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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
of to |
Commission file number 000-02333
Open Solutions Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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22-3173050 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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300 Winding Brook Drive,
Glastonbury, CT
(Address of principal executive offices) |
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06033
(Zip Code) |
(860) 652-3155
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). þ
Aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant, based on the
last sale price for such stock on June 30, 2004:
$476,100,415.
As of March 9, 2005, 19,475,290 shares of common
stock, $0.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Form 10-K |
| Document Description |
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Part |
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Portions of the Registrant’s Proxy Statement for the Annual
Meeting of Stockholders to be held May 19, 2005
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III |
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to the historical information, this Annual Report on
Form 10-K contains or incorporates forward-looking
statements within the meaning of section 27A of the
Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based
on current expectations, estimates, forecasts and projections
about the industry and markets in which we operate and
management’s beliefs and assumptions. In addition, other
written or oral statements that constitute forward-looking
statements may be made by or on our behalf. Words such as
“expect,” “anticipate,” “intend,”
“plan,” “believe,” “seek,”
“estimate,” and variations of such words and similar
expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. We have included
important factors in the cautionary statements under the heading
“Factors That May Affect Future Results” that we
believe could cause our actual results to differ materially from
the forward-looking statements we make. We do not intend to
update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
1
PART I
Overview
Open Solutions Inc. is a provider of software and services that
allow financial institutions to compete and service their
customers more effectively. We develop, market, license and
support an enterprise-wide suite of software and services that
performs a financial institution’s data processing and
information management functions, including account,
transaction, lending, operations, back office, client
information and reporting. Our core software and our
complementary products access and update real-time data stored
in a single relational database, which is designed to deliver
strategic benefits to financial institutions. Our software can
be operated either by the financial institution internally, on
an outsourced basis in one of our outsourcing centers or through
an outsourcing center hosted by one of our resellers. We have
historically targeted commercial banks and thrifts with assets
under $20 billion and all credit unions. Our aggregate
revenues increased from approximately $44.3 million in 2002
to approximately $63.9 million in 2003, and were
approximately $107.2 million for the year ended
December 31, 2004.
Our complementary products can be licensed to financial
institutions separately or as part of our fully-integrated
suite. When combined with our core software, these complementary
products provide financial institutions with a suite of
applications that operate efficiently and take advantage of the
architecture of our core solution, limiting the need for
software customization or middleware, which is software that
allows two applications to interface. Our complementary
products, which are fully integrated with our core, include
business intelligence, customer relationship management, or CRM,
check imaging, interactive voice response, Internet banking and
cash management, general ledger and profitability, loan
origination and check and item processing functions. We use an
open and flexible software architecture to maximize a
client’s flexibility with respect to different hardware
configurations and third-party software applications that are
commonly used by financial institutions, allowing our clients to
select our complete suite or third-party products without
incurring substantial additional implementation costs. Based on
a design that is customer-centric, our software leverages an
institution’s customer information through data mining
(sorting through data to identify patterns and establish
relationships) and collaborative filtering (the creation of
recommendations for a customer based on data gathered on similar
customers’ actions and preferences) and allows an
institution to provide its customers with better service,
improve customer retention and identify and pursue potential
cross-selling opportunities.
In contrast to legacy systems, our technologies are fully
integrated, open, flexible, customer-centric and efficient,
permitting financial institutions to draw on and deliver
consistent information quickly. Our technology allows our
clients to access information from disparate sources and then
analyze and distribute that information for use at the point of
customer contact. We believe that our products and services
enable our clients to reduce their overall core processing and
operational costs and meet their strategic needs more
effectively.
With the acquisition of the Payment Solutions Group of Datawest
Solutions Inc, we have added products targeted at institutions
beyond the traditional definition of a financial institution,
but which nonetheless participate in the processing of retail
financial transactions in North America and internationally.
These include independent sales organizations, large merchants
and non-bank transaction processors. We believe that the
products sold by the Payments Solutions Group of Datawest allow
these institutions to drive and manage their own network of ATM
and point of service terminals, as well as connect to national
and international transaction processing networks.
Open Solutions Inc. is headquartered in Glastonbury,
Connecticut, and has other facilities in Connecticut, New York,
Michigan, Georgia, Indiana, New Hampshire and Ontario and
British Columbia, Canada. We were founded in 1992 and are
incorporated in Delaware. We operate and manage our business as
one reportable segment, the development and marketing of
computer software and related services and operate primarily in
two geographic areas, the United States of America and Canada.
As of March 1, 2005, we had approximately 776 employees.
Our common stock is quoted on the Nasdaq National Market under
the symbol OPEN.
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We are subject to the informational requirements of the
Securities Exchange Act of 1934 and will file reports, proxy
statements and other information with the Securities and
Exchange Commission, or SEC. Such reports, proxy statements and
other information, as well as the registration statement and the
exhibits and schedules thereto, may be inspected, without
charge, at the public reference facility maintained by the SEC
at 450 Fifth Street, NW, Washington, D.C. 20549.
Copies of such material may also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the SEC public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. Such
materials can also be inspected on the SEC’s website at
www.sec.gov.
We maintain a website with the address www.opensolutions.com. We
are not including the information contained on our website as a
part of, or incorporating it by reference into, this Annual
Report on Form 10-K. We make available free of charge
through our website our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, and amendments to these reports, as soon as
reasonably practicable after we electronically file such
material with, or furnish such material to, the SEC. We have
posted on our website a copy of our code of business conduct and
ethics. In addition, we intend to disclose on our website any
amendments to, or waivers from, our code of business conduct and
ethics that are required to be publicly disclosed pursuant to
rules of the SEC and the Nasdaq National Market.
Industry Background
Financial institutions have historically invested a significant
amount of money in information technology systems. Technology
research firm IDC estimates that banks, thrifts and credit
unions in the United States spent approximately $42 billion
on information technology during 2004 and expects spending to
grow to over $52 billion by 2007. According to Thomson
Financial Inc., a leading provider of industry information,
there are approximately 19,460 commercial banks, thrifts and
credit unions in the United States, approximately 19,400 of
which have an asset base of under $20 billion.
We believe that these financial institutions, which have
traditionally competed on the basis of personalized service, are
facing increasing challenges to improve their operating
efficiencies. These challenges include the entrance of
non-traditional competitors, the compression of margins on
traditional products, significant channel proliferation and the
convergence of financial products into a single institution.
Recent legislation has allowed non-traditional competitors, such
as insurance companies and brokerage houses, to enter the market
for traditional banking products. Because these competitors are
able to subsidize traditional banking products with the revenues
of other, higher-profit products, financial institutions have
experienced lower margins, increasing the pressure to reduce
costs while continuing to offer an increasing array of consumer
products and services. At the same time, the cost and complexity
of delivering these products and services has increased as the
widespread introduction of new technology has forced financial
institutions to expand their distribution channels to include
ATMs, telephone banking, Internet banking and wireless devices.
Legislative changes have also accelerated the ability of
financial institutions to offer wider ranges of products and
services to their customers. To distinguish themselves from
competitors in this more competitive environment, banks and
credit unions must accurately define and understand their
specific markets, and be able to launch relevant products and
services to those markets over tailored delivery channels. These
challenges are forcing financial institutions to examine how to
conduct their business and service their customers most
efficiently.
Financial institutions have traditionally fulfilled their
information technology needs through legacy computer systems,
operated either by the institution itself or through an
outsourcing center. Legacy systems, which operate in large
mainframe or minicomputer environments, are generally highly
proprietary, inflexible and costly to operate and maintain.
Legacy systems often require financial institutions to purchase
a specific vendor’s hardware and software, requiring them
to conform evolving business processes and reporting needs to
the architecture of the legacy systems, and preventing them from
adopting new technologies or launching new products on a
cost-effective and timely basis. Most legacy systems employed by
commercial banks are designed primarily to batch process a large
number of transactions and create centralized financial records,
limiting the ability of these banks to offer their customers
real-time transaction processing. On the other hand, most legacy
systems employed by credit unions are designed for real-time
transaction processing, but they
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limit the ability to conduct high-volume processing or more
traditional commercial banking functions. In addition, legacy
systems typically store data in non-relational, or sequentially
indexed, files. Because the data is not organized by customer,
financial institutions often face challenges extracting
information from their legacy systems, which are unable to
easily provide real-time, actionable customer data to the
individuals within the financial institution servicing customers
without additional software.
We believe that financial institutions today are seeking more
integrated, open, flexible, customer-centric and efficient
information technology solutions that:
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combine high performance, scalability, reliability and security
with the advantages associated with relational and highly
normalized (which means data is easily accessible and not stored
redundantly) technology based on industry standards, |
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deliver new products and services to their customers quickly and
efficiently without extensive custom development, |
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integrate easily with other applications used in the enterprise
(whether on an in-house or an outsourced basis) without
expensive middleware, |
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provide quick and effective access to customer and account data
in order to offer better, more customized services, monitor
trends and performance and cross-sell services and products, |
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allow real-time access to customer data while preserving the
financial institution’s ability to batch process large
transactions, and |
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accommodate, in a single application, multiple delivery
channels, such as ATMs, telephone banking, Internet banking and
wireless banking, as well as new delivery channels as they
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We believe that a technology solution must meet all of these
requirements to enable financial institutions to achieve a
competitive advantage in their markets through improved customer
service, competitive product offerings and lower costs. In
addition, financial institutions are required by federal law to
evaluate the effectiveness of their information technology
systems periodically. This obligation, together with significant
upgrades and phase-outs of certain hardware by hardware
providers, creates an ongoing need for institutions to evaluate
replacement of their information technology systems.
These requirements can be met by information technology systems
based on open, industry-standard operating environments and
relational databases. Relational and real-time technology can
improve information sharing by providing access at each desktop
to critical customer and transaction data and business
applications, which is restricted or difficult to access in
legacy environments. This technology also enables organizations
to streamline business practices and reporting to make faster,
more informed decisions. Because this technology is based on an
open architecture, it is easily scalable by upgrading the server
or linking multiple servers. In addition, this open model offers
flexibility in that additional functionality can easily be
provided through third-party applications. Furthermore, the
costs of maintaining a legacy system, which include the costs of
upgrading both legacy system software and hardware, are
generally greater over time than the costs associated with newer
technology.
Our Solution
Our core software product is a fully-integrated, open, flexible,
customer-centric solution that enables financial institutions to
service their customers more efficiently and effectively. Our
core software operates in Microsoft, UNIX and LINUX environments
using an Oracle relational database, supplemented by a suite of
complementary software applications, which are fully integrated
with our core technology and can also be used with any other
vendor’s core software. We also offer our clients a
comprehensive set of support services.
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The key attributes of our solution are its:
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Full Integration at the Core Level |
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Fully-Integrated Information Technology. Our core
software supports all of a financial institution’s
principal data processing requirements using a single relational
database designed as an integral component of the system
architecture. Our fully-integrated software suite allows our
clients to replace their highly proprietary, inflexible and
costly legacy systems, which generally contain many disparate
software applications, multiple databases and cumbersome and
expensive middleware, with one integrated software application
based on a single database architecture. |
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Compatibility With Varied Non-Proprietary Hardware.
Because our core system was designed with an open architecture,
our clients can run our software on desktop and server hardware
supplied by a wide array of vendors, including Hewlett-Packard
Company, IBM Corp., Dell Computer Corporation, Sun Microsystems,
Inc. and Unisys Corporation. In contrast, legacy systems often
require the financial institution to purchase vendor-specific
hardware, a vendor’s core software product and
vendor-specific complementary products, each of which must be
customized to interface with a decades-old legacy system,
imposing significant cost burdens, both in cash outlay and
manpower. |
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Software Compatibility. The flexibility and scalability
of our core applications permit our clients to incorporate
complementary software applications, whether designed by us or
by a third party, in a cost-effective manner. Our complementary
products, which may be used with either our core software or a
third-party system, include profitability, web-based imaging,
loan origination, cash management, collections, interactive
voice solutions and check and item processing modules that may
be purchased as part of a fully-integrated software suite or
individually. In addition, our open architecture allows a client
to activate a particular software module as its functionality is
desired, which provides our clients with the ability to react to
their customers’ needs efficiently. |
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Scalability. Although most of our current clients have an
asset base under $20 billion, our open architecture is
designed to accommodate the needs of larger financial
institutions, and to provide our clients the ability to continue
to use our solution as they grow. In May and June 2002 we
performed a three-week performance test and benchmark of our
core software, the results of which demonstrated that our
solution can meet the processing requirements of an institution
with $40 billion in assets and four million accounts. The
scalability of our architecture enables us to manage unexpected
increases in clients’ processing volumes as well as support
the growth of our clients’ businesses. |
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Client Delivery of New Products and Services. Our
software allows our clients to offer new products and services
to their customers without reconfiguring their information
technology infrastructure. In contrast, modifications required
by legacy systems in order to accommodate new financial products
can be costly and time-consuming and may require the purchase
and maintenance of additional middleware. In addition, our
clients can change the way in which they serve their
customers — such as converting from a thrift to a
commercial bank — without replacing or making major
modifications to our software. |
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Direct License or Outsourced Distribution. We can provide
our core software to our clients by licensing it directly for
use on-site, through our own outsourcing centers or through
reseller outsourcing centers. We also provide certain
complementary applications at our outsourcing centers, including
our business intelligence, cash management, ATM, Internet
banking, web-based imaging, collections, interactive voice
solutions and check and item processing tools. Our flexibility
in distribution method allows our clients to use our core
software and other complementary applications in the most
cost-effective method to meet their specific operational and
competitive requirements. |
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Customer-Centric Architecture |
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Real-time Customer Information in a Single View. Our core
software uses a relational database organized around individual
customers, which allows a financial institution to update and
view customer information on a real-time basis instead of
relying on periodic batch processing. Our clients can provide
their customers with real-time information concerning their
accounts, as well as create accurate and current management
reports. Our software is designed to eliminate potential errors
arising from the maintenance of multiple databases and to
accommodate high volumes of customer data. |
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Better Relationship Management. Our relationship
management software provides a set of business intelligence
tools that is fully integrated with and acts as a natural
extension of our core software. This allows our clients to
eliminate the multiple databases required when layering
traditional business intelligence tools onto a legacy core
system. Because our suite exploits the strength of our core
system that is based on a single, relational database designed
around individual customers, a financial institution may easily
collect and analyze that data to generate timely and responsive
initiatives (such as promotional offers) and deliver those
initiatives immediately to the customer as the customer
interacts with the financial institution. |
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Cost Savings. We believe that our software reduces the
overall cost of a financial institution’s information
technology and allows our clients to meet their strategic goals
more efficiently. The hardware required by a legacy system is
expensive to obtain and costly to keep to current specifications
while the pool of expertise with older systems is constantly
shrinking. In contrast, our core system can run on hardware
provided by many different vendors. Because our core software is
fully integrated with our complementary products and supports
third-party products, development and implementation costs for
an institution’s information systems based on our software
are lower than those for an institution which must modify its
core software and obtain costly proprietary products for each
new function. Our open architecture and flexibility allow our
clients to modify their information systems requirements quickly
and easily, without incurring the significant costs associated
with supporting several disparate software applications. Our
single relational database allows our clients to organize their
data around individual customers, use our business intelligence
tools to analyze and manage that data in the most efficient
manner and launch new products and services desired by their
customers in a cost-effective manner. In addition, because our
software is based on widely adopted technologies, a financial
institution using it requires less specialized expertise, which
allows the institution to achieve greater operational
efficiencies. |
Business Strategy
Our objective is to be the leading supplier of software and
services to our targeted market. Our strategy for achieving this
objective is to:
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Expand Share of Our Historical Market. We believe that
our software is particularly well suited for financial
institutions which have an asset base of under $20 billion.
These financial institutions, which have historically
constituted our target market, typically can neither afford, nor
do they require, extensive customization in connection with the
implementation of a core system. As a result, we believe that
these financial institutions are willing to evaluate, and are
well positioned to benefit from, our flexible, cost-effective
technology. We intend to continue to pursue this market by
marketing and selling our core software to new clients seeking
to convert from a legacy system. |
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Expand Our Sources of Recurring Revenue. We generate
recurring revenue through outsourcing and maintenance services.
We currently host applications for approximately 535 financial
institutions in our outsourcing centers and intend to continue
to enhance this service, which we believe is an attractive
solution for many of our targeted clients. Our outsourcing
centers serve clients using our core software and clients using
one or more of our Internet banking, ATM, cView, check imaging,
cash management, collections, automated clearing house, or ACH,
processing and check and item processing products. In |
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the future, we plan to offer all of our products in our
outsourcing centers and continue to market our outsourcing
services aggressively. Our outsourcing services provide a source
of recurring revenue which can grow as the number of accounts
processed for a client increases. We continue to seek to expand
our client base through licensing arrangements, which we expect
to increase the recurring revenues, such as maintenance, that
correspond to those licenses. |
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Expand Our Client Base by Licensing Our Core Software through
Third-Party Outsourcing Centers. Approximately 172 financial
institutions use our core software application at two reseller
outsourcing centers, one operated by BISYS, Inc., a major
national outsourcing center, and the other operated by
Connecticut On-Line Computer Center, Inc., or COCC, a major
regional outsourcing center. A number of financial institutions
outsource their core processing systems to third-party
outsourcing centers such as these, which typically choose one or
more significant core software products to provide their
services. We plan to work with our existing resellers to add new
clients, and have recently expanded our relationship with BISYS
for this purpose. We also plan to supplement these resellers
with other national and regional outsourcing centers. |
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Provide Additional Products and Services to Our Installed
Client Base. We intend to continue to leverage our installed
client base by expanding the range of complementary products and
services available to our current clients, through both the
internal development of new products and services and through
acquisitions. In addition, each client has an account manager
who recommends complementary products suitable for the
client’s business and works with our sales group to
generate sales. We also intend to continue selling our
complementary products to financial institutions that use core
systems sold by third parties. |
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Maintain Technological Leadership. We believe that the
uniqueness of the open, flexible architecture of our system
provides us with competitive advantages over companies offering
other core processing systems. For example, our core software
suite can satisfy the technological requirements of a commercial
bank, thrift or credit union without modification or
customization. We recently announced the commercial release of
our web-based business intelligence suite, which allows a
financial institution to transmit action messages and collect
response information instantaneously while a customer conducts a
transaction. Our open architecture enables us to utilize
leading, non-proprietary software and hardware to provide
comprehensive functionality. We intend to extend our
technological leadership by continuing to add new applications,
integrate new technologies and expand the functionality of our
system. |
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Extend Target Markets. Our primary market currently
consists of small to mid-size commercial banks and thrifts and
all credit unions, located in the United States. We believe that
our core software has benefits beyond this market, and can scale
to meet the operating requirements of any financial institution.
We continue to explore additional ways to extend our target
markets, including by selling our products and services to
larger financial institutions and international financial
institutions. We also plan to market and sell our products and
services to clients in the payroll services, insurance and
brokerage industries. |
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Pursue Strategic Acquisitions. To complement and
accelerate our internal growth, we continue to explore
acquisitions of businesses and products that will complement our
existing products and services as well as expand our client
base. Since 2000, we have completed the following acquisitions: |
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Products and Services |
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June 2000
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Global Payment Systems LLC |
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Web-based cash management system |
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August 2001
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Sound Software Development, Inc. |
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Loan and mortgage origination product |
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December 2001
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Imagic Corporation |
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Check imaging product |
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March and October 2002
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HNC Financial Solutions, Inc. and HNC Software, Inc. |
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General ledger, profitability and other financial products |
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July 2003
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Liberty FiTech Systems, Inc. |
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Core processing software for credit unions |
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February 2004
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Maxxar Corporation |
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Interactive voice response, contact center management and voice
over IP |
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June 2004
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Eastpoint Technologies, LLC |
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Core processing software for banks |
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July 2004
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re:Member Data Services, Inc. |
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Core processing software for credit unions |
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July 2004
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Omega Systems of North America LLC |
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Document processing product |
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October 2004
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Datawest Solutions Inc. |
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Core processing software for credit unions and software for
payment processing in Canada and internationally |
Technology
We design our software to integrate with other products, to
allow individual customer data to be easily accessible at all
times, and to be able to deliver strategic benefits to financial
institutions at a lower cost. We released our initial product in
1995, at a time when technical advancements such as distributed
computing, browser-based applications and standards for
integrating disparate applications were becoming commonly
adopted in the marketplace. To take advantage of these technical
developments, we created an open product architecture to
maximize a client’s flexibility with respect to both
hardware options and integration with other software
applications. In addition, we sought to design a single platform
that could service all financial institutions, including
commercial banks, thrifts and credit unions. We d3also
understood the difficulties financial institutions face in
retrieving timely, accurate information with respect to their
customers, and therefore designed our software with a single
relational database as its integral component, placing an
emphasis on access to customer information rather than account
data. By creating a core processing solution that is open and
customer-centric, we believe we have minimized the need for
financial institutions to purchase costly middleware and
additional databases to perform the tasks that our products
achieve with only one software application and a single database.
Our core software application offers the following benefits:
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an open architecture that permits full integration with
third-party hardware and software and emerging technologies, |
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flexible functionality, scalability and high
performance, and |
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a highly relational database designed around customer
information. |
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We believe that our software provides these benefits through an
open architecture that utilizes a relational database, as well
as leading graphical user interfaces and report generation
tools. Our software operates in an open systems environment,
does not require any proprietary hardware components and is
currently deployed on a wide range of client and server
platforms. Our open architecture also permits our software to
interface with a broad range of third-party applications and
peripherals that are commonly used in banks and credit unions.
We implement our flexible solution through application modules,
each of which performs a specific core processing function. All
of our modules share and are able to access the data in a single
relational database, allowing for consistency of data throughout
our product suite. Through database normalization, data is
organized in tables that are easily accessible through a variety
of query tools as well as through the application modules. In
contrast to legacy systems, our architecture allows a financial
institution to capture an unlimited amount of data regarding
each of its customers without requiring additional software or
support. As a result, a higher degree of independence between a
client’s business processes and underlying data is achieved
and the solution is more scalable and adaptable to changing
business needs. New application modules may be developed or
existing modules may be altered as required without having to
change the underlying data model.
Our software utilizes a single, enterprise-wide relational
database model, as opposed to a distributed database in which
data is spread among two or more components, and typically
resides on different computers. The principal benefits of an
architecture using a single enterprise-wide relational database
is that it virtually eliminates the introduction of redundant
data and permits real-time processing so that, for example,
transactions are immediately reflected in a bank or credit union
customer’s account. This contrasts with a batch processing
approach in which all accounts are updated at scheduled
intervals, typically at the end of the business day. Our
software may also be configured to operate in a hybrid memo
batch/ real time mode for those banks or credit unions that
prefer to operate using the workflow model.
Our payments processing software is designed to run on a
scaleable cluster of small processors. This flexible
architecture allows these solutions to be viable for very small
institutions but also for extremely large transaction processing
organizations, like our own payments processor in Canada,
POSHnet, which operates the largest network of ATMs in Canada
entirely using our own software products. These switching
systems operate on a continuous, 24/7 basis and use industry
standard and operating system capabilities to deliver ultra-high
availability and transaction reliability. We believe that our
customers benefit from the ease of use and scalability of the
payments processing software.
Products and Services
We offer core software as well as several complementary products
that may be purchased with our core solution or separately. The
open and flexible architecture of our core solution is designed
to provide our clients with the maximum array of options for
complementary applications. While all of our products function
independently of each other, financial institutions which use
our entire software suite benefit from our fully-integrated
platform and the ability to obtain comprehensive real-time
information on all of their customers.
The Complete Banking Solution and The Complete Credit Union
Solution. We market our core software in two versions, one
directed primarily at commercial banks and thrifts and the other
directed primarily at credit unions. The Complete Banking
Solution and The Complete Credit Union Solution share a common
software platform that provides a comprehensive real-time open
architecture system capable of managing all of a financial
institution’s core processing requirements. Our core
software permits the financial institution and its customers to
view their transactions immediately, whether the transactions
occur over the telephone, on the Internet, at the ATM, inside
the financial institution or at an external debit location.
We believe that our core software is less expensive to install
and maintain than most legacy systems. It can be easily
integrated with third party applications or our own
complementary products to provide a comprehensive solution that
can immediately retrieve valuable customer information for
specifically targeting customers with cross-selling or
up-selling opportunities.
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Some of the key features of our core software include:
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customer-centric system, |
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real-time customer touch-point integration, |
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integrated real-time and/or batch processing, |
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comprehensive lending and deposit processing, |
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forms integration (including signature and photo storage), |
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customizable web-based reporting, |
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comprehensive teller/ customer service applications, |
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commercial institution functionality, |
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institution and branch operations, |
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direct payroll processing, and |
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product delivery manager. |
The features of our core software offer a comprehensive
real-time view of each customer relationship, which enables our
clients to provide better customer service by having a complete
customer profile available to tellers and officers
instantaneously.
To enhance our core software, we offer a number of complementary
products. All of our complementary products are designed to run
on any core processing system. However, when used with our core
solution, our complementary products are designed to take
advantage of the availability of real-time customer information.
These products provide functionality beyond that in any core
solution, and include:
cView. cView is an advanced business-intelligence suite
designed around two key functional areas: real-time customer
contact and knowledge management. cView permits a financial
institution to leverage relational technology, customer account
and transaction data and instant messaging to gather, convert
and analyze disparate customer information into knowledge that
can be applied to support timely and responsive initiatives such
as promotional offers and make them available immediately
through front-line delivery channels, such as Internet banking,
tellers and others. cView is designed to operate on any core
processing system, whether designed by us or by a third party.
The cView suite consists of the following web-based components:
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Dynamic Messaging Manager. Application that allows the
financial institution to set rules that define the real-time
distribution and receipt of messages throughout the organization. |
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Activity Manager. Application that allows the financial
institution to track and manage the activities of its customers
and prospects. |
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My Vision. Access point for cView applications, intranet
communications and access to relevant documents, messages and
Internet links. |
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Report Wizard. Query and report writing tool, which
allows users to simplify views of complex database table design,
effectively collapsing multiple tables into one. |
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Market Vision. Customer data warehouse designed to permit
financial institutions to learn about their customers,
prospects, products and business lines so they can make sound
business decisions and create effective marketing plans. |
Each component of the cView suite is integrated with the other
components, as well as with our core software, allowing clients
to focus on the implementation of CRM strategies rather than the
support and maintenance of separate software applications.
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Channel Management Center. Channel Management Center is a
suite of applications and services designed to facilitate the
building and processing of interfaces between disparate systems.
Channel Management Center is designed to act as a translator
between core, business and delivery systems and to centralize
the collection and movement of information throughout the
financial institution, eliminating the need for multiple types
of middleware services.
eCommerce Banker — Consumer and eCommerce
Banker — Business. Our eCommerce Banker suite
provides clients with Internet banking and cash management tools
for commercial and retail customers. The modules permit a
financial institution to choose from a wide menu of financial
services that may be provided to either individuals or
businesses, including:
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Account Information. Customers can view balance
information for checking and savings accounts, certificates of
deposit, lines of credit, automobile loans and mortgage loans.
Customers can also view year-to-date interest accrued or paid,
interest rates and deposit maturity dates. |
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Cash Management. Business customers can monitor their
accounts, make tax payments and execute automated clearing house
or wire transfers. We also provide a cash concentration
function, which periodically sweeps cash from several accounts
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Funds Transfer. Customers can transfer funds among
accounts and establish real-time electronic bill payment. |
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Compatibility with Personal Financial Management
Software. Popular personal financial management software,
such as Intuit Quicken® and Microsoft Money®, can be
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Bill Payment. Customers can pay bills electronically
24 hours a day, seven days a week and can establish future
and recurring payments. |
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Secure Messaging. Customers can communicate with a
financial institution through secure encrypted message systems. |
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Additional Features. Customers can reorder paper checks,
request an account statement or contact financial institution
personnel by e-mail. |
Our Internet banking application supports the open financial
exchange, or OFX standard, which enables the system to interface
to financial institution services that use a variety of devices
to originate customer transactions. These administrative
components include the ability for financial institutions’
customers and potential customers to submit account applications
in a secure environment. Also, financial institutions can
automatically generate e-mail responses to customer
applications, update product interest rates and terms and
receive customer-specific marketing and data analysis.
Check Imaging. This software application enables our
clients to create and store digital check images for inclusion
in monthly statements and to facilitate their customer support
services. This product suite includes item/ image capture,
document imaging/ computer output to laser disc, or COLD,
signature verification, electronic statements, full-service
check and item processing and managed services. This product is
designed to comply with federal legislation known as The Check
Clearing For The 21st Century Act, commonly known as
Check 21, and to be compatible with the Federal
Reserve’s FedImage Platform. These features are important
because when financial institutions exchange checks
electronically rather than physically as the legislation will
require, they will seek Check 21 compliant solutions. The
product is also designed to be web-enabled, to eliminate a large
portion of entry keying, and together with remote branch
capture, to assist our clients in centralizing electronic image
storage. Our clients can choose to purchase these products on an
in-house, serviced or managed services basis.
Loan Origination. Our loan origination technologies are
designed to provide full-service loan origination processing.
Because no two lenders transact business in exactly the same
manner, our loan origination
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products can also be adapted to suit a financial
institution’s specific needs. Our software suite provides
integrated systems for mortgage, consumer and commercial lending:
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The Sound Mortgage Management System provides
comprehensive mortgage lending management. This product
automates the mortgage process, including advanced disclosures,
prequalification, origination, document preparation, processing,
loan tracking, underwriting, commitment, closing, full
management and government reporting. The system automatically
books loans to our clients’ in-house or outsourced
servicing systems. The system can be wide-area network enabled
throughout all branches, and also provides for remote
origination using the Internet. |
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The Sound Consumer Loan Management System provides
consumer loan management through a comprehensive set of
features, including full document preparation, loan processing,
tracking, underwriting, reporting and government reporting
requirements as well as an automated decision service. |
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The Sound Commercial Loan Documenter provides commercial
loan management from the creation of commitment/ proposal
letters to the final production and tracking of complete
document packages for any small-business to middle-market loan,
including commercial and industrial, or C&I, commercial real
estate and construction and Small Business Administration loans. |
Financial Products. Our financial accounting software
suite is designed to provide fully-integrated back-office
financial management technology to financial institutions,
including general ledger, accounts payable and fixed assets. In
addition, we offer strategic financial management tools such as
asset/ liability management, profitability and financial
planning:
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Financial Accounting Platform. Our financial accounting
platform is an integrated and comprehensive financial management
suite. With detailed reporting and responsive service, it helps
clients streamline accounting operations and improve the quality
of their financial management. The financial accounting platform
is comprised of four modules: general ledger, investment
management, accounts payable and fixed assets accounting. Each
system can operate as a stand-alone product or as part of the
integrated financial accounting platform. As a whole or on a
stand-alone basis, the open architecture and standardized file
specifications are designed to allow integration with other
accounting and information management software applications. |
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Asset/Liability Management and Financial Planning System.
Our asset/ liability management and financial planning system
provides analytical, budgeting and strategic planning software
to enable financial institutions to better comprehend the
factors driving their profitability. This software is designed
to provide a financial institution with the ability to analyze
the institution’s balance sheet in order to determine
market value and risk, helping to ensure preservation of capital. |
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ProfitVision. ProfitVision analyzes profitability at any
level of the organization. It is designed to generate profit
results and value indicators that reveal the contributors to an
institution’s bottom line. It can also be used to segment
and profile valuable customers and determine which products,
business units and channels are top performers. |
Interactive Voice Solutions. Our interactive voice
solutions, which we obtained through the acquisition of Maxxar
Corporation on February 24, 2004, are designed to provide
financial institutions with products that enhance productivity,
strengthen customer services and reduce overall operational
costs.
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Interactive Voice Response. Our interactive voice
response solution provides a financial institution’s
customer with round the clock access to their financial
information and the ability to complete account transactions
such as transferring funds, applying for loans, and accessing
information about products and services. The product supports
both touch-tone keypad response or natural language speech
recognition. |
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Contact Center Management. Our contact center management
solution is comprised of an enhanced Automatic Call Distributor
(ACD) designed to provide sophisticated routing of
telephone contacts and other forms of electronic media and agent
workflow software used to manage a broad range of client
services and marketing needs of a financial institution. |
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Voice Over IP. Our voice over IP product provides a
financial institution with a reliable and economical voice
communication solution to meet the needs of a multi-site
organization. |
To provide a complete operating environment for financial
institution and other customers wishing to provide transaction
services either in-house, as a service bureau, or using our own
service, the Payment Solutions Group develops and markets a
number of products. These products are independent of the Core
and Complementary products but can be integrated to provide
further synergies for their enhanced operation.
POSH (Point of Sale Handler). POSH provides customers
with the functionality needed for point of sale terminals, or
equivalent devices, at retail sites for credit and debit
transactions. POSH also provides the capability to operate and
manage the customer relationships with merchants and partners in
the POS marketplace as well as manage the financial
reconciliation and settlement of transaction value and fees. The
functionality includes:
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Transaction Routing. Card-based transactions can be
routed for approval to international networks, local processors,
and in-house and remote hosts. Transactions are all managed with
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Data Security. All mandated processing relating to the
security of cardholder information and PINs is included in POSH. |
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Settlement and Reconciliation. POSH tracks and reports on
all transaction activity and can provide all the needed
information to ensure ongoing integrity in all processing and
financial relationships with outside partners and agencies. |
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Merchant/ ISO Management. Fees, statements, and
information provision are handled by POSH to allow all
downstream partners in either a proprietary or service bureau
business model to receive all their payments, revenues, and
control information. |
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POSHweb. A variety of integrated information services are
available over the public world-wide web, subject to security
controls. These include: report distribution, financial and
transaction history, cash positions, monitoring status, history,
and statistics, and news alerts. |
ConCentre Application Monitoring. ConCentre is a
comprehensive software tool designed to detect and manage errors
and unusual events in a complex system processing environment
such (as but not limited to) a large ATM network. Customers use
Concentre to manage the alerts and faults in their network by
improving service availability, track and enforce service level
agreements, manage support personnel efficiently and use
pre-emptive remediation techniques which allow for the automated
correction of real-time errors. ConCentre functionality includes:
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Flexible Error Detection. The ConCentre Interface Agent
provides testing of resources, application relationships,
timing, and statuses of any application environment. This
information is collected in a non-intrusive way to ensure no
noticeable degradation in the application environment being
monitored. |
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Automated Remediation. In addition to merely reporting
errors in the environment, ConCentre can be configured to
automatically attempt to repair errors. This feature can
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Behavioral Analysis . The TRAFC component of ConCentre is
designed to observe transactional activity and detect patterns
of unusual or suspicious behavior. This service is particularly
useful when monitoring dial-up POS terminals and can be
beneficial in detecting errors outside of the range of the
customer’s own environment. It is also helpful in detecting
signs of fraudulent activity. |
We have the capability to host a client’s data processing
functions at our outsourcing centers, giving the client the
benefit of our products and services without having to maintain
personnel to develop, update and run
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these systems and without having to make large initial
expenditures. Our outsourcing centers currently host
applications for 535 financial institutions, including clients
who use our core software and clients who use one or more of our
Internet banking, ATM, cView, check imaging, cash management,
collections, ACH processing, payments processing and check and
item processing products. Our payments processing services
operate over 18,000 terminal devices for over 180 Independent
Sales Organizations.
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Training, Maintenance and Support Services |
Installation and Training. We provide comprehensive
installation and training services in connection with the
purchase of in-house systems and for new outsourcing center
clients. The complete installation process of a core system
typically includes planning, design, data conversion and testing.
Both in connection with installation of new systems and on an
ongoing basis, our clients need, and we provide, extensive
training services and programs related to our products and
services. Training can be provided in our training centers, at
meetings and conferences or onsite at our clients’
locations, and can be customized to meet our clients’
requirements. The large majority of our clients acquire
additional training services, both to improve their
employees’ proficiency and productivity and to make full
use of the functionality of our systems.
Professional Services. Our professional service
organization provides services on a contract basis such as
operational reviews, which leverage the best practices of our
clients to improve operational efficiency and effectiveness
across our entire client base.
Support Services. We provide immediate telephone response
service during normal working hours and on-call support
24 hours a day, seven days a week for all components of our
solution. In addition, we offer remote product support services
whereby our support team directly connects in a secure
environment to our client’s server to troubleshoot or
perform routine maintenance.
Clients
We serve financial institutions of all sizes, however, the
majority of our clients are commercial banks and thrifts with
under $20 billion of assets and credit unions of all sizes.
The majority of our clients are located in the United States and
Canada, although we also have clients in several other foreign
countries. As of December 31, 2004, approximately 2,780
financial institutions were using one or more of our products.
One customer, Bisys, Inc., accounted for 11.7% of total revenues
for the fiscal year ended December 31, 2004. No client
accounted for more than 10% of our revenues in the fiscal years
ended December 31, 2003 or 2002.
Sales and Marketing
We have established a multi-channel distribution and sales
network. We sell and license our products directly to end-users
through our direct sales force and indirectly through resellers,
including third-party outsourcing centers. In addition, we
support our direct and indirect sales efforts through strategic
marketing relationships and public relations programs, trade
shows and other marketing activities. We operate primarily in
two geographical areas, the United States and Canada.
We market our products primarily through a direct sales force
which is split between our sales personnel who sell our core
software and those who sell our complementary products. As of
March 1, 2005, our direct sales force was comprised of 46
salespersons, 17 of which were selling our core software, 23 of
which were selling our complementary products and 6 of which
were selling our payments products. In addition, our sales group
is complemented by application specialists, all of whom have
extensive experience in banking technology and provide pre-sales
support to potential clients on product information and
deployment capabilities. Each client is also assigned an account
manager who is that client’s primary contact at Open
Solutions, recommends complementary products suitable for that
client’s business and works with our sales group to
generate sales. Our sales group for core software is focused in
two distinct areas; the banking industry
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and the credit union industry. We believe that this distinction
facilitates the ongoing effort to design, develop and build
better technology products aimed at the specific needs of the
banking and credit union industries.
We supplement our direct sales force with a range of resellers
who sell our complementary products in conjunction with their
own products and services. These resellers include a range of
hardware and software vendors and permit us to better address
specific geographical markets, including those outside the
United States, and potential clients reliant on existing
third-party core solutions.
Historically, a significant portion of financial institutions
have chosen to satisfy their information technology needs
through third-party outsourcing centers. In addition to our own
technology outsourcing centers, we have entered into software
license and marketing agreements with BISYS and COCC. Under our
agreements with these strategic marketing partners, we receive
license fees based on the asset size of the financial
institution using our applications.
BISYS has the right to provide outsourcing services using our
The Complete Banking Solution software to banks in the United
States. Under the amended agreement, BISYS has also agreed to
pay us minimum license fees and must achieve minimum sales
requirements, as well as pay us annual maintenance fees for each
of their clients that uses one or more of our products or
services. In exchange, we have agreed not to compete with BISYS
for the provision of outsourcing services to banks in the United
States through September 2005 and thereafter (so long as BISYS
continues to pay us the required minimum fees and meet the
required minimum sales), and we have agreed not to enter into
similar reseller agreements with any one of six named
competitors of BISYS before March 1, 2005. Our agreement
with COCC provides it with the right to provide services using
our The Complete Banking Solution software to banks in ten
states, primarily in the northeastern and mid-Atlantic United
States. In February 2004, we entered into an expanded agreement
with COCC, which provides for the license and resale of our
e-Commerce Banker suite of electronic banking and cash
management products operated from their data center. This
agreement was amended in December 2004 and granted COCC the
right to additional TCBS modules and ancillary products. The
amended agreement has a term of ten years, with an option to
renew for another five years at COCC’s option. In addition,
COCC will pay us non-refundable minimum license fees related to
the achievement of certain minimum sales requirements for both
unit sales and license fees.
During the fiscal year ended December 31, 2004, BISYS
represented approximately $12.5 million, or 11.7%, of our
total revenues, and COCC represented approximately
$2.0 million, or 1.9%, of our total revenues. During the
fiscal year ended December 31, 2003, BISYS represented
approximately $5.8 million, or 9.1%, of our total revenues,
and COCC represented approximately $1.5 million, or 2.4%,
of our total revenues. During the fiscal year ended
December 31, 2002, BISYS represented approximately
$2.9 million, or 6.5%, of our total revenues, and COCC
represented approximately $1.3 million, or 2.9%, of our
total revenues.
Our marketing program includes:
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direct mail, |
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telemarketing, |
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hosting an annual client conference, |
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advertising in banking and credit union trade journals and
periodicals, |
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publishing articles and editorials, |
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speaking engagements, and |
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participating in seminars and trade shows. |
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Product Development
We plan to continue to invest significant resources to maintain
and enhance our current product and service offerings, and we
are continually developing new products that complement these
offerings. For the years ended December 31, 2004, 2003 and
2002, product development expenses were $11.0 million,
$6.8 million and $6.2 million, respectively. We have
historically released two upgrades of existing products each
year, and, since the beginning of fiscal year 2002, we have
introduced a collections system, a safe deposit box system, a
web-based business intelligence suite, a web-based imaging
system and tools to facilitate the building and processing of
interfaces between disparate systems, as well as several smaller
modules. The collections system and safe deposit box system were
market-driven additions to our core software suite. The business
intelligence, web-based imaging systems and the interface tools
were designed to exploit the uniqueness of our core
architecture, but as with all of our complementary products,
they work with other core solutions. We have several new
products under development and plan to sell them to both our
existing client base and new clients. Our clients also regularly
advise us of new products and functionalities that they desire,
which we take into account with respect to planning our research
and development operations. As of March 1, 2005, we
employed a staff of 132 development employees.
Competition
The financial services software market is intensely competitive
and subject to technological change. Competitors vary in size
and in the scope and breadth of products and services offered.
We encounter competition in the United States from a number of
companies including Fiserv, Inc., Jack Henry &
Associates, Inc., Fidelity National Financial Corporation and
John H. Harland Company. We also compete against a number of
smaller, regional competitors, as well as vendors of products
that compete with one or more of our complementary products.
Many of our current competitors have longer operating histories,
larger client bases and greater financial resources than we do.
In general, we compete on the basis of product architecture and
functionality, service and support, including the range and
quality of technical support, installation and training
services, and product pricing in relation to performance and
support.
Intellectual Property and Other Proprietary Rights
We rely primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. We seek to protect
our software, documentation and other written materials under
trade secret and copyright laws, which afford only limited
protection. Our license agreements contain provisions which
limit the number of users, state that title remains with Open
Solutions and protect confidentiality. We presently have no
patents or patent applications pending.
Op