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Online Resources Posts Second Quarter 2007 Results
Core Earnings Strong Sequentially; Company Announces Agreement to Acquire Biller Service Provider
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CHANTILLY, Va.--(BUSINESS WIRE)--Online Resources Corporation (Nasdaq:ORCC), a leading provider of web-based financial services, today reported financial and operating results for the three months ended June 30, 2007. The following results include the impact of the acquisition of Princeton eCom on July 3, 2006, and reflect material additional revenue and costs, including $3.6 million in acquisition financing costs, not included in core net income in 2006.
"Second quarter fundamentals were strong," stated Matthew P. Lawlor, chairman and chief executive officer of the Company. "Core earnings were up significantly from first quarter 2007 and Ebitda margin expanded as expected. Our performance was driven by continued revenue growth on seasonally appropriate bill pay transactions, leverage in our business model, and the absence of one-time accounting charges we incurred last quarter." Lawlor added, "In the second half of the year, we see continued strong billpay growth and expanding Ebitda margin, although we have been impacted by a lengthening new client sales cycle and the previously announced migration of several clients off our platform." In a separate announcement, the Company stated it has signed a definitive agreement to acquire Internet Transaction Solutions, Inc. (ITS), a biller service provider, for $45 million in stock and cash. "The acquisition of ITS further positions the Company to drive shareholder value by creating some exciting new distribution channels," said Lawlor. "Additionally, the Princeton integration is behind us. Cost synergies have been achieved, our reorganization is complete and related new product initiatives are progressing well. While we are cautious about the timing and impact level of these opportunities, we expect them to provide strong revenue and core earnings expansion in 2008." 2007 Business Outlook The Company provided guidance for the third quarter and updated its full year 2007 guidance, including the impact of its pending acquisition of ITS. Guidance does not assume the release of any additional tax valuation allowance in 2007, though the Company may do so. These statements are forward-looking, and actual results may differ materially. Third Quarter Full Year
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2006 2007 % 2006 2007 %
Actual Guidance Change Actual Guidance Change
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Revenue ($
millions) $28.3 $33.5-34.5 20% $91.7 $135.0-138.0 49%
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Ebitda
(a)(b) $5.9 $8.3-8.9 46% $20.5 $33.0-34.5 65%
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Earnings ($ per share)
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Net Loss to
Common (c) $(0.13) $(0.06)-(0.04) n/a $(0.16) $(0.42)-(0.39) n/a
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Core Net
(Loss)
Income
(a)(d)(e) $(0.01) $0.06-0.08 n/a $0.16 $0.28-0.31 84%
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Share Count (millions)
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Basic 25.6 27.5 7% 25.5 27.1 6%
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Fully
Diluted
Shares (f) 27.0 29.7 10% 27.0 29.2 8%
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(a) The Company uses non-GAAP (Generally Accepted Accounting Principles) financial measures, including Ebitda and core net (loss) income, to evaluate performance and establish goals. It believes that these measures are valuable to investors in assessing the Company's operating results when viewed in conjunction with GAAP results. (b) Ebitda is defined as earnings before interest, taxes, depreciation, amortization, preferred stock accretion and equity compensation expense. (c) Third quarters 2007 and 2006 and full years 2007 and 2006 net loss available to common stockholders per share is calculated using the number of weighted-average shares outstanding (basic), not fully diluted shares. (d) Excludes amortization of acquisition-related intangible assets of approximately $1.8 and $2.3 million for the third quarters of 2007 and 2006, respectively, and $8.6 and $5.0 million for the years 2007 and 2006, respectively. Excludes equity compensation expense of approximately $1.3 and $0.6 million for the third quarters of 2007 and 2006, respectively, and $3.7 and $2.5 million for the years 2007 and 2006, respectively. Excludes write-off of fees and other expenses related to senior debt refinancing of approximately $5.6 million in the full year 2007. Excludes preferred stock accretion related to the redemption premium of $0.4 million for the third quarters of 2007 and 2006 and $1.5 and $0.8 million for the years 2007 and 2006, respectively. Excludes costs related to the fair market valuation of the escalation accrual on the preferred stock of $0.1 million for the third quarters of 2007 and 2006 and $0.3 and $0.2 million for the full years 2007 and 2006, respectively. Includes preferred stock accretion of approximately $1.8 million for the third quarters of 2007 and 2006 and $7.0 and $3.5 million for the years 2007 and 2006, respectively. (e) Core net (loss) income is defined as net loss available to common stockholders before the amortization of acquisition-related intangible assets, equity compensation expense, merger-related charges, restructuring-related charges, impairment charges, cumulative effect of change in accounting methods, income tax benefit from the release of valuation allowance, non-recurring tax charges, costs related to the escalation accrual on the preferred stock and preferred stock accretion related to the redemption premium. Some or all of these items may not be applicable in any given reporting period. (f) Only used for the purposes of calculating core net (loss) income per share. Today's Conference Call and Web Cast The Company's management will host a conference call to discuss the results today at 5:00 p.m. ET. The conference call dial-in number is (800) 938-1087 for domestic participants and (706) 679-7266 for international participants. Alternatively, a live web cast of the call will be available through the "Investors" section of Online Resources' web site at www.orcc.com. The call and web cast will be recorded and available for playback from 8:00 p.m. ET on July 26th until midnight on Thursday, August 2nd. For the conference call playback, dial (800) 642-1687 for domestic participants and (706) 645-9291 for international participants and enter code 6346632. For web cast replay, go to the "Investors" section of www.orcc.com. About Online Resources Online Resources powers web-based financial services for 2700 financial institutions, billers and credit service providers. Its proprietary suite of account presentation and payment services are branded to its clients, and augmented by marketing services to drive consumer and business end-user adoption. The Company serves over 10 million end-users and processes $100 billion in bill payments annually. Founded in 1989, Online Resources (Nasdaq: ORCC; www.orcc.com) is recognized as one of the nation's fastest growing companies. This news release contains statements about future events and expectations, which are "forward-looking statements." Any statement in this release that is not a statement of historical fact may be deemed to be a forward-looking statement. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Specifically factors that might cause such a difference include, but are not limited to: the company's history of losses and anticipation of future losses; the company's dependence on the marketing efforts of third parties; the potential fluctuations in the company's operating results; the company's potential need for additional capital; the company's potential inability to expand the company's services and related products in the event of substantial increases in demand for these services and related products; the company's competition; the company's ability to attract and retain skilled personnel; the company's reliance on the company's patents and other intellectual property; the early stage of market adoption of the services it offers; consolidation of the banking and financial services industry; and those risks and uncertainties discussed in filings made by the company with the Securities and Exchange Commission, including those risks and uncertainties contained under the heading "Risk Factors" in the company's Form 10-K, latest 10-Q, and S-3 as filed with the Securities and Exchange Commission. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. Online Resources Corporation
Quarterly Operating Data
(Unaudited)
Total % Change
---------------------------------- -----------
2Q07 2Q07
vs. vs.
2Q06 3Q06(1) 4Q06(1) 1Q07 2Q07 1Q07 2Q06
BANKING SERVICES
Users (#K) 1,666 3,638 3,836 3,899 4,317 11% 159%
Account
Presentation (#K) 776 849 916 826 989 20% 27%
Payments (#K)(2) 1,054 2,962 3,097 3,260 3,522 8% 234%
Adoption Rate (%)
Account
Presentation(3) 25.2% 26.3% 26.5% 26.4% 27.7% 5% 10%
Payments(4) 9.7% 5.7% 6.0% 6.3% 6.7% 6% -31%
Full Service(4) 9.2% 9.5% 9.9% 10.3% 10.7% 4% 16%
Remittance
Only(4) 10.4% 4.9% 5.2% 5.5% 5.8% 5% -44%
Same Store(5) 10.5% 11.0% 11.3% 11.6% 12.0% 3% 14%
Other Metrics
Bill Payment
Transactions (#M) 14.2 36.0 38.0 40.8 42.1 3% 196%
Clients 877 2,344 2,360 2,381 2,425 2% 177%
eCOMMERCE SERVICES
Users (#K)(2) 1,740 4,474 5,001 5,610 6,143 10% 253%
Account
Presentation (#K) 1,740 1,960 2,375 2,598 2,709 4% 56%
Payments (#K) 0 2,514 2,626 3,012 3,434 14% nm
Other Metrics
Bill Payment
Transactions (#M) 0.0 5.3 5.7 6.7 7.7 13% nm
Clients(6) 9 244 258 278 295 6% 3178%
TOTAL COMPANY
Users (#K)(2) 3,406 8,112 8,837 9,509 10,460 10% 207%
Bill Payment
Transactions (#M) 14.2 41.3 43.7 47.5 49.8 5% 250%
Clients 886 2,588 2,618 2,659 2,720 2% 207%
Notes: (1)Excludes Citizens Bank of Rhode Island, a legacy Princeton eCom client that departed in December 2006. (2)Only includes users that have been active over the past 90 days or were otherwise billable. (3)The number of account presentation end-users with checking accounts divided by the 2.1 million total launched checking accounts held with our account presentation banking services clients. (4)The number of payment services end-users divided by the total launched checking accounts held with all of our banking services payments clients (36.2 million), our banking services full service payments clients (6.7 million) and our banking services remittance only payments clients (29.5 million). The calculation only includes banking services payments clients for which we are the exclusive processor of the type of bill payment(s) we process for the client. (5)The number of payment services end-users divided by the 8.2 million total launched checking accounts held with our banking services payments clients that were launched on or before December 31, 2004. The calculation only includes banking services payments clients for which we are the exclusive processor of the type of bill payment(s) we process for the client. (6)Does not include 2,298 direct biller endpoints, bringing our total number of biller relationships to 2,584. Online Resources Corporation
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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2007 2006 2007 2006
--------- --------- --------- ---------
Revenues:
Account presentation
services $ 2,203 $ 1,956 $ 4,465 $ 3,884
Payment services 23,880 10,849 47,260 21,244
Relationship management
services 2,061 2,058 4,224 4,155
Professional services and
other 3,797 2,496 6,841 4,793
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Total revenues 31,941 17,359 62,790 34,076
Expenses:
Cost of revenues 14,677 7,591 29,762 15,253
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Gross profit 17,264 9,768 33,028 18,823
General and administrative 6,440 4,284 13,526 8,708
Selling and marketing 6,090 2,850 11,822 5,558
Systems and development 2,123 1,064 4,451 2,207
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Total expenses 14,653 8,198 29,799 16,473
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Income from operations 2,611 1,570 3,229 2,350
Other (expense) income
Interest income 400 682 737 1,280
Interest expense and write-
off of debt issuance costs (1,960) - (4,499) (1)
Loss on extinguishment of
debt - - (5,625) -
--------- --------- --------- ---------
Total other (expense)
income (1,560) 682 (9,387) 1,279
--------- --------- --------- ---------
Income (loss) before taxes 1,051 2,252 (6,158) 3,629
Income tax provision 81 855 291 1,475
--------- --------- --------- ---------
Net income (loss) 970 1,397 (6,449) 2,154
Preferred stock accretion 2,128 - 4,163 -
--------- --------- --------- ---------
Net (loss) income available to
common stockholders $ (1,158) $ 1,397 $(10,612) $ 2,154
========= ========= ========= =========
Net (loss) income available to
common stockholders per share
Basic $ (0.04) $ 0.05 $ (0.41) $ 0.08
Diluted $ (0.04) $ 0.05 $ (0.41) $ 0.08
Shares used in calculation of
net (loss) income available
to common stockholders per
share:
Basic 26,184 25,523 26,056 25,410
Diluted 26,184 27,527 26,056 27,553
Reconciliation of net (loss)
income to Ebitda (See Note
1):
Net income (loss) $ 970 $ 1,397 $ (6,449) $ 2,154
Depreciation and
amortization (incl. loss on
disposal of assets) 4,927 1,911 9,749 3,657
Equity compensation expense 219 616 1,199 1,233
Other expense (income) 1,560 (682) 9,387 (1,279)
Income tax provision 81 855 291 1,475
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Ebitda (See Note 1) $ 7,757 $ 4,097 $ 14,177 $ 7,240
========= ========= ========= =========
Reconciliation of net (loss)
income available to common
stockholders to core net
income (See Note 2):
Net (loss) income available
to common stockholders $ (1,158) $ 1,397 $(10,612) $ 2,154
Loss on extinguishment of
debt - - 5,625 -
Preferred stock accretion
related to redemption
premium 381 - 700 -
Escalation accrual fair
market valuation adjustment 61 - 134 -
Equity compensation expense 219 616 1,199 1,233
Amortization of intangible
assets 2,347 138 4,693 276
--------- --------- --------- ---------
Core net income (see Note
2) $ 1,850 $ 2,151 $ 1,739 $ 3,663
========= ========= ========= =========
Notes: 1. Ebitda is defined as earnings before interest, taxes, depreciation and amortization, preferred stock accretion and equity compensation expense. 2. Core net income is defined as net income available to common stockholders before the amortization of acquisition-related intangible assets, equity compensation expense, merger-related charges, restructuring-related charges, impairment charges, cumulative effect of change in accounting methods, income tax benefit from the release of valuation allowance, non-recurring tax charges, costs related to the fair market valuation of the escalation accrual on the preferred stock and preferred stock accretion related to the redemption premium. Some or all of these items may not be applicable in any given reporting period. Online Resources Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
2007 2006
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ASSETS
Current assets:
Cash, cash equivalents and short-term
investments $ 31,791 $ 32,154
Restricted cash 1,533 3,919
Accounts receivable, net 15,552 14,291
Deferred implementation costs 1,353 1,598
Deferred tax asset 1,095 2,561
Debt issuance cost 294 890
Prepaid expenses and other current assets 2,891 2,653
------------ ------------
Total current assets 54,509 58,066
Property and equipment, net 20,992 19,110
Deferred tax asset 11,635 11,635
Goodwill 167,920 168,085
Intangible assets 20,439 25,128
Deferred implementation costs, less current
portion 1,397 1,015
Debt issuance cost, less current portion 1,079 3,116
Other assets 785 436
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Total assets $ 278,756 $ 286,591
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities $ 7,288 $ 8,672
Deferred revenues 4,975 4,919
Deferred rent obligation 184 304
Interest payable 39 2,688
------------ ------------
Total current liabilities 12,486 16,583
Notes payable, senior secured debt 85,000 85,000
Deferred revenues, less current portion 3,571 3,374
Deferred rent obligation, less current
portion 2,079 2,144
Other long-term liabilities 2,495 4,047
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Total liabilities 105,631 111,148
Redeemable convertible preferred stock 76,271 72,108
Stockholders' equity 96,854 103,335
------------ ------------
Total liabilities and stockholders'
equity $ 278,756 $ 286,591
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Online Resources Corporation
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
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2007 2006
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Operating activities:
Net (loss) income $ (6,449) $ 2,154
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 9,583 3,657
Loss on preferred stock derivative security 134 -
Loss on cash flow hedge derivative security 142 -
Loss on disposal of assets 166 -
Provision for losses on accounts receivable (64) -
Write off and amortization of debt issuance
costs 4,111 -
Equity compensation expense 1,199 1,233
Deferred tax expense 1,466 1,473
Changes in operating assets and liabilities,
net of acquisitions (5,035) (3,391)
--------- ---------
Net cash provided by operating activities 5,253 5,126
Investing activities:
Purchases of property and equipment (6,816) (5,395)
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Net cash used by investing activities (6,816) (5,395)
Financing activities:
Proceeds from the issuance of common stock 2,731 2,543
Purchase of derivative (121) -
Sale of derivative 23 -
Debt issuance costs on refinancing of long-term
debt (1,443) -
Repayment of 2006 Notes (85,000) -
Proceeds from issuance of 2007 Notes 85,000 -
Repayment of capital lease obligations (20) (8)
--------- ---------
Net cash provided by financing activities 1,170 2,535
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Net (decrease) increase in cash and cash
equivalents (393) 2,266
Cash and cash equivalents at beginning of period 31,189 55,864
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Cash and cash equivalents at end of period $ 30,796 $ 58,130
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Contact: Online Resources Corporation
Media Contact:
Beth Halloran
Mng. Dir., Corporate Communications
703-653-2248
bhalloran@orcc.com
or
Investor Contact:
Catherine Graham
EVP & Chief Financial Officer
703-653-3155
cgraham@orcc.com
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