Attached files
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| 8-K - FORM 8-K - OFFICIAL PAYMENTS HOLDINGS, INC. | form8k.htm |
| EX-99.1 - PRESS RELEASE - OFFICIAL PAYMENTS HOLDINGS, INC. | exhibit99-1.htm |
| EX-99.3 - SLIDE PRESENTATION - OFFICIAL PAYMENTS HOLDINGS, INC. | exhibit99-3.htm |
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page 1
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TIER
TECHNOLOGIES
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Moderator:
Ronald Rossetti
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February
9, 2010
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5:00
pm EST
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Operator:
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Good
afternoon. I would like to welcome everyone to the Tier
Technologies’ First Quarter Earnings Conference call for fiscal year
2010.
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All
lines have been placed on mute to prevent any background noise. After the
speakers' remarks, there will be a question and answer session. If you would
like to ask a question during this time, simply press star then the number one
(1) on your telephone keypad. If you would like to withdraw your question, press
star then the number two (2) on your telephone keypad.Thank you.
Ms.
Bowman, you may begin your conference.
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Liz
Bowman:
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Good
afternoon. My name is Liz Bowman, Tier Technologies’ Director
of SEC Reporting. At this time, I would like to welcome
everyone to the Tier Technologies’ earnings conference call for the
quarter ended December31, 2009. Today’s call is scheduled for
one hour.
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1
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page 2
After
the market closed today, we issued a press release announcing Tier's financial
results for the first quarter ended December 31, 2009. This
afternoon, we issued a copy of the text of today’s call (not including the
Q&A) 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 web site, 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 Company's web site beginning
Wednesday, February 10, 2010 at 5:00 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 Company's future
expectations, plans, and prospects constitute forward-looking statements
for
2
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page 3
purposes
of the Safe Harbor provisions under the Private Securities Litigation Reform Act
of 1995.
The
forward-looking statements discussed on this call represent management's current
expectations about the Company's 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; the Company's
ability to realize revenues 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
3
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
4
our 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. Security holders may obtain a free copy of the Proxy
Statement and other documents (when available) that Tier files with the SEC at
the SEC’s website at www.sec.gov. The Proxy Statement and these other documents
may also be obtained for free from Tier by directing a request to Tier
Technologies, Inc., Attn: Corporate Secretary, Keith Omsberg, 10780 Parkridge
Blvd., 4th Floor,
Reston, VA 20191.
CERTAIN
INFORMATION CONCERNING PARTICIPANTS
Tier,
its directors and named executive officers may be deemed to be participants in
the solicitation of Tier’s security holders in connection with its 2010 Annual
Meeting. Security holders may obtain information regarding the names,
affiliations and interests of such individuals in Tier’s Annual Report on Form
10-K for the year ended September 30, 2009 filed with the SEC on November 10,
2009, as amended
4
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
5
by an
amendment to the Form 10-K filed with the SEC on January 28, 2010, as well as
its upcoming Proxy Statement for the 2010 Annual Meeting (when
available). To the extent there have been changes in Tier’s 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 - EVP and Chief Operating Officer; Ron Johnston -
Chief Financial Officer; and Keith Kendrick - SVP of Strategic
Marketing. Today’s call will begin with Ron Rossetti, Chairman and
Chief Executive Officer. Ron.
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Ronald
Rossetti:
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Thank
you, Liz, and 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 the biller direct market with our Electronic
Payments Solutions, or EPS business. For an update on our
progress against our goals, I have asked Nina Vellayan, our EVP and COO,
to
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5
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page 6
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 Ron’s 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 Company’s 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. We’re talking to Discovery Group about a possible
amicable resolution. Given the current status of those talks, I can’t
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
6
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
7
$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 in the call.
Even in
these difficult economic conditions, where over 60 percent 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 5.
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.
7
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page 8
There
are two points about our financial performance I would like to bring to your
attention: (1.) the quality of our earnings is improving; and (2.)
the leverage in our fixed-cost platform is now becoming evident in our financial
results.
Quality of
earnings: 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 ($1.0)
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 FY2009 to $482,000 in this quarter, or a decline of $395,000.
Overall, adjusted EBITDA from Continuing Operations increased to $1,255,000 for
the quarter, an increase of $1,387,000 over last year’s quarter, of which 128
percent of the improvement is attributable to the growth in our core EPS
business. Chart 7 provides a breakdown of adjusted EBITDA contribution for
the first quarters of FY 2010 and FY 2009.
Leverage of our
platform: Our EPS Gross Revenue grew 13.0 percent for the
quarter as compared with the prior year quarter. Our EPS Net Revenue
for the quarter grew 29 percent, or $2.2 million over the prior year period, and
importantly, adjusted EBITDA from EPS Operations grew by
8
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
9
$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 a
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 percent of the $9.9 trillion personal consumption expenditures in
the United States. Please see Chart 8. Third,
independent market research firm AITE recently updated its market assessment for
the biller direct market. In Chart 9, you can review their forecast
which shows consumer bill payment trends for 2009-2012:
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bill
payment by mail declines 11 percentage
points,
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consolidator/bank
web site payments growing by 4 percentage points,
and
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the
biller direct category growing the most - from 24% to 31% of all bill
payment transactions.
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Driving
this trend is the desire of billers to maintain their customer relationships,
the breadth of payment choices that
9
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
10
biller
direct channels can provide, and certain consumer demographic groups who chose
to deal directly with those they owe funds rather than trusting their bill
payments to a single, third party.
I’ll
now turn the call over to Nina Vellayan to provide additional information about
our activities in sales, marketing, and operations.
Nina
Vellayan:
Thank
you, Ron, and good afternoon everyone.
During
the rest of fiscal 2010 we intend to focus on the following key
objectives:
· Continue
consolidation of our various platforms;
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Add
new products, payment options and payment channel
delivery;
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Increase
share in the biller direct market;
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Maintain
financial stability; and
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Improve
profitability.
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Consolidation of
platforms: We intend to continue with our platform
consolidation efforts started in fiscal 2009. We completed the
consolidation of our back-office operations in
10
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
11
FY 2009
and the consolidation of our datacenters is on schedule. Our primary
datacenter in Norcross, GA is fully operational with our Tulsa site 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 we are on
schedule to provide an ACTIVE/ACTIVE environment in the coming
months. With our back office consolidation complete and our
datacenter consolidations on schedule, we are focusing 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 we will
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 2010 and it is this effort that will provide
further cost reduction opportunities in calendar 2011 and beyond.
Add new products, payment
choices, and payment channel delivery: 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 begin adding
new products, payment choices and payment
11
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
12
channels. Chart
10 provides an overview of a Biller Direct Solutions offering. Our
newest payment channel, walk-up locations for cash payment of bills, offers a
new end-user option that we anticipate will eventually exceed 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 percent 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.
Increase share in the biller
direct market: 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, environments. We offer our clients a front-end
platform designed expressly for the biller direct market with a single source
solution that simplifies electronic payment management. Our solutions
include
12
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
13
multiple
enhanced payment services, including consolidation of income payments, bill
presentment, convenience payments, installment payments and flexible payment
scheduling. We also offer our clients a range of payment choices
including credit and debit cards, electronic checks, cash and money orders, and
emerging payment methods to meet the needs of their customers. 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 these fastest growing,
stronger margin verticals: Education and Utilities. In
Education, we added Coastal Carolina College in North Carolina, Western
University of Health Sciences, and California College of the Arts in California
will begin collecting tuition and fees this Spring. We are 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, GA and
13
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
14
Lancaster
County Tax collections in Pennsylvania. Additionally, we
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 ten 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 strength in categories beyond government tax
collections. 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 the strategic review, we committed to shift from a sales to a
market-based strategy. We have started an ongoing upgrade of our
strategic information systems to allow us to establish direct relationships with
end-users of the company’s 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
14
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
15
focus
was to establish direct relationships with end-users by introducing an expanded
My Account functionality and presenting it with a persistent presence throughout
our branded website. A screen shot 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 percent and Opt-in registrations by more than 550
percent. As we enter this 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 Blog Spot.
Maintain financial
stability: With the current market conditions, financial
stability is critical to the success of any company. Tier is
dedicated to pursuing profitable growth. Growth in some cases
includes additional costs attributable to acquisitions or expenses to enhance
processing technology. Investments are carefully analyzed before we
commit funds to any new internal or external opportunity.
15
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page 16
Improve
profitability: All of the key objectives above are directed
toward our overriding goal, to reach and continuously increase the profitability
of Tier.
I look
forward to addressing your questions later on this call. For now,
I'll turn the call over to Ron Johnston to discuss the first quarter financial
results.
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Ron
Johnston:
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Thanks,
Nina.
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Results
from Continuing Operations for the quarter reflected total revenues of $32.8
million, up 10.2% from the same quarter last year.
During
the quarter, we processed over $2.2 billion of payments, which represent a 23.8%
increase versus the same quarter last year. This increase was driven
by a 65.0% increase in transaction volume.
EPS
Gross Revenue for the quarter was $31.9 million. Revenue growth of
13.0% in EPS was driven by increases in payments processed for educational
institutions and the continued effect of the ChoicePay acquisition.
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Gross
margin for Continuing Operations, which we calculate by subtracting our direct
costs from our gross revenues, was
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Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
17
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 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 onetime 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
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
17
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
18
Operations
less revenue from our Wind-down operations, discount fees, processing and
interchange costs. Chart 5 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 6 and Chart 7 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. See Charts 5, 6 and 7 for the supporting financial
schedules and reconciliation to GAAP figures. Tier’s management
believes these non-GAAP financial measures are useful for
18
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
19
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 a substitute for the reported results prepared
in accordance with GAAP. Tier’s 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.
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
Company’s headcount at December 31, 2009 was 209 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.
19
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
20
Ronald
Rossetti:
Thanks
Ron.
Looking
ahead, we will continue our policy of not providing guidance on revenue
growth. While we are not 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, state and local tax-based businesses, 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 year trends. 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.
20
Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
21
As you
reflect on our progress against our strategy, I would urge each of you to
consider the following:
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Nina’s
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 breakeven point, after interchange and processing
expenses, will fall directly to the bottom
line.
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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.
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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
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Exhibit
99.2
TIER
TECHNOLOGIES
Moderator:
Ronald Rossetti
Page
22
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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 that the
initiatives that we are pursuing offer the best means for increasing
long-term value for all of our
shareholders.
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Liz
Bowman:
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Thank
you, Ron. 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 concludes our earnings release call for the first
quarter of FY2010 for Tier
Technologies.
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