in for a year or so.
Brad: Okay.
Dwight: The only impact of factoring is, there's a
line item called "deferred financing" on
the liability side. And you'll notice
that that gets -- that's been slowly going
down as we have collected from customers
and remitted those monies on to the
factor. It really doesn't impact
receivables.
Brad: And that runs off in what, another two
quarters, possibly then, at that rate?
Dwight: No. It's a little bit longer than that.
It goes out, I think, in a couple, two to
three years.
Brad: And then, one question for Mark. You
mentioned a US-based card processor that
bought BASE24 in the quarter. Was that on
Tandem architecture, or something else?
Mark: They actually bought the license for
BASE24-es on a Unix server. It's Sun
Solaris, to be specific.
Brad: And that would have been your first
processor on a non-tandem architecture?
Mark: No. That's not correct. Some of the
other -- Greg referred to six BASE24-es
clients. Three of those have been on the
HP-NSK platform, two on Sun Solaris, and
one on IBM AIX.
Brad: Okay. Great. Thank you.
Mitch: Your next question comes from the line of
William Tapert with Taconic Advisory
Group.
William: Greg?
Greg: Yes?
William: Hi. It's Bill. Congratulations on the
new contracts on the BASE24-es systems.
It sounds like you did two in the previous
quarter and had four new contracts this
quarter? Is that correct?
Mark: That's actually -- this is Mark Vipond.
No, it's -- one of them was actually
signed over a year ago.
William: But you announced two in the ---
Mark: This is spread over time. The six is an
accumulation of deals that we signed over
the last year in various quarters.
William: So in this last quarter you signed how
many? I'm sorry.
Mark: We signed two last quarter.
William: Can you give us the order of magnitude, what
kind of size they were? I think you said the
two in the quarter before this were a
combination of nearly $10 million, they were
large ones.
Mark: Yes. You have a good memory. That's what
we said last quarter. Yeah. They were two
very large ones. The one we signed this
quarter was not quite that large, but
pretty significant.
William: Terrific.
Mark: How's that for being nebulous?
William: I thought you had two in this last quarter?
Mark: No. We had one BASE24-es.
William: Great. Thanks so much.
Mitch: Your next question comes from the line of
Sean Kiernan with Caxton Associates:
Sean: Real simple question here. You just
talked about the balance sheet, and
hoarding cash, at least your competitors
and people in the industry seem to be
doing that. And then you talked about at
some point you're going to have to look at
deploying some of that cash, maybe, some
incremental acquisitions. Just any
thoughts on actually deploying that cash
to buy back some stock, acquire some of
your own stock, in the near-term?
Greg: Yes. I have mentioned before -- at least
I think I have -- we are going through the
process of a review with the Board,
strategic utilization of cash per year
plan for the organization, etc. That
should be completed in a relatively short
period of time. At that point in time,
we're going to look at alternatives, and
that would be absolutely one of the
options we would look at. In saying that,
I'm not saying we're going to do it, but
it sure would be an option we'd review.
Sean: And then I suppose we'll get an answer,
then, shortly?
Greg: I would say over the next several months.
Sean: Thank you.
Mitch: Again, ladies and gentlemen, if you would
like to ask a question, press * then the
number 1 on your telephone keypad. Your next
question comes from the line of Joshua
Fenton with Gabeloi Asset Management.
Joshua: Good afternoon. In your 10-Q's you break
out initial licensing revenue and monthly
licensing revenue. Could you do that for
this quarter?
Dwight: Sure. I think I provided that at ---
Joshua: I got on about 10 minutes late.
Dwight. The monthly licensing revenue was 21.9
million. The initial licensing was 16.3
million.
Joshua: Thank you. Sorry.
Greg: That's absolutely fine.
Mitch: Your next question comes from the line of
James Armstrong with Henry Armstrong
Associates.
James: Hello again. I know that you don't want
to give guidance, and forgive me if I'm
asking you to. But just as a broad
question, is the current operating cash
flow run rate, does it seem reasonably
stable? Obviously during the re-audit a
lot of parts were moved around. And it's
important for us to get a handle on what
the company's true look-forward run rate
is. So question number one is, is the
current operating cash flow is 9.3 million
per quarter a reasonable guesstimate of
what the company can do. And then
question number two us, can we expect the
cash balance to keep rising quarter by
quarter?
Greg: Well, let me -- the cash balance in this
organization, free cash flow, is a little
bit hard to track, because it doesn't
track as you typically expect in an
organization. But, very much the intent
is to have free operating cash flow over
some period of time in the organization.
That's our responsibility, to keep the
company profitable and watch cap ex, etc.
I can't say definitively that 9.3 is cash
flow on a quarterly basis, or that's what
it will be. But we absolutely intend on
keeping positive free cash flow in the
organization.
James: Which would, then, lead us to a rising cash
balance, absent any decisions to deploy it
in acquisitions or buy-backs?
Greg: We would anticipate that for some period
of time.
James: Right. Thank you.
Mitch: Gentlemen, at this time there are no
additional questions. Do you have any
closing remarks?
Bill: We thank everyone for your questions and
attendance. This concludes our Q2
conference call.
Mitch: Ladies and gentlemen, this concludes
today's conference. Thank you for your
participation. You may now disconnect.