Open Solutions Inc. (Nasdaq: OPEN), a provider of integrated enabling technologies for financial institutions across the United States, Canada and international markets, today reported financial results for the three months and nine months ended September 30, 2006.
Revenues for the third quarter of 2006 increased 118 percent to $107.3 million, from $49.2 million for the third quarter of 2005. Revenues for the nine months ended September 30, 2006 increased 110 percent to $281.1 million, from $134.0 million for the same period of the prior year. GAAP net income per diluted share for the third quarter of 2006 decreased 6 percent to $0.17 per diluted share, from $0.18 per diluted share for the third quarter of 2005. GAAP net income per diluted share for the nine months ended September 30, 2006 increased 14 percent to $0.57 per diluted share, from $0.50 per diluted share for the same period of the prior year. GAAP net income per diluted share was impacted during the third quarter by an increase in contracts signed with license revenues that are required to be recognized in future service periods as well as an increase in transaction-related costs that were expensed. In addition, the effective tax rate for the company increased to 44 percent for the three months ended September 30, 2006, from 38 percent for the same period of the prior year, due primarily to the company's inability to deduct certain stock compensation expense for incentive stock options under FAS 123R in this quarter.
Earnings before interest, taxes, depreciation, amortization, stock compensation expense and nonrecurring gain as a result of an acquisition (adjusted EBITDA) for the third quarter of 2006 increased 210 percent to $28.5 million, from $9.2 million for the third quarter of 2005. Adjusted EBITDA for the nine months ended September 30, 2006, increased 170 percent to $70.4 million, from $26.1 million for the same period of the prior year. Net income per diluted share adjusted for stock compensation expense and nonrecurring gain as a result of an acquisition (non-GAAP net income) for the third quarter of 2006 increased 33 percent to $0.24 per diluted share, from $0.18 per diluted share in the third quarter of 2005. Non-GAAP net income per diluted share for the nine months ended September 30, 2006 increased 24 percent to $0.64 per diluted share, from $0.52 per diluted share for the same period of the prior year. A reconciliation of EBITDA, adjusted EBITDA and non-GAAP net income follows later in this release.
Open Solutions' Chairman and CEO Louis Hernandez, Jr. said, "While there were factors that impacted our third quarter earnings, we continued to see strong demand for Open Solutions' full suite of financial industry-focused products and services in the quarter. Our total revenue increased by 118 percent and our total signed contract value increased by 17 percent over the same three-month period in 2005, and we maintained strong cash flow performance in the quarter. We believe that this momentum demonstrates our industry's continuing shift toward more advanced, person-centric applications such as ours."
Third Quarter 2006 Highlights
- Signed new contracts valued at $46.3 million in the third quarter of 2006 compared to $39.5 million in the third quarter of the prior year, representing an increase of 17 percent over the prior year. We define contract value as total revenues to be received over the life of the contract for all elements of the contract, including license, hardware, installation, maintenance and other services, and do not include contract renewals in this figure. License revenues were $9.7 million in the third quarter of 2006, a 10 percent increase over the third quarter of 2005, excluding the $3.3 million of BISYS license revenues recognized that quarter. While we no longer recognize license revenue from BISYS subsequent to the acquisition of BISYS Information Services, we recognize increased data center revenues.
- Recurring revenue for the third quarter of 2006 was 77 percent of total revenue compared to 65 percent for the third quarter of 2005. We define recurring revenue as revenue from maintenance and data center hosting contracts and quarterly minimum payments from our resellers.
- Announced that ESL Federal Credit Union, a U.S. based credit union with $2.8 billion in assets, Eastman Credit Union, a U.S. based credit union with $1.6 billion in assets, and G&F Financial Group, a Canadian based credit union with CDN $875 million in assets, have selected Open Solutions to handle their enterprise-wide data processing needs.
- Announced that we expanded our existing partnership with Celero on a comprehensive suite of strategic products resulting in $21.7 million in additional total contract value to Open Solutions.
- Released version 2006.1 of our enterprise-wide processing platform which upgraded core features, incorporated .NET architecture, introduced our shared application framework and improved end-user navigation, further improving scalability, security, connectivity and workflow.
- Introduced our Regulatory Management Toolkit, which is designed to help financial institutions respond to evolving regulatory compliance requirements and higher regulator expectations.
- Added Ross Curtis as Executive Vice President, Group Sales to lead domestic sales and account management organizations for Open Solutions' banking, credit union, complementary and imaging product groups.
Activity Subsequent to September 30, 2006
- Announced that Open Solutions, The Carlyle Group and Providence Equity Partners signed a definitive agreement under which The Carlyle Group and Providence Equity Partners will acquire Open Solutions in a transaction valued at over $1.3 billion (including the assumption of debt) and whereby Open Solutions' stockholders will receive $38.00 in cash for each share of Open Solutions common stock. This transaction is expected to close in the first quarter of 2007.
- Added Robert Pinataro as Vice President and General Manager of our Corporate Financial Solutions Business, which provides outsourced processing services for Health Savings Accounts (HSAs), Asset Retention Services (ARS), Broker Dealer Banking Services (BDBS) and Corporate Money Management Account Services (CMMAS).
2006 Business Outlook
Our third quarter GAAP EPS results were below our previous guidance range by $0.03 to $0.05 per share on a fully diluted basis. We attribute $0.02 to $0.04 of this to the mix of service and license revenues recorded during the quarter, new license revenues signed within the quarter containing substantive service commitments that will be deferred and recognized in future service periods, and the increase in our effective tax rate. We do not anticipate recapturing this amount in 2006. Also, approximately $0.01 of the shortfall was due to costs related to the pending transaction with The Carlyle Group and Providence Equity Partners that were expensed during the third quarter. We expect that there will be substantial additional costs associated with this transaction that will be expensed in the fourth quarter. In light of this, we are not providing further guidance for 2006 nor are we updating our prior 2006 guidance.» Download the document now 39.4 kb (Adobe Acrobat Document)