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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Exchange Act of 1934 (Amendment No. )
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Soliciting Material Pursuant to §240.14a-12 |
TIER TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
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TIER TECHNOLOGIES, INC.
10780 Parkridge Blvd., 4th Floor
Reston, Virginia 20191
Tier Technologies, Inc.s February 9, 2010 earnings conference call will be available for telephone
and website replays at 5 p.m. eastern time on Wednesday, February 10, 2010. A copy of the
transcript of the call is attached hereto as Exhibit 99.1. The accompanying slide presentation was
furnished by Tier as an exhibit to its Form 8-K filed with the SEC on February 9, 2010.
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Tier Technologies, Inc.
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Q1 2010 Earnings Call
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Feb. 9, 2010 |
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MANAGEMENT DISCUSSION SECTION
Operator: Good afternoon. I would like to welcome everyone to the Tier Technologies First
Quarter Earnings Conference Call for Fiscal Year 2010. All lines have been placed on mute to
prevent any background noise. After the speakers remarks there will be a question-and-answer
session. [Operator Instructions]
Thank you. Mr. Guszak, you may begin your conference.
Company Representative
Good afternoon. My name is John Guszak from Tier Technologies, I will be filling in for Liz Bowman,
who couldnt be on the call today. At this time, I would like to welcome everyone to Tier
Technologies earnings conference call for the quarter ended December 31, 2009. Todays call is
scheduled for one hour.
After the market closed today, we issued a press release announcing Tiers financial results for
the first quarter ended December 31, 2009. This afternoon, we issued a copy of the text of todays
call, not including the question-and-answer session, and accompanying presentation, which includes
charts that will be referenced during this call. A copy of these materials can be found in the
Investor Relations section of our website, www.tier.com.
We invite shareholders and analysts who wish to speak to management about the company and its
performance to schedule a meeting by contacting our CFO, Ron Johnston, at 571-382-1333, or
rjohnston@tier.com. A taped replay of this call will be available on the companys website
beginning Wednesday, February 10, 2010, at 5 PM Eastern Time, until 11:45 PM Eastern Time on
February 23, 2010. Alternatively you can hear a replay by dialing 800-642-1687, and entering the
conference ID number 54925076.
I want to remind you that various remarks that we make about the companys future expectations,
plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor
provisions under the Private Securities Litigation Reform Act of 1995.
The forward-looking statements discussed on this call represent managements current expectations
about the companys future financial performance based on the information available
to us today. This information may change, and our actual results may differ materially from these
forward-looking statements. We undertake no obligation to update any such forward-looking
statements.
There are numerous risks and uncertainties that affect our business and may affect these
statements, including but not limited to; general economic conditions, which affect our financial
results in all our markets, which we refer to as verticals including our property tax vertical, The
timing and the cost of consolidating our payment processing platforms, failure to achieve
anticipated gross margin levels due to unanticipated costs incurred in transaction-based projects.
Increasing competition, timing, and the companys ability to realize revenue from its business
development opportunities, changes in laws and government regulatory compliance requirements,
ability to attract and retain qualified personnel and other risk factors that are set forth in the
companys SEC filings.
In this call, references to the quarter or the first quarter refer to quarter ended December 31,
2009. Important information, Tier Technologies, Inc., plans to file with the SEC and furnish to its
shareholders a proxy statement in connection with its 2010 Annual Meeting and advises its security
holders to read the proxy statement relating to the 2010 Annual Meeting when it becomes available
because it will contain important information.
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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TIER
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Q1 2010 Earnings Call
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Feb. 9, 2010 |
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Security holders may obtain a free copy of the proxy statement and other documents, when available,
that Tier files with the SEC at the SECs website at www.sec.gov. The proxy statement and these
other documents may also be obtained for free by Tier by directing a request to Tier Technologies,
Inc., attention Corporate Secretary, Keith Omsberg, 10780 Parkridge Boulevard, fourth floor,
Reston, Virginia 20191.
Certain information pertaining concerning participants, Tier, its Directors and named Executive
Officers may be deemed to be participants in the solicitation of Tiers security holders in
connection with its 2010 Annual Meeting. Security holders may obtain information regarding the
names, affiliations and interests of such individuals in Tiers annual report on Form 10-K for the
year-ended September 30, 2009, filed with the SEC on November 10, 2009, as amended by an amendment
to the Form 10-K filed with the SEC on January 28, 2010, as well as its upcoming proxy statements
for the 2010 annual meeting when available.
To the extent there have been changes to Tiers Directors and Executive Officers, such changes have
been or will be reported on current reports on Form 8-K filed with the SEC. To the extent, holdings
of Tier securities have changed since the amounts printed in the amended Form 10-K, such changes
have been or will be reflected on Statements of Change in Beneficial Ownership on Form 4 or Form 5
filed with the SEC.
With me on the call are Nina Vellayan, Executive Vice President and Chief Operating Officer; Ron
Johnston, Chief Financial Officer; and Keith Kendrick, Senior Vice President of Strategic
Marketing. Todays call will begin with Ron Rossetti, Chairman and Chief Executive Officer. Ron?
Ronald L. Rossetti, Chief Executive Officer and Chairman
Thank you, John. Good afternoon. Let me outline the agenda for this call. First, I will provide a
brief update about our upcoming annual meeting, then a review of our financial performance during
the first quarter of fiscal year 2010, and then I will provide a strategic update on our progress
in biller direct market with our electronic payments solutions, or EPS business. For an update on
our progress against our goals, Ive asked Nina Vellayan, our EVP and COO, to provide details
regarding our recent operating results and plans for the immediate future. Next, Ron Johnston will
cover our financial results for the quarter. Following Rons remarks, I will open the call to your
questions.
Let me give you a brief update about our upcoming annual meeting, which is scheduled for April 8,
2010. As you know, the Company and Parthenon Capital have agreed that Zachary Sadek will be
included on the Companys slate for election to the Board at our annual meeting. We filed a Form
8-K announcing that arrangement on January 11. Discovery Group sent us a letter on January 6,
notifying us that they might nominate candidates for election to our Board at the annual meeting.
Both the Company and Discovery Group recognize that a proxy contest would be costly and disruptive.
Were talking to Discovery Group about a possible amicable resolution. Given the current status of
those talks, I cant say anything more about this now. We will update you when we can.
I am pleased to report that for the first quarter, Tier has reported positive adjusted EBITDA from
continuing operations of 1.3 million, as compared with a loss of 100,000 in the prior year quarter,
for an improvement of 1.4 million. Ron Johnston will provide additional information on our use of
adjusted EBITDA from continuing operations and other non-GAAP financial measures later on the call.
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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TIER
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Q1 2010 Earnings Call
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Even in these difficult economic conditions, where over 60% of our EPS revenue is directly tied to
collecting a portion of the tax due and where we continue to experience revenue declines from prior
periods, we believe that our strategy for improved margins is beginning to prove itself. During the
quarter, while we increased EPS gross revenue by 3.7 million, or 13.0%, we grew EPS net revenue at
a faster rate, an increase of 2.2 million, or 29.2%. Please see chart five.
These improvements are the result of increasing our profitability per transaction and driving
substantial growth in the number of transactions we process, while reducing overhead and holding
platform costs relatively flat, thereby creating margin expansion in both EPS net revenue and
adjusted EBITDA from EPS operations. For the quarter ended December 31, 2009, our EPS transactions
grew by 65.0% and our EPS gross margin, gross sales less direct and other costs, increased by 270
basis points.
There are two points about our financial performance I would like to bring to your attention. One,
the quality of our earnings is improving; and two, a leverage in our fixed platform is now becoming
evident in our financial results.
A greater portion of our adjusted EBITDA from continuing operations is from our EPS business.
During the quarter, adjusted EBITDA from EPS operations grew to 773,000 from a loss of one million
for the same quarter last year, or an improvement of $1.8 million. Our wind-down operations saw
adjusted EBITDA decline from 877,000 in the first quarter of 2009 to 482,000 in this quarter, or a
decline of 395,000. Overall, adjusted EBITDA from continuing operations increased 1,255,000 for the
quarter, an increase of 1,387,000 over last years quarter of which 120% of the improvement is
attributable to the growth in our core EPS business.
See chart seven, which provides a breakdown of adjusted EBITDA contribution for the first quarter
of fiscal year 2010 and fiscal year 2009.
Leverage on our platform. Our EPS gross revenue grew 13% for the quarter as compared with the prior
quarter. Our EPS net revenue for the quarter grew 29%, to 2.2 million over the prior year period.
And importantly, adjusted EBITDA from EPS operations grew by 1.8 million.
Stated differently, we delivered 82% of our increase in EPS net revenue through to adjusted EBITDA
from EPS operations. This result is proof of our strategy to drive an increasing number of
transactions across the fixed cost platform to produce stronger economic performance.
In spite of a difficult economy, we continue to see strong market evidence of the long-term health
of the biller direct category. First, as Nina will detail later, we continue to sign new clients at
roughly the same pace as we have for the last few years.
Second, our analysis of the bill payment market shows that the bill payment market is approximately
4.5 trillion, or more than 45% or the 9.9 trillion personal consumption expenditures in the United
States. Please see chart eight.
Third, independent market research firm AITE recently updated its market assessment for the biller
direct market. In chart nine, you can review their forecast, which shows consumer bill payment
trends for 2009 through 2012.
Bill payment by mail declines 11 percentage points. Consolidated website payments growing by four
percentage points and the biller direct category growing the most from 24% to 31% of all bill
payment transactions.
Riding this trend is the desire to maintain the customer relationships, a breadth of payment
choices that biller direct channels can provide and certain consumer demographic group that choose
to deal directly with those they owe funds rather than trusting their bill payments to a single
third party.
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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Q1 2010 Earnings Call
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Feb. 9, 2010 |
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Ill now turn the call over to Nina Vellayan, who will provide additional information about our
activities in sales, marketing and operations.
Nina Vellayan, Chief Operating Officer and Executive Vice President
Thank you, Ron, and good afternoon, everyone. For the rest of fiscal year 2010, we intend to focus
on the following key objectives; one, continuing consolidation of our various platforms; two, add
new products, payment options and payment channel delivery; three, increase share in the biller
direct market; four, maintain financial stability; and five, improve profitability.
We intend to continue with our flat from consolidation effort started in fiscal year 2009. We
completed the consolidation of our back-office operations in fiscal year 2009 and the consolidation
of our data centers is on schedule.
Our primary data center in Norcross, Georgia is fully operational with our Tulsa sites serving as
our disaster recovery site. We have completed successful load tests of our new environment to more
than four times our peak volume, and are on schedule to provide an active/active environment in the
coming months.
With back-office consolidation complete and our data center consolation on schedule, we are focused
on unifying our payment platforms. This process will ultimately result in one payment platform,
which will allow us to hold costs relatively fixed while increasing the number of transactions
processed.
As a result, we expect that well be able to increase our margin per transaction. The unified
platform will also support and accelerate the deployment of new products, payment choices and
payment channels. We are targeting most of this effort to be completed during calendar year 2010,
and it is this effort that will provide further cost reduction opportunities in calendar year 2011
and beyond.
During the quarter, our sales team began introducing our top clients to our new solutions vision
for official payments. This solutions vision provides a broader value proposition for our clients
and their customers as we began adding new products, payment choices and payment channels.
Chart 11 provides an overview of our biller direct solutions offering. Our newest payment channel
walk-up locations for cash and money order payment of bills offers a new end user options that we
anticipate will eventually see 12,000 walk-up locations and open cash acceptance for our billers
through official payments for the first time. We believe this is a major opportunity for our
clients since approximately 20% of personal consumption expenditures are still paid in cash.
On January 1, 2010, we began acceptance of Bill Me Later with our lead client, the IRS, and we are
offering this payment choice to our state and local clients as well. Additional payment choices
will be offered to current and new clients throughout this year. We are constantly exploring ways
to enhance our payment solutions for our existing clients as well as attracting new clients.
Over the last several months, we have introduced a broad and significant solutions strategy that
provides payment services for web, automated interactive voice response or IVR, call center and
point-of-sale or POS environment. We offer our clients a front-end platform designed especially for
the biller direct market with a single source solution that simplifies electronic payment
management.
Our solutions include multiple enhanced payment services, including consolidation Im sorry
consolidation of income payments, bill presentment, convenience prepayments, installment payments
and flexible payment scheduling. We also offer our clients a range of payment choices including
credit and debit cards, electronic check, cash and money orders and emerging payment
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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methods to
meet the needs of our customer. By utilizing our solutions, clients can reduce, if not eliminate
their time and expense devoted to management and expense of payment technology and compliance with
PCI data security requirements and other payment industry standards.
An overview of how our front-end platform interfaces with the payment processing industry appears
in Chart 11. We have increased resources and marketing programs directed at our fastest growing
stronger margin verticals, education and utilities. In education we added Coastal Carolina College
in North Carolina, Western University of Health Sciences in California College of the Arts in
California. They will begin collecting tuition and fees this spring. Were continuing the momentum
we developed in our utility vertical from last year and signed 24 new municipal utilities during
the quarter.
During the quarter we continued our long established leadership in the government vertical,
including adding an agreement with Clarke County, Georgia, in Lancaster County Tax Collection in
Pennsylvania. Additionally, we have renewed our agreement with the state of Pennsylvania to collect
various personal and business taxes and were awarded a contract following an RFP process for state
tax collections in the State of Illinois. An important statement of confidence by officials in
Illinois, a 10-year client of ours.
In total, we added 123 new payment types for the quarter. It is these types of consistent ongoing
wins that are driving our diversification and strengthen categories beyond government tax
collection. Our market-leading footprint now reaches to all 50 states and the District of Columbia.
Our vertical coverage is summarized in Chart 12.
Our success in developing new markets is clearly detailed in Chart 13. Real property tax is now our
largest vertical even though we experienced a lower rate of growth in that vertical than in
previous years. The continued expansion of our education and utility verticals has established
these categories as full scale markets for Tier.
As a part of our strategic review, we committed to shift from a sales to a market-based strategy.
We have started an ongoing upgrade of our strategic information system to allow us to establish
direct relationships with end users of the company services, allowing us to grow transactions
across multiple verticals and deepen the strength of our primary brand, Official Payments.
One of the first areas of focus was to establish direct relationships with end users by introducing
expanded My Account functionality and presenting it with the persistent presence throughout our
branded website. A screenshot appears in Chart 14.
Performance continues to be strong. In Q1, we added almost 160,000 new accounts, bringing our total
end user registrations to more than 1.5 million. Opt-in registrations for direct relationship
marketing increased more than 126,000. In the year since the enhanced service and presentation was
introduced, our new My Account registrations have increased more than 230% and opt-in registrations
by more than 550%.
As we enter the tax season, we are making new investments in online marketing with our strategic
partners and in social media through the introduction of the Official Payments blogspot.
With the current marketing conditions, financial stability is critical for the success of any
company. Tier is dedicated to pursuing profitable growth. Growth in some areas include additional
cost attributes through acquisition or expenses to enhance processing technology. Investments are
carefully analyzed before we commit funds to any new internal or external opportunity.
All of the key objectives above are directed towards our overriding goal to reach and continuously
increase the profitability of Tier. I look forward to addressing your questions later on in this
call. For now, Ill turn the call over to Ron Johnston to discuss the first quarter financial
results.
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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Q1 2010 Earnings Call
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Feb. 9, 2010 |
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Ronald W. Johnston, Chief Financial Officer
Thank you, Nina. Results from continuing operations for the quarter reflected total revenues of
38.8 million, up 10.2% from the same quarter last year. During the quarter, we processed over $2.2
billion of payments, which represented a 23.8% increase versus the same quarter last year. This
increase was driven by a 65% increase in transaction volume.
EPS gross revenue for the quarter was 31.9 million. Revenue growth of 13% in EPS was driven by
increases in payments processed for educational institutions and the continued effect of the
ChoicePay acquisition. Gross margin for continuing operations, which we calculate by subtracting
our direct costs from our gross revenues, was 26.5% for the first quarter, which was 1.9% higher
than the same quarter last year. Gross margin in our EPS business was 25.3%, up approximately 270
basis points from the same period last year.
General and administrative expenses for continuing operations were 6.3 million for the quarter,
down 9.1% compared to the same quarter last year. The decrease in G&A was attributable primarily to
cost reduction actions, partially offset by the addition of the ChoicePay operations and for
strategic spending on production platform redesign and enhancement.
Selling and marketing expenses were $1.6 million for the quarter, up 21.7%, primarily due to
one-time benefits from compensation plan adjustments initiated in the first quarter of last year.
Our consolidated net loss per fully diluted share in the quarter was $0.04 compared to a loss of
$0.26 per fully diluted share in the same quarter last year. A consolidated statement of operations
appears in chart number 15.
We define EPS gross revenue as revenue from continuing operations less revenue from our wind-down
operations, and EPS net revenue as revenue from continuing operations less revenue from our
wind-down operations, discount fees, processing and interchange costs. Chart five provides a
reconciliation of revenue from continuing operations to EPS gross revenue and EPS net revenue for
the three months ended December 31, 2009 and 2008.
We define adjusted EBITDA from continuing operations as net income from continuing operations
before interest expense, net of interest income, income taxes, depreciation and amortization, and
stock-based compensation in both equity and cash, and adjusted EBITDA from EPS operations as net
income from our EPS business before interest expense, net of interest income, income taxes,
depreciation and amortization, and stock-based compensation in both equity and cash. Chart six and
seven provide a reconciliation of net income from continuing operations to adjusted EBITDA from
continuing operations and adjusted EBITDA from EPS operations for the three months ended December
31, 2009 and 2008.
EPS gross revenue, EPS net revenue, adjusted EBITDA from continuing operations, and adjusted EBITDA
from EPS operations are non-GAAP financial measures. Please see charts five, six, and seven for the
supporting financial schedules and reconciliation to GAAP figures.
Tiers management believe these non-GAAP financial measures are useful for evaluating performance
against peer companies within our industry and provide investors with additional transparency to
financial measures used by management in its financial and operational decision-making. Non- GAAP
financial measures should not be considered as a substitute for the reported results prepared in
accordance with GAAP. Tiers definitions used to calculate non-GAAP financial measures may differ
from those used by other companies. We have compared our definitions to other public companies and
have found ours to be generally consistent.
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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Feb. 9, 2010 |
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Turning to the balance sheet, our cash and marketable securities balance at December 31, 2009, was
$65.1 million. The balance sheet appears in chart 16. The companys head count at December 31,
2009, was 209 full-time employees, and there were various contractors providing services totaling
27 individuals.
Lastly, I want to mention that our Form 10-Q will be filed before the market opens tomorrow with
the Securities and Exchange Commission. We encourage all of you to review the statements and notes
in order to better understand our current operations.
Now, Ron Rossetti has a few concluding remarks.
Ronald L. Rossetti, Chief Executive Officer and Chairman
Thank you, Ron. Looking ahead, we continue our policy of not providing guidance on net revenue
on revenue growth.
While we are providing revenue or earnings guidance for fiscal year 2010, we do expect to see
transaction growth to 20 million transactions, an increase of about 5 million transactions or
approximately 33%. Chart 17 offers an overview of our historical EPS revenue and transaction
trends.
Our federal and state and local tax-based business, which still represent more than 60% of our
business, have experienced low to negative growth for more than a year, which is a departure from
prior years. This reduced growth has come in spite of the increase in the number of tax forms
processed, an increase in the number of new government clients, and the introduction of additional
payment options. We expect this softness to continue until the general economic environment
improves, or tax rates are increased by legislative bodies, or both.
As you reflect on our progress against our strategy, I would urge each of you to consider the
following. Ninas comment that as we complete our new platform, we expect to have a fixed cost base
over which to drive an ever increasing number of transactions, thus improving our margin
contribution. Our results during the last several quarters testify to this point. We are now at an
inflection point where we believe a substantial portion of our incremental net revenue over our
break even point, after interchange and processing expenses, will fall directly to the bottom line.
In combination with platform cost reductions, we continue to seek additional areas of other cost
efficiencies throughout the company. We have focused our sales and marketing programs to continue
our leadership position in the government segment while accelerating our growth in our
non-government verticals to diversify and strengthen the long-term health of Tier.
This point could not be clearer than to note that in spite of the decline in our government-based
business, which was affected by unprecedented economic times, our company was able to grow EPS net
revenue and improve operating margins greater than our gross sales increase. That is precisely the
commitment management made to our investors when we embarked on this strategy in 2007. A return to
normalcy in the government markets should only enhance your investment.
I and the team on this call believe the initiatives that we are pursuing offer the best means for
increasing long-term value for all of our shareholders.
Company Representative
The operator will now turn the call over for questions and answers.
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www.CallStreet.com 212-849-4070 Copyright © 2001 - 2010 CallStreet
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Tier Technologies, Inc.
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QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions]. Thank you. Our first question is from the line
of Brett Huff with Stephens, Inc.
<Q Brett Huff>: Good afternoon, and congrats on a nice transaction growth quarter.
<A Ronald Rossetti>: Thank you, Brett.
<Q Brett Huff>: The first question is you talked a little bit about a mix shift where your
average tran or your the numbers of trans was substantially higher than we modeled, and so the
average ticket was lower, and you had kind of a shift away. I think you mentioned a continued
decline in the ticket size in the transactions for tax, but then an increase in the transactions in
education and the utilities.
Could you just talk in a little bit more detail on that? Just how big the downdraft was this
quarter in the former and how big the uptick was in the quarter?
<A Ronald Rossetti>: Ron, you want to take a shot at that?
<A Ronald Johnston>: How are you, Brett?
<Q Brett Huff>: Good. How are you?
<A Ronald Johnston>: Well, thank you. Average payment sizes in the areas of taxes
increased both in the federal and in the state as well as in the property taxes, and those were
offset by increases in our higher education and also in the personal property taxes. The volume
increases, as you mentioned, were substantial. And the number of transactions increased in the
quarter by some 60%, 65%. And those transactions were principally in the growth the big growth
in transactions came in the areas of real property tax, although the payment size was down, and in
utilities, obviously, with the impact not only of our own internal growth, but also with the
addition of the ChoicePay acquisition, and in the higher education arena.
<A Ronald Rossetti>: What were seeing, Brett, across the board in the tax area, is were
still seeing increases in transactions, but were seeing significant decreases in average dollars,
and thats just indicative of the economic crisis thats going on.
And then as we start to drive in other verticals, particularly utilities and some of the other
areas that were moving into, were seeing substantially higher transaction volume at a very, very
low dollar average ticket. But as I told you as Ive said in prior calls, the gross margin
percentage of those transactions is going up.
So when you get into the tax area, youre dealing with very high dollar transactions and dollar
profitability per transaction, versus in the other transactions, youre dealing with a lower dollar
profitability per transaction but a substantially higher percentage. And in some cases where were
dealing in transactions where were not taking in the interchange and were really on a net pricing
basis, so that all were doing is charging a transaction fee, youre seeing 90, 95% of that
transaction fall into net revenue, and then depending upon what kind of service we need, fall into
gross margin.
So its the shift away from a percentage-based tax and I wont say a shift away, thats the
wrong term. Its increasing other verticals, which do not have the nature of the tax vertical,
which is a percentage of the taxes collected. The tax dollars are high. The gross margin percentage
is lower. And the dollars our profitability per transaction are higher. Whereas we move into the
other verticals, we see substantially greater transaction volume and a substantially higher
percentage
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Tier Technologies, Inc.
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gross margin. And the blending of those two mixes are what youre seeing in the financials. Did I
explain myself...
<Q Brett Huff>: Yes, thats helpful. And sort of a related number and, if you could give
it to us, and youve mentioned in the past is, could you give us a sense of the total organic
transactions, if you said lets set aside ChoicePay, because I still think those organic numbers
should be pretty positive?
<A Ronald Rossetti>: I dont have that number in front of me. Ron, do you have that
number?
<A Ronald Johnston>: I dont have that broken down in that fashion, Bret, but I would be
happy to get back to you.
<Q Brett Huff>: That would be helpful. And then the last question, can you just give us
the differentiation or the delta between the G&A specifically in EPS, the EPS segment last quarter,
so the September quarter, versus the G&A for the EPS segment this quarter. It was meaningfully up,
and I think what I heard you say is there was some strategic spend on the platform as you guys are
continuing work on that. Is that the primary difference? Or are there other things in there that we
should note that are one-time or that are different from the past?
<A Ronald Rossetti>: There are some other one-time differences which we dont detail, so
that the part of the G&A is an increase in platform consolidation expense. But we have a number
of things that were timing issues that fell into the first quarter.
<Q Brett Huff>: All right. Ill get back in the queue. Thank you.
Operator: Thank you. [Operator Instructions]. Your next question is from the line of Gary
Prestopino from Barrington Research.
<Q Gary Prestopino>: Hey, good afternoon, everyone.
<A Ronald Rossetti>: Hi, Gary, how are you doing?
<Q Gary Prestopino>: Good. If we could just turn to chart five, and this increase in the
EPS net revenue relative to the gross revenues is pretty impressive. And I guess what I want to get
a feel for is how much of that is related to mix between credit versus debit, cards versus ACH? How
much of that is really related to efficiencies that youre driving? Is there any way to measure
that for us?
<A Ronald Rossetti>: Well, we dont give out that information in detail, Gary, but its a
but its a combination of all of those. Its a combination of a reduction in costs, now variable
costs in processing. Its a comb which occur from reduced processing costs because of the volume
were getting, were able to achieve greater reductions there, and its a a lot of it comes from
switch in payment types moving from credit to debit.
Alternative methods, and then there is also a shift in the type of volume. We see a substantially
higher net revenue number per transaction or, as I told you, as a percentage, in our newer
verticals of utilities and higher ed than we see in the higher verticals of government.
We also, as we move out of the pure income tax area and more into the fees area, we see the same
the same situation where were seeing dollar lower dollar transactions lower dollar revenue
per transactions, substantially higher transactions, substantially higher gross percentage, and all
of those, the blend of those affect your net revenue. Its a combination of all of that. And we see
this and we see this continuing for some time.
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<Q Gary Prestopino>: Do you think its a, its just a function of that youre going into a
different markets where people are not using credit cards as much or do you think its a secular
shift in that people are just paying more things, paying their bills, out of cash or cash-like
transactions, rather than using their cards?
<A Ronald Rossetti>: Its both. Its no question, debit has for the first time surpassed
credit. I cant remember whether it was six months ago or whatnot, but its the debits have
surpassed credit, and part of it I think is the economy and part of it is the, you know, people
watching their credit card balances.
But what we have seen, I think, is pretty much standard in the industry, that the you move from
expensive card, i.e., American Express, which is, everybody knows down to your low-end debit
card, as the dollar of the transaction reduces. So, theres a direct relationship between the size
of the payment that is being made and its across everything. I even think it fits in the retail
market. So that the more the higher the transaction dollar I dont care whether youre buying
something at Bloomingdales or Bergdorf Goodmans or youre buying something at Kmart as the
transaction changes people tend to use a less expensive card moving all the way down to debit. And
is there a direct correlation? No. But there is a definite correlation.
<Q Gary Prestopino>: Okay. Well, thats positive for you. And then, I guess, as I look at
this change in adjusted EBITDA, it was 1.78 million on a 2.16 million increase in net revenues. I
mean, thats an 82% conversion rate on EBITDA. Is that unrealistic to assume going forward that as
you get increases in net revenues that you would have an 82% conversion ratio on adjusted EBITDA
with any increase?
<A Ronald Rossetti>: Well, now youre asking me to give you some forward information which
I told you in the beginning, we wouldnt.
<Q Gary Prestopino>: Oh, no, Im not asking that. What Im just trying to get at here is
that, with all that youve done with the Company in terms of cutting overhead, youre still
integrating platforms, et cetera, et cetera, can we expect very high conversion ratios on
incremental net revenues going forward?
<A Ronald Rossetti>: Yes. I wouldnt extrapolate 82%, but youre certainly going to see
very, very high drop as a matter of fact, and we see this not only for the next couple of quarters,
we see this occurring well into 2011.
<Q Gary Prestopino>: Okay. Thats great. And then last question, Ill let somebody else
go. This whole new walk-up locations that youre talking about; 12,000 walk-up locations. I mean
what does that involve? Are you aligning yourself with some entity that other than the entity that
youre paying the bills directly to, to get 12,000 locations?
<A Ronald Rossetti>: Yes, we are, and why dont I let Nina get a little more detail into
that and explain to you who were working with in those areas.
<Q Gary Prestopino>: Okay, thank you.
<A Nina Vellayan>: Hey, Gary. As I said in prior discussions, with the walk-up channels
that we have is through our partnerships with Cardtronics and VCom through the 7-Eleven. So, its
all -
<Q Gary Prestopino>: Hi, Nina. Okay.
<A Nina Vellayan>: How are you? Its all of those kiosks. Its also through the ACE Cash
locations that youre seeing across the United States, and through IPP, which is, In Person
Payment. So these are partners that weve interfaced with, with their brick-and-mortar locations
for
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a consumer to be able to go into those particular locations with our billers interface, where they
can actually use cash or money in order to make a payment.
Were also adding other partners as we speak. Theres three or four others that Keith and I are
engaged with right now. So, I mean, we plan on expanding that partnership reach as quickly as we
can.
<Q Gary Prestopino>: When will you hit this 12,000 walk-up locations, or are you there?
<A Nina Vellayan>: Well, right now the interface with the partnerships are there. And what
were doing, as I was saying, as part of my comments, is were putting together a pretty detailed
product launch to open up that channel to our state and local clients as well as the utilities that
we have currently utilizing it. So, were going through that process today.
The 12,000, weve got a good portion of them enabled. Were doing it very targeted, based upon the
billers that were bringing on, depending upon the locations and working with the partners very,
very closely. But were in full force. I mean, we hope to have a good portion, as we said, of these
locations available by the end of this calendar year.
<Q Gary Prestopino>: Okay. Thank you.
<A Nina Vellayan>: Youre welcome.
<A Ronald Rossetti>: Just a little addition on that, Gary. You know, well be in every
7-Eleven, every Wal-Mart. And one of the advantages to the government clients are people who come
in on tax day. You get into some parts of the country and the line isnt just behind the counter,
it goes out the door and around the block, and they want to reduce locations where they have to
collect cash.
And so the ability of saying, youve got 7/24, you can go into any Wal-Mart, any ACE Cash, any IPP
location, and pay, is a real advantage for them, an advantage for the customers. And it reduces
cost of having to collect that at the window.
<Q Gary Prestopino>: Thanks.
Operator: Thank you. [Operator Instructions] And I am showing no further questions.
Company Representative
Okay. This will conclude our call so I just have one concluding remark. As I mentioned at the
beginning of this call, a copy of the text of this call and accompanying charts are posted in the
Investor Relations section of our website, at www.tier.com. We invite shareholders and analysts who
wish to speak to management about the Company and its performance to schedule a meeting by
contacting our CFO, Ron Johnston at 571-382-1333, or rjohnston@tier.com.
Thank you. This will conclude our earnings release call for the first quarter of fiscal year 2010
for Tier Technologies.
Operator: Thank you for your participation in todays conference call. You may now disconnect.
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