Online Resources to restate Q3 results; reports Q4 loss

Source: Online Resources

Online Resources Corporation (Nasdaq: ORCC), a leading provider of web-based financial services, today reported financial and operating results for the three months and full year ended December 31, 2006.

The Company also announced that it will restate its third quarter 2006 financial statements to properly account for its convertible preferred stock.

The following results include the impact of the acquisition of Princeton eCom on July 3, 2006, and reflect the introduction in 2006 of accounting changes (for equity compensation and tax expense) and acquisition financing costs, not included in 2005.

Fourth Quarter 2006
  • Revenue for the fourth quarter of 2006 was $29.4 million, up 86 percent from $15.8 million in fourth quarter 2005.
  • Earnings before interest, taxes, depreciation and amortization (Ebitda), a non-GAAP measure, was $7.3 million, compared to $3.9 million in the prior year. Ebitda per share was $0.23, up 64 percent from $0.14 per share in 2005.
  • Net loss available to common stockholders was $2.7 million, or $0.11 loss per share. This compares to net income of $16.5 million, or $0.60 per fully diluted share, in 2005 (which included a one-time tax-related benefit of $0.50 per share).
  • Core net income (after preferred dividends), a non-GAAP measure, was $0.8 million, or $0.03 per share after an approximate $0.17 per share impact from accounting changes and acquisition financing costs. In fourth quarter 2005, core net income was $3.0 million, or $0.11 per share.


Full Year 2006
  • Revenue for full year 2006 was $91.7 million, a 52 percent increase over full year 2005 revenue of $60.5 million.
  • Ebitda was $20.5 million, compared to $13.9 million in the prior year. Ebitda per share was $0.70, up 30 percent from $0.54 per share in 2005.
  • Net loss available to common stockholders was $4.0 million, or $0.16 loss per share. This compares to net income of $22.7 million, or $0.88 per fully diluted share, in 2005 (which included a one-time tax-related benefit of $0.53 per share).
  • Core net income (after preferred dividends), a non-GAAP measure, was $4.3 million, or $0.16 per share after an approximate $0.39 per share impact from accounting changes and acquisition financing costs. For full year 2005, core net income was $9.4 million, or $0.36 per share.


"It was an upbeat close to a landmark year for Online Resources," stated Matthew P. Lawlor, chairman and chief executive officer of the Company. "Strong operating fundamentals drove higher than expected core earnings in the fourth quarter. Revenue growth was mitigated by the previously announced client loss on the Princeton platform, but we showed excellent cost discipline."

The Company reported that the cost-related portion of the Princeton eCom integration was substantially complete. Lawlor stated, "We are already seeing leverage from the acquisition. For the quarter prior to the acquisition, the combined pro forma Ebitda margin for the two companies was 19 percent. We closed the year at 25 percent Ebitda margin, and are on track to achieve our goal of at least 30 percent by year-end 2007."

Lawlor added, "Put into context, it was an exemplary year for the Company. In one stroke, we achieved almost three years of strategic and product plans with the acquisition of Princeton eCom. On the operating side, despite heavy integration demands, we grew core earnings by 50 percent after factoring out accounting changes and the acquisition financing. With our transformational moves behind us, we are primed to drive shareholder value in 2007 and the years beyond."

2006 Highlights

Achieved record revenue, growing 52 percent, marking the 8th consecutive year as a public company with double-digit revenue improvement;
  • Recognized as one of the 100 fastest growing small businesses by Fortune magazine, based on growth in earnings, revenue, and stock performance over the past 3 years;
  • Recognized by Forbes magazine, for the second year in a row, as one of the nation's top 25 fastest growing publicly-traded technology companies.


Substantially improved underlying operating profitability, with the 4th consecutive year of Ebitda growth greater than 15 percent;
  • 48 percent increase in Ebitda, and 30 percent increase in Ebitda per share;
  • Profitability driven by 21 percent increase in (12 month) same store consumer bill adoption with a parallel 15 percent decrease in recurring cost per billpay user;


Achieved multiple strategic goals through the successful acquisition of Princeton eCom;
  • Established position as top bill payment provider to small- to mid-size institutions and as second overall, including 10 of the 50 largest banks;
  • Became the industry's largest biller network, with 250 billers and 2100 biller endpoints;
  • Created a unique end-to-end bill payments network, combining the acquired biller network with the Company's proprietary real-time links to virtually all U.S. checking accounts;
  • Substantially increased consumer end-users to 9 million and payments processed to over 175 million transactions annually; and
  • Poised the Company for numerous revenue and additional cost synergies;


Further distinguished the Company as an innovator;
  • Received Collections Technology Excellence Award from Collections Technology News, and signed four top U.S. credit card issuers for the web-based service.
  • Implemented the industry's only fully integrated risk-based authentication solution within regulator's requested timeframe;
  • Developed concept and launched Card HQ, a unique online stored value service enabling consumer purchase of retail gift cards through banking client web sites;
  • Extended client deployment options beyond ASP to include on-premise software and hosted custom applications;
  • Expanded the unique marketing capabilities to drive consumer adoption for clients; and
  • Introduced mobile banking and payment service.


Adoption of SAB 108 and Changes to Prior Period Financial Statements

The Company has adopted the transitional provisions of SAB 108 to correct an error for prior period revenues that should have been deferred. The effect of adopting SAB 108 has adjusted the Company's January 1, 2006 balance sheet by reducing retained earnings and increasing deferred revenues by $1.4 million. The effect of the adoption on the Company's 2006 revenues and earnings is not material.

The Company also announced that as a part of its 2006 year end close process, it determined that it had improperly accounted for its convertible preferred stock and a related embedded derivative. As a result, the Company will restate its third quarter financial statements within its 2006 Annual Report on Form 10-K. The restatement will reduce third quarter net income available to common shareholders by $0.02 per share and core net income by $0.01 per share. It will have no impact on Ebitda or the Company's cash position. The impact on the Company's balance sheet as of September 30, 2006 will be a reclassification from preferred stock to other liabilities of approximately $2.2 million. Please refer to our Current Report on Form 8-K for additional information.

2007 Business Outlook

The Company has updated its guidance for first quarter and full year 2007 by: 1) increasing full year core net income by $0.01 per share to reflect a better than expected interest rate on debt, 2) increasing net loss to common by $0.02 and $0.05 per share for the first quarter and full year, respectively, to reflect the positive net impact of the interest savings offset by changed accounting treatment for preferred stock, and 3) reducing revenue for the full year to reflect the earlier than expected departure of a client. The new guidance reflects the Company's revised definition of core net income, which now includes preferred stock accretion, except for the portion that the Company believes is unlikely to ever become payable. Prior periods have been recalculated and presented on a comparable basis. This guidance includes the write-off of approximately $5.5 million in fees and other expenses associated with the Company's debt refinancing. These statements are forward-looking, and actual results may differ materially.

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