Tier Reit Inc. (NYSE:TIER)
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Tier Technologies, Inc. (Nasdaq:TIER) today announced results for the
quarter and fiscal year ended 2007 and provided updates on key strategic
initiatives undertaken in fiscal 2007 and that it expects to undertake
in fiscal 2008.
“Fiscal 2007 was a pivotal year for Tier,”
said Ronald Rossetti, Chairman and Chief Executive Officer for Tier. “We
are seeking to divest non-core assets which, in the past, have limited
our ability to focus on growing our EPP business and we are committed to
making the investments in our EPP business that we believe are necessary
to achieve long-term sustainable growth for our shareholders.
“We continue to experience strong growth in
both sales and earnings from our electronic payment segment. During
fiscal 2007, revenue from electronic payment processing represented
nearly 90% of Tier’s revenue from continuing
operations. Electronic payment revenues and net income before corporate
overhead increased over 26% and 50%, respectively, over last year’s
results," Mr. Rossetti continued. “We
continue to make progress toward divesting our non-core assets and look
forward to updating you on our future progress.”
Conference Call
Tier will host a conference call today at 5:00 p.m. Eastern Time to
discuss these results. To access the conference call, please dial (888)
335-3240 and provide conference ID #27123028. The conference call will
also be broadcast live via the Internet at www.tier.com.
A replay will be available at www.tier.com
or by calling (800) 642-1687 and entering conference ID#27123028 from
approximately two hours after the end of the call until 11:59 p.m.
Eastern Time on December 27, 2007.
FISCAL 2007 – A YEAR IN TRANSITION
During fiscal 2007, Tier undertook a strategic initiative to maximize
long-term profitability and shareholder value. As part of that
initiative, Tier concluded that it should focus its financial and
managerial resources on growing its core business—Electronic
Payment Processing, or EPP. Tier is seeking to sell the majority of its
Government Business Process Outsourcing operations, or GBPO, and
Packaged Software and Systems Integration, or PSSI, and to wind-down the
remainder of these GBPO and PSSI operations over a five-year period.
Figure 1 illustrates our overall structure as of September 30, 2007.
The non-core businesses that the Company is seeking to sell are
classified as “held-for-sale”
on its consolidated balance sheets and “discontinued
operations” on its consolidated statements of
income. All historical financial information presented in this earnings
release has been reclassified to conform to the current year’s
presentation.
Fiscal Year 2007 Results:
For fiscal year 2007, Tier reported a loss of $3.0 million, or $0.16 per
fully diluted share, which represents a $6.4 million or 68% improvement
over the results reported for fiscal year 2006. Tier’s
continuing operations reported a loss of $18.3 million, or $0.94 per
fully diluted share, while the Company’s
discontinued operations reported net income of $15.2 million, or $0.78
per fully diluted share.
Tier’s continuing operations are composed of
three major categories: Tier’s core EPP
business, wind-down operations and corporate overhead. During fiscal
year 2007, EPP generated net income of $8.4 million, or $0.43 per fully
diluted share, excluding allocation of corporate overhead expenses. This
represents a $2.8 million, or 50.5%, increase over fiscal 2006,
primarily resulting from increases in the number of transactions and
dollar volume processed by EPP.
Wind-down operations reported a loss of $11.2 million, or $0.58 per
fully diluted share, including a $9.2 million impairment loss recorded
in fiscal 2007 to write down the carrying value of the Tier’s
wind-down operations to fair value. During fiscal 2008, we expect to
wind down two businesses that generated the remaining losses and during
the next five years we expect to wind down a third business that
generated modest income in fiscal 2007.
Tier’s corporate overhead, which includes the
Company’s governance and shared-service
functions, reported $15.4 million of net costs during fiscal 2007. We
expect that the need for these shared services and other corporate
functions will significantly diminish after we sell and/or wind down our
GBPO and PSSI businesses.
Tier’s discontinued operations reported
income of $15.2 million, or $0.78 per fully diluted share, an increase
of $5.8 million over fiscal 2006. Approximately $8.1 million, or $0.41
per fully diluted share, of the income reported for fiscal 2007 resulted
from the reversal of a reserve for a 2003 tax refund, which received
final approval from the Internal Revenue Service in March 2007 and other
transactions related to the final close-out of Tier’s
Australian operations. The remaining $7.1 million, or $0.37 per fully
diluted share, of income from discontinued operations reported in fiscal
2007 was generated by GBPO and PSSI operations that are held-for-sale.
Although these operations generated income in fiscal 2007 on a
standalone basis (excluding an allocation of corporate overhead costs),
the expiration of two GBPO contracts and the completion of a number of
PSSI projects in fiscal 2007 are expected to result in lower earnings in
future years.
Fourth Quarter Fiscal 2007 Results:
For the quarter ended September 30, 2007, Tier reported a net loss of
$3.3 million or $0.17 per fully diluted share, which represents a $1.4
million, or 30%, improvement over results reported for the same quarter
last year. Continuing operations generated a loss of $2.5 million, or
$0.13 per fully diluted share, compared to a loss of $6.4 million, or
$0.33 per fully diluted share, during the comparable 2006 quarter. The
loss reported during the fourth quarter of fiscal 2007 includes: a $0.4
million write-down of two wind-down businesses to fair value and a $0.7
million adjustment to catch-up depreciation and amortization for a third
wind-down business that was transferred from held-for-sale status to
held and used during the fourth fiscal quarter. The loss reported for
Tier’s fourth quarter of fiscal 2007 also
includes the costs of shared-services and other corporate functions,
which we expect to decrease after we sell and/or wind-down our GBPO and
PSSI businesses.
Liquidity:
As of September 30, 2007, Tier had $74.3 million in cash and cash
equivalents, and investments in marketable securities, and $18.4 million
in restricted investments. During fiscal year 2007, Tier’s
continuing and discontinued operations generated $13.8 million of cash,
of which $0.4 million was generated by our continuing operations. During
fiscal 2007, Tier received cash from the repayment of a note and
interest totaling $4.4 million and the sale of its minority interest in
a PSSI investment. Tier has no short-term or long-term debt.
FISCAL 2008 – TRANSITIONING TIER’S
FOCUS TO EPP
Tier expects that fiscal 2008 will be another transition year as it
positions the company for EPP’s long-term
growth. In fiscal 2008, Tier expects to see strong revenue growth in its
EPP business and to generate positive cash flows from operations.
However, Tier expects to make significant investments to improve the
efficiency and reduce the costs of EPP’s back
office structure. Tier also expects to expand its traditional
governmental client-base to a commercial biller-direct payment
processing space. The Company also expects to right-size its corporate
operations once the divestiture process is complete. While Tier believes
that certain of these initiatives will produce some cost savings in
fiscal 2008, Tier expects that the cost of implementing these
initiatives will outweigh those savings during fiscal 2008 and that it
will incur a net loss in fiscal 2008.
About Tier Technologies, Inc.
Tier Technologies, Inc. primarily provides federal, state and local
government and other public sector clients primarily with electronic
payment processing and other transaction processing services. Tier
Technologies is headquartered in Reston, Virginia. Its electronic
payment processing clients include over 3,000 federal, state, and local
governments, educational institutions, utilities and commercial clients
throughout the U.S. Through its subsidiary, Official Payments Corp.,
Tier delivers payment processing solutions for a wide range of markets.
For more information, see www.tier.com
and www.officialpayments.com.
Statements made in this press release that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Tier
undertakes no obligation to update any such forward-looking statements.
Each of these statements is made as of the date hereof based only on
current information and expectations that are inherently subject to
change and involve a number of risks and uncertainties. Actual events or
results may differ materially from those projected in any of such
statements due to various factors, including, but not limited to: the
impact of governmental investigations; the potential loss of funding by
clients, including due to government budget shortfalls or revisions to
mandated statutes; the timing, initiation, completion, renewal,
extension or early termination of client projects; the Company’s
ability to realize revenues from its business development opportunities;
the timing and completion of the divestment of the Company’s
non-core assets; and unanticipated claims as a result of project
performance, including due to the failure of software providers or
subcontractors to satisfactorily complete engagements. For a discussion
of these and other factors which may cause our actual events or results
to differ from those projected, please refer to the Company's annual
report on Form 10-K for the fiscal year ended September 30, 2007 filed
with the SEC.
TIER TECHNOLOGIES, INC.
Consolidated Balance Sheets
September 30,
(in thousands)
2007
2006
ASSETS
Current assets:
Cash and cash equivalents
$
16,516
$
18,468
Investments in marketable securities
57,815
36,950
Accounts receivable, net
5,083
5,274
Unbilled receivables
546
1,916
Prepaid expenses and other current assets
2,160
2,615
Current assets—held-for-sale
36,705
36,612
Total current assets
118,825
101,835
Property, equipment and software, net
3,745
3,954
Goodwill
14,526
22,980
Other intangible assets, net
17,640
21,879
Restricted investments
11,526
12,287
Investment in unconsolidated affiliate
—
3,978
Other assets
162
2,947
Total assets
$
166,424
$
169,860
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
878
$
871
Accrued compensation liabilities
4,710
3,605
Accrued subcontractor expense
522
426
Accrued discount fees
4,529
3,631
Deferred income
2,649
2,520
Other accrued liabilities
4,160
6,459
Liabilities of discontinued operations
—
7,599
Current liabilities—held-for-sale
11,262
9,180
Total current liabilities
28,710
34,291
Other liabilities
200
1,359
Total liabilities
28,910
35,650
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; authorized shares: 4,579; no shares
issued and outstanding
—
—
Common stock and paid-in capital—Shares
authorized: 44,260; shares issued: 20,425 and 20,383; and shares
outstanding: 19,541 and 19,499
186,417
184,387
Treasury stock—at cost, 884 shares
(8,684
)
(8,684
)
Notes receivable from related parties
—
(4,275
)
Accumulated other comprehensive loss
—
(33
)
Accumulated deficit
(40,219
)
(37,185
)
Total shareholders’ equity
137,514
134,210
Total liabilities and shareholders’
equity
$
166,424
$
169,860
TIER TECHNOLOGIES, INC.
Consolidated Statements of Operations
Year ended September 30,
(in thousands, except per share data)
2007
2006
2005
Revenues
$
111,148
$
96,492
$
78,695
Costs and expenses:
Direct costs
83,891
71,670
59,951
General and administrative
27,486
32,860
24,176
Selling and marketing
8,243
9,162
8,836
Depreciation and amortization
4,573
5,133
5,973
Write-down of goodwill and intangible assets
9,232
—
—
Total costs and expenses
133,425
118,825
98,936
Loss from continuing operations before other income and income taxes
(22,277
)
(22,333
)
(20,241
)
Other income:
Income from investment:
Equity in net (loss) income in unconsolidated affiliate
475
445
(168
)
Realized foreign currency gain
239
—
—
Gain on sale of unconsolidated affiliate
80
—
—
Loss on sale of investment
—
—
(501
)
Interest income, net
3,300
2,938
1,543
Other income
—
74
—
Total other income
4,094
3,457
874
Loss from continuing operations before income taxes
(18,183
)
(18,876
)
(19,367
)
Income tax provision
76
45
127
Loss from continuing operations
(18,259
)
(18,921
)
(19,494
)
Income from discontinued operations, net
15,225
9,470
20,620
Net (loss) income
$
(3,034
)
$
(9,451
)
$
1,126
(Loss) earnings per share—Basic and
diluted:
From continuing operations
$
(0.94
)
$
(0.97
)
$
(1.00
)
From discontinued operations
$
0.78
$
0.49
$
1.06
(Loss) earnings per share—Basic and
diluted
$
(0.16
)
$
(0.48
)
$
0.06
Weighted average common shares used in computing:
Basic and diluted (loss) earning per share
19,512
19,495
19,470
TIER TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Year ended September 30,
(In thousands)
2007
2006
2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$
(3,034
)
$
(9,451
)
$
1,126
Less: Income from discontinued operations, net
15,225
9,470
20,620
Loss from continuing operations, net
(18,259
)
(18,921
)
(19,494
)
Non-cash items included in net income from continuing operations:
Depreciation and amortization
4,664
5,343
6,106
(Gain) loss on retirement of equipment and software
(8
)
76
41
Provision for doubtful accounts
(49
)
809
259
Equity in net income of unconsolidated affiliate
(475
)
(445
)
168
Gain on sale of unconsolidated affiliate
(80
)
—
—
Foreign currency translation gain realized on sale of unconsolidated
affiliate
(239
)
—
—
Share-based compensation
1,520
1,768
—
Accrued forward loss on contracts
3
(270
)
—
Settlement of pension contract
1,254
—
—
Write-down of goodwill and intangible assets
9,232
—
571
Other non-cash items included in net income
8
37
(90
)
Net effect of changes in assets and liabilities:
Accounts receivable and unbilled receivables
(667
)
1,289
(359
)
Prepaid expenses and other assets
3,579
(229
)
1,638
Accounts payable and accrued liabilities
(262
)
961
(800
)
Income taxes receivable
3
(336
)
(262
)
Deferred income
129
(70
)
1,112
Cash provided by (used in) operating activities from continuing
operations
353
(9,988
)
(11,110
)
Cash provided by operating activities from discontinued operations
13,420
14,748
23,960
Cash provided by operating activities
13,773
4,760
12,850
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities
(21,012
)
(45,950
)
(75,702
)
Sales and maturities of marketable securities
3,550
44,278
72,669
Purchases of restricted investments
(22,611
)
(14,255
)
—
Sales and maturities of restricted investments
20,098
6,570
3,328
Purchase of equipment and software
(917
)
(1,312
)
(1,225
)
Repayment of notes and accrued interest from related parties
4,401
—
411
Proceeds from sale of unconsolidated affiliate
4,784
—
—
Business combinations, net of cash acquired
—
—
(4,135
)
Other investing activities
(164
)
—
(64
)
Cash used in investing activities for continuing operations
(11,871
)
(10,669
)
(4,718
)
Cash used in investing activities for discontinued operations
(4,024
)
(3,458
)
(8,916
)
Cash used in investing activities
(15,895
)
(14,127
)
(13,634
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
213
69
302
Capital lease obligations and other financing arrangements
(26
)
(38
)
(77
)
Cash provided by financing activities from continuing operations
187
31
225
Cash used in financing activities for discontinued operations
(6
)
(45
)
(44
)
Cash provided by (used in) financing activities
181
(14
)
181
Effect of exchange rate changes on cash
(11
)
17
(60
)
Net (decrease) in cash and cash equivalents
(1,952
)
(9,364
)
(663
)
Cash and cash equivalents at beginning of period
18,468
27,832
28,495
Cash and cash equivalents at end of period
$
16,516
$
18,468
$
27,832
TIER TECHNOLOGIES, INC.
Consolidated Statements of Operations--Continuing Operations Only
Continuing Operations
(in thousands)
EPP
Wind-
down
Corporate &
Eliminations
Total
Fiscal Year Ended September 30, 2007:
Revenues
$
99,433
$
12,100
$
(385
)
$
111,148
Costs and expenses:
Direct costs
75,294
8,597
—
83,891
General and administrative
7,847
3,663
15,976
27,486
Selling and marketing
7,151
1,092
—
8,243
Depreciation and amortization
3,205
764
604
4,573
Write-down of goodwill and intangible assets
—
9,232
—
9,232
Total costs and expenses
93,497
23,348
16,580
133,425
(Loss) income from continuing operations before other income and
income taxes
5,936
(11,248
)
(16,965
)
(22,277
)
Other income:
Interest income
2,507
—
793
3,300
Income from equity investments
—
—
794
794
Total other income
2,507
—
1,587
4,094
(Loss) income from continuing operations before taxes
8,443
(11,248
)
(15,378
)
(18,183
)
Income tax provision
76
—
—
76
(Loss) income from continuing operations
$
8,367
$
(11,248
)
$
(15,378
)
$
(18,259
)
Fiscal Year Ended September 30, 2006:
Revenues
$
78,578
$
18,065
$
(151
)
$
96,492
Costs and expenses:
Direct costs
59,966
11,704
—
71,670
General and administrative
6,009
3,535
23,316
32,860
Selling and marketing
5,963
1,046
2,153
9,162
Depreciation and amortization
3,170
1,590
373
5,133
Total costs and expenses
75,108
17,875
25,842
118,825
(Loss) income from continuing operations before other income and
income taxes
3,470
190
(25,993
)
(22,333
)
Other income:
Interest income
2,136
—
802
2,938
Income from equity investments
—
—
519
519
Total other income
2,136
—
1,321
3,457
(Loss) income from continuing operations before taxes
5,606
190
(24,672
)
(18,876
)
Income tax provision
45
—
—
45
(Loss) income from continuing operations
$
5,561
$
190
$
(24,672
)
$
(18,921
)
TIER TECHNOLOGIES, INC.
Consolidated Statements of Operations--Continuing Operations Only
(Continued)
Continuing Operations
(in thousands)
EPP
Wind-
down
Corporate &
Eliminations
Total
Fiscal Year Ended September 30, 2005
Revenues
$
56,452
$
27,316
$
(5,073
)
$
78,695
Costs and expenses:
Direct costs
42,199
17,752
—
59,951
General and administrative
4,591
4,194
15,391
24,176
Selling and marketing
4,921
1,690
2,225
8,836
Depreciation and amortization
3,428
1,987
558
5,973
Total costs and expenses
55,139
25,623
18,174
98,936
(Loss) income from continuing operations before other income and
income taxes
1,313
1,693
(23,247
)
(20,241
)
Other income
Interest income
886
—
657
1,543
Loss from equity investments
—
—
(669
)
(669
)
Other income
886
—
(12
)
874
(Loss) income from continuing operations before taxes
2,199
1,693
(23,259
)
(19,367
)
Provision from income taxes
78
49
—
127
(Loss) income from continuing operations
$
2,121
$
1,644
$
(23,259
)
$
(19,494
)
TIER TECHNOLOGIES, INC.
Consolidated Statements of Operations—Discontinued
Operations Only
Discontinued Operations
(in thousands)
GBPO
PSSI
Other andEliminations
Total
Fiscal Year Ended September 30, 2007:
Revenues
$
34,835
$
31,372
$
—
$
66,207
Costs and expenses:
Direct costs
22,378
21,557
(385
)
43,550
General and administrative
2,257
6,717
—
8,974
Selling and marketing
1,097
2,620
—
3,717
Depreciation and amortization
2
95
—
97
Write-down of goodwill and intangibles
2,601
120
—
2,721
Total costs and expenses
28,335
31,109
(385
)
59,059
Income before other income and income taxes
6,500
263
385
7,148
Other income
—
—
478
478
Income before income taxes
6,500
263
863
7,626
Income tax (benefit) provision
—
—
(7,599
)
(7,599
)
Income from discontinued operations, net
$
6,500
$
263
$
8,462
$
15,225
Fiscal Year Ended September 30, 2006:
Revenues
$
39,902
$
32,337
$
—
$
72,239
Costs and expenses:
Direct costs
32,041
22,779
(646
)
54,174
General and administrative
1,510
4,194
13
5,717
Selling and marketing
610
1,701
—
2,311
Depreciation and amortization
2
122
—
124
Total costs and expenses
34,163
28,796
(633
)
62,326
Income before other income and income taxes
5,739
3,541
633
9,913
Other income
—
—
13
13
Income before income taxes
5,739
3,541
646
9,926
Income tax (benefit) provision
—
—
456
456
Income from discontinued operations, net
$
5,739
$
3,541
$
190
$
9,470
TIER TECHNOLOGIES, INC.
Consolidated Statements of Operations—Discontinued
Operations Only (Continued)
Discontinued Operations
(in thousands)
GBPO
PSSI
Other andEliminations
Total
Fiscal Year Ended September 30, 2005:
Revenues
$
40,250
$
31,645
$
10
$
71,905
Costs and expenses:
Direct costs
27,761
20,053
(3,949
)
43,865
General and administrative
1,100
3,708
17
4,825
Selling and marketing
437
2,065
—
2,502
Depreciation and amortization
—
93
—
93
Write-down of goodwill and intangibles
—
—
—
—
Total costs and expenses
29,298
25,919
(3,932
)
51,285
Income before other income and income taxes
10,952
5,726
3,942
20,620
Other income
—
—
—
—
Income before income taxes
10,952
5,726
3,942
20,620
Income tax (benefit) provision
—
—
—
—
Income from discontinued operations, net
$
10,952
$
5,726
$
3,942
$
20,620