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Online Resources Posts Third Quarter 2010 Results

Company Delivers Strong Results Against Expectations

CHANTILLY, Va.--(BUSINESS WIRE)-- Online Resources Corporation (Nasdaq: ORCC), a leading provider of online financial services, today reported financial and operating results for the three months ended September 30, 2010.

  • Revenue was $36.8 million, compared to $36.6 million in the third quarter of 2009.
  • Ebitda, a non-GAAP measure, was $7.4 million, compared to $8.8 million in the same quarter of 2009.
  • Adjusted Ebitda, a non-GAAP measure that adjusts Ebitda for equity compensation and other expense, was $8.0 million, compared to $9.8 million in the prior year period.
  • Net loss available to common stockholders was $0.7 million, or $0.02 per share, compared to net income of $0.4 million, or $0.01 per diluted share, in the same quarter of 2009.
  • Core net income, a non-GAAP measure, was $1.2 million, or $0.04 per diluted share, compared to $2.9 million, or $0.09 per diluted share, in the same quarter of 2009.

"We continued our trend of performing well against expectations this year, exceeding revenue and earnings expectations in the quarter," said Joseph L. Cowan, the company's president and chief executive officer. "Additionally, payment transactions and consumer adoption of online banking and payments continued their quarterly upward climb."

"Our planning process is well underway. We have presented a strategic direction to the Board of Directors and are now developing the supporting operating plan for their approval. We expect to present this plan to the Board in December and I look forward to sharing it with you once we have finalized our course of action."

Outlook for Fourth Quarter 2010

Online Resources provided the following guidance for the fourth quarter of 2010. These statements are forward-looking, and actual results may differ materially.

  • Revenue for the fourth quarter is expected to be between $35.0 and $37.0 million.
  • Ebitda1,2 for the quarter is expected to be between $5.5 and $7.0 million
  • Adjusted Ebitda1,2 for the quarter is expected to be between $6.7 and $8.0 million.
  • Core net income1,3,4,5 is expected to be between $0.03 and $0.05 per diluted share.

Should the Company make organizational changes as a part of its fourth quarter planning process, it may incur restructuring costs. These costs are not included in the above guidance.

(1)   The Company uses non-GAAP (Generally Accepted Accounting Principles) financial measures, including Ebitda, adjusted Ebitda and core net 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.
(2) Ebitda is defined as net income before interest, taxes, depreciation and amortization expense. Adjusted Ebitda is defined as net income before interest, taxes depreciation and amortization, and equity compensation expense.
(3) Core net income is defined as net income available to common stockholders before, on a pre-tax basis unless otherwise noted, the amortization of acquisition-related intangible assets, equity compensation expense, income tax benefit or expense from the change in valuation allowance, income (costs) related to the fair market valuation of certain derivatives and mark-to-market investments, preferred stock accretion related to the redemption premium and all other non-recurring charges. Some or all of these items may not be applicable in any given reporting period.
(4) Excludes estimates for amortization of acquisition-related intangible assets of $1.3 million, equity compensation expense of $0.9 million and preferred stock accretion related to the redemption premium of $0.4 million.
(5) Core net income per share calculated using estimated fully diluted shares outstanding of 32.1 million.

Conference Call and Web Cast

Management will host a conference call to discuss results at 5:00 p.m. ET today. The conference call dial-in number is (877) 303-6496 for domestic participants and (707) 287-9318 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 November 4th until midnight on Thursday, November 11th. For the conference call playback, dial (800) 642-1687 for domestic participants and (706) 645-9291 for international participants and enter code 19000222. For web cast replay, go to the "Investors" section of www.orcc.com.

About Online Resources

Online Resources (Nasdaq: ORCC) powers financial interactions between millions of consumers and the Company's financial institution and biller clients. Backed by its proprietary real-time payments gateway that links banks directly with billers, the Company provides web and phone-based financial services, electronic payments and marketing services to drive consumer adoption. Founded in 1989, Online Resources is the largest financial technology provider dedicated to the online channel. For more information, visit www.orcc.com.

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 Data1

(Unaudited)
 
  4Q08   1Q09   2Q09   3Q09   4Q09   1Q10   2Q10   3Q10
BANKING SERVICES              
Payment Services
Revenue $17.9 $17.5 $17.2 $17.1 $16.7 $16.4 $15.7 $15.3
Bill Payment Transactions 39.4 39.0 37.3 38.5 37.8 35.9 36.6 37.9
 
Other Revenue $5.3 $5.4 $5.9 $5.7 $7.7 $7.0 $6.5 $7.0
 
eCOMMERCE SERVICES
Payment Services - User Paid
Revenue $5.8 $6.5 $5.8 $4.7 $4.1 $4.8 $4.1 $3.9
Bill Payment Transactions 1.6 1.7 1.6 1.4 1.2 1.4 1.3 1.4
 
Payment Services - Biller Paid
Revenue $6.2 $7.1 $7.0 $7.2 $7.3 $8.6 $8.4 $8.5
Bill Payment Transactions 11.8 12.7 13.5 13.7 14.2 15.4 15.9 16.6
 
Other Revenue $2.0 $2.7 $1.9 $1.9 $2.4 $1.9 $1.7 $2.0
 
OTHER KEY METRICS
Internet Banking Adoption Rate2 35.4 % 38.3 % 40.8 % 43.2 % 46.0 % 45.0 % 47.9 % 49.4 %
Banking Billpay Adoption Rate 10.2 % 10.4 % 10.7 % 11.1 % 11.4 % 11.6 % 11.9 % 12.2 %
Enterprise Users 13.2 13.8 14.0 14.3 14.8 14.7 15.0 15.8

Notes:

1.   In millions except adoption rates.
2. The Company refined its definition of an Internet banking user in 1Q09 to incorporate a stricter definition of an active user. In order to make them consistent with the new definition, the Internet banking adoption rates for prior periods have been adjusted. User counts under the new definition have been estimated for the prior periods.
 
 
Online Resources Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
 
THREE MONTHS ENDED   NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2010   2009 2010   2009
(Unaudited) (Unaudited)
Revenues:
Account presentation services $ 2,237 $ 2,083 $ 6,676 $ 5,877
Payment services 27,699 28,971 85,576 90,126
Relationship management services 2,358 2,015 6,498 6,055
Professional services and other   4,501     3,525     12,986     11,559  
Total revenues 36,795 36,594 111,736 113,617
 
Expenses:
Cost of revenues   19,394     18,816     58,406     58,496  
Gross profit 17,401 17,778 53,330 55,121
 
General and administrative 7,399 6,955 23,427 23,564
Selling and marketing 4,900 4,624 14,657 15,952
Systems and development   2,277     2,247     7,403     6,630  
Total expenses   14,576     13,826     45,487     46,146  
Income from operations 2,825 3,952 7,843 8,975
 
Other income (expense)
Interest income 18 22 39 104
Interest expense 286 (357 ) 450 (3,300 )
Other income (expense)   -     14     (99 )   91  
Total other income (expense)   304     (321 )   390     (3,105 )
Income before tax provision 3,129 3,631 8,233 5,870
Income tax provision   1,427     918     3,282     1,950  
Net income 1,702 2,713 4,951 3,920
Preferred stock accretion   2,413     2,325     7,124     6,861  
Net income (loss) available to common stockholders $ (711 ) $ 388   $ (2,173 ) $ (2,941 )
 
Net income (loss) available to common stockholders per share:
Basic $ (0.02 ) $ 0.01 $ (0.07 ) $ (0.10 )
Diluted $ (0.02 ) $ 0.01 $ (0.07 ) $ (0.10 )
 
Shares used in calculation of net loss available to common stockholders per share:
Basic 31,148 30,048 30,850 29,898
Diluted 31,148 31,546 30,850 29,898
 
 
Online Resources Corporation
Condensed Consolidated Balance Sheets
(In thousands)
 
  SEPTEMBER 30,   DECEMBER 31,
2010 2009
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27,042 $ 22,907
Accounts receivable, net 18,834 17,457
Deferred tax asset, current portion 7,477 7,477
Prepaid expenses and other current assets   5,822   4,043
Total current assets 59,175 51,884
 
Property and equipment, net 26,950 25,561
Deferred tax asset, less current portion 18,591 22,490
Goodwill 181,516 181,516
Intangible assets 15,468 19,972
Deferred implementation costs, less current portion, and other assets   9,175   7,067
Total assets $ 310,875 $ 308,490
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,344 $ 2,008
Accrued expenses 5,143 3,739
Notes payable, senior secured debt, current portion 21,625 8,250
Interest payable 3 27
Deferred revenues, current portion, and other current liabilities   7,496   6,793
Total current liabilities 36,611 20,817
 
Notes payable, senior secured debt, less current portion 19,125 40,500
Deferred revenues, less current portion, and other long-term liabilities   6,699   6,888
Total liabilities 62,435 68,205
 
Redeemable convertible preferred stock 107,747 100,623
 
Stockholders' equity   140,693   139,662
Total liabilities and stockholders' equity $ 310,875 $ 308,490
 
 
Online Resources Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
 
  NINE MONTHS ENDED
SEPTEMBER 30,
2010   2009
(Unaudited)
 
Operating activities
Net income $ 4,951 $ 3,920

Adjustments to reconcile net income to net cash provided by operating activities:

Deferred tax benefit

3,899 2,008
Depreciation and amortization 13,983 15,209
Equity compensation expense 2,095 3,307
Write off and amortization of debt issuance costs 250 250

Loss on disposal of assets

- 37
Provision for losses on accounts receivable 169 16

Gain on investments

- (91 )
Change in fair value of theoretical swap derivative (1,676 ) 8
Changes in certain other assets and liabilities   (1,501 )   (958 )
Net cash provided by operating activities 22,170 23,706
Investing activities
Purchases of property and equipment (10,793 ) (6,744 )
Sale of short-term investments   -     2,100  
Net cash used in investing activities (10,793 ) (4,644 )
Financing activities
Net proceeds from issuance of common stock 777 425
Repayment of 2007 notes (8,000 ) (11,687 )
Repayment of capital lease obligations   (19 )   (26 )
Net cash used in financing activities   (7,242 )   (11,288 )
Net increase in cash and cash equivalents 4,135 7,774
Cash and cash equivalents at beginning of year   22,907     22,969  
Cash and cash equivalents at end of period $ 27,042   $ 30,743  
 
Online Resources Corporation
Reconciliation of Non-GAAP Measures
(In thousands, except per share data)
 
  THREE MONTHS ENDED   NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2010   2009 2010   2009
(Unaudited) (Unaudited)
Reconciliation of ebitda (See Note 1):
Net income $ 1,702 $ 2,713 $ 4,951 $ 3,920
Depreciation and amortization (incl. loss on disposal of assets) 4,620 4,822 13,983 15,246
Interest expense, net (304 ) 335 (489 ) 3,196
Income tax provision   1,427     918     3,282     1,950  
Ebitda (See Note 1) $ 7,445   $ 8,788   $ 21,727   $ 24,312  
 
 
Reconciliation of adjusted ebitda (See Note 2):
Net income $ 1,702 $ 2,713 $ 4,951 $ 3,920
Depreciation and amortization (incl. loss on disposal of assets) 4,620 4,822 13,983 15,246
Equity compensation expense 516 1,069 2,095 3,307
Other (income) expense (304 ) 321 (390 ) 3,105
Income tax provision   1,427     918     3,282     1,950  
Adjusted Ebitda (See Note 2) $ 7,961   $ 9,843   $ 23,921   $ 27,528  
 
Reconciliation of core net income (See Note 3):
Net income (loss) available to common stockholders $ (711 ) $ 388 $ (2,173 ) $ (2,941 )
Preferred stock accretion related to redemption premium 406 398 1,213 1,189
Change in fair value of theoretical swap derivative (649 ) (694 ) (1,676 ) 8
Change in fair value of mark to market investments - (14 ) - (91 )
Change in tax valuation allowance 258 - 358 -
Restructuring costs, net of tax - - 823 -
Equity compensation expense 516 1,069 2,095 3,307
Amortization of intangible assets   1,348     1,753     4,633     5,917  
Core net income (see Note 3) $ 1,168   $ 2,900   $ 5,273   $ 7,389  
 
Reconciliation of core net income per share:
Diluted net income (loss) available to common stockholders $ (0.02 ) $ 0.01 $ (0.07 ) $ (0.10 )
Preferred stock accretion related to redemption premium 0.01 0.01 0.04 0.04
Change in fair value of theoretical swap derivative (0.02 ) (0.02 ) (0.05 ) -
Change in fair value of mark to market investments - - - -
Change in tax valuation allowance 0.01 - 0.01 -
Restructuring costs, net of tax - - 0.03 -
Equity compensation expense 0.02 0.03 0.07 0.11
Amortization of intangible assets 0.04 0.06 0.15 0.19
Other, including impact of treasury method and rounding   -     -     (0.01 )   -  
Core net income per share $ 0.04   $ 0.09   $ 0.17   $ 0.24  

Notes:

1.   Ebitda is a non-GAAP measure we define as net income before interest, taxes, depreciation and amortization expense.
2. Adjusted ebitda is a non-GAAP measure we define as net income before interest, taxes, depreciation and amortization and equity compensation expense.
3. Core net income is defined as net income available to common stockholders before, on a pre-tax basis unless otherwise noted, the amortization of acquisition-related intangible assets, equity compensation expense, income tax benefit or expense from the change in valuation allowance, income (costs) related to the fair market valuation of certain derivatives and mark-to-market investments, preferred stock accretion related to the redemption premium and all other non-recurring charges. Some or all of these items may not be applicable in any given reporting period.

Online Resources Corporation
Media Contact:
Beth Halloran
Sr. Dir., Corporate Communications
703-653-2248
bhalloran@orcc.com
or
Investor Contact:
Catherine Graham
EVP & Chief Financial Officer
703-653-3155
cgraham@orcc.com

Source: Online Resources Corporation

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