1
PRESENTATION
Slide 1
[S1 Logo]
S1 Corporation: Comments on Expected Fourth Quarter Results
Jaime W. Ellertson, CEO
Robert F. Stockwell, CFO
January 18, 2001
Slide 2
[S1 Logo]
Forward Looking Statement
The statements contained in this presentation that are forward-looking are based
on current expectations that are subject to a number of uncertainties and risks,
and actual results may differ materially. These forward-looking statements are
not guarantees of future performance and are subject to risks and uncertainties
that could cause actual results to differ materially from the results
contemplated by the forward-looking statements. These risks and uncertainties
include, but are in no way limited to:
- - the possibility that actual fourth quarter results will differ from
these preliminary results;
- - the possibility that the anticipated benefits from our acquisition
transactions will not be fully realized;
- - the possibility that costs or difficulties related to our integration of
acquisitions will be greater than expected;
- - our dependence on the timely development, introduction and customs
acceptance of new internet services;
- - rapidly changing technology and shifting demand requirements and
internet usage patterns;
- - other risks and uncertainties, including the impact of competitive
services, products and prices, the unsettled conditions in the internet
and other high-technology industries and the ability to attract and
retain key personnel; and
- - other risk factors as may be detailed from time to time in our public
announcements and filings with the SEC, including the Company's annual
report on Form 10-K for the year ended December 31, 1999.
2
Except as required by law, S1 will not update forward looking statements over
the course of future periods.
For questions related to this information, contact Sam Perkins, S1 Investor
Relations at (404) 812-6671. Please contact Sandy Mitchelson at (404) 812-6426
to obtain a copy of the Annual Report on Form 10-K.
Slide 3
[S1 Logo]
Agenda
- - Expected Fourth Quarter Financial Range
- - Reasons for Fourth Quarter Performance
- - Business Outlook for 2001
- - Q&A
Slide 4
[S1 Logo]
Financial Range - 4Q00 (Estimate)
in $000,000s, except where noted
High Estimate Low Estimate
------------- ------------
Revenue 60.0 60.5
Expense 85.0 88.5
EBITDA (25.0) (28.0)
Slide 5
[S1 Logo]
Fourth Quarter Performance
3
- - Edify: Platform Consolidation
- - VerticalOne Transaction
- - Technology Consolidation
- - Corporate Restructuring
- - EMEA: Data Center Operational in Fourth Quarter
- - New Management
- - Other Reserves
Slide 6
[S1 Logo]
Business Outlook
FINANCIAL
- - Committed to Consensus EBITDA breakeven in Fourth Quarter 2001
- - Strides with Large Financial Institutions
INFRASTRUCTURE
- - Business Planning
- - Upper Management Changes
Slide 7
[S1 Logo]
Thank you for your time
S1 will provide an updated view of the fourth quarter when it announces fourth
quarter results on Tuesday, February 13.
For more information:
http://www.s1.com
Transcript of Conference Call
4
SAM PERKINS, VP OF IR - INTRODUCTION - S1 FOURTH QUARTER 2001 CONFERENCE CALL
Thank you, operator. And, Thank you all for joining us on the conference call
this morning. I am Sam Perkins, Vice President, Investor Relations at S1. With
me are Jaime Ellertson, Chief Executive Officer and Bob Stockwell, Chief
Financial Officer.
The press release has been sent out in advance. In particular, the press release
was blast faxed to everyone and went across the wire at 6:50 a.m. this morning.
Additionally, the entire presentation will be posted on the Web at
www.s1.com/q4comment. The web address is case sensitive and it is all lower
case. Again, it'll be on the Web at www.s1.com/q4comment. We will be referring
to this information during the conference call.
The first item on the agenda is to remind everyone that we'll be making
forward-looking statements that are conditioned on the information that will be
posted and contained on the slide provided. Please note that we will review
actual fourth quarter 2000 performance on our regularly scheduled conference
call on February 13
I will briefly review the agenda. Please go to the next slide. Bob Stockwell
will address the Fourth Quarter Financial Range and provide an overview of the
Reasons for Fourth Quarter Performance. Bob will then hand it over to Jaime
Ellertson, S1's CEO. Jaime will address the remaining issues related to the
Reasons for Fourth Quarter Performance and conclude with the Business Outlook
for 2001. Following Jaime's comments we will open for a brief Question and
Answer session.
ROBERT F. STOCKWELL, CFO - COMMENTARY ON FOURTH QUARTER OF 2000
As you have read in the press release issued this morning, we are announcing the
following operating results:
Revenues for the fourth quarter are expected to be approximately $60 to 60.5
million. Expenses are expected to range from $85 million to $88.5 million,
resulting in an EBITDA loss range from $25 to $28 million. The EBITDA loss per
share is expected to be 44 to 50 cents per share.
The fourth quarter results were impacted by three previously announced events
during the period, as follows:
1. The announced merger of VerticalOne with Yodlee - which impacted both
revenue and expenses in the fourth quarter;
2. The announced sun-setting of the Edify Retail Banking platform - which
had revenue and expense impact, as well as restructuring charges; and
3. The addition of a new CEO and other management experience.
I want to briefly review the major items that have resulted in an increase in
the EBITDA loss. These items include:
5
- - The sunset of the Edify platform had an overall impact of $4 - $6
million. This includes both lower revenues and increased reserves.
- - A change in - and further consolidation of - technology platforms and
worldwide systems had a impact of $2 to $3 million on the fourth
quarter.
- - As a result of the pending merger between VerticalOne and Yodlee, we
made a greater investment in the operations of VerticalOne during the
fourth quarter, amounting to approximately $2 million.
- - In the fourth quarter, the EMEA operations brought the new data center
online resulting in an incremental $1.5 million in cost.
- - In addition, we made substantial headway in changing the operating
structure of the organization during the fourth quarter resulting in
one-time costs of approximately $1.5 million; and
- - And, we have increased our cost estimates on a variety of other
miscellaneous items amounting to approximately $1 million.
I will note that in most instances, the changes in cost did not have a material
impact on cash usage in the fourth quarter.
In addition, we are revising or updating our estimates on a number on other
non-cash items below the EBITDA line.
Subsequent to our announcement of the restructuring in November, we completed a
detailed analysis of our office facilities around the world and determined that
we could consolidate operations and significantly reduce floor space. As a
result, we are increasing the restructuring charge estimate from $5 million to
approximately $10 million to cover the cost of disposing of unneeded facilities.
Additionally, we are assessing the balance of goodwill on the books and
anticipate we will write-off up to an additional $230 million in goodwill and
other non-cash charges.
During the fourth quarter, the company used approximately $40 million in cash
and as of year-end has approximately $175 million available to fund operations.
Jaime will discuss a number of major initiatives that are already well under way
which will reduce cash outflows going forward.
JAIME ELLERTSON, CEO - COMMENTARY ON S1 BUSINESS OUTLOOK
As you may know I joined S1 at the end of November and am just past the half way
mark of my first 100 days. This is actually the first opportunity I have had to
speak with the investment and shareholder community as S1's CEO. Before
launching into my comments relating to today's announcement, I'd like to
introduce myself. Over the past 20 years I have led numerous software and high
technology companies and have led toward high growth. Most recently I took over
at Interleaf, a NASDAQ listed company and led its successful turn around into
one of the leading XML application companies. Early last year we agreed to sell
Interleaf to Broadvision. Over the past year, I led
6
Broadvision's strategic business operations and focused extensively on leading
financial customers and certain new technologies. My arrival at S1 came after a
careful review of the opportunities and challenges the company faces going
forward.
Now, with that background, let me discuss further the operations and business
environments that resulted in our fourth quarter performance.
Let's start with platform consolidation. As Chip Mahan commented to you during
the third quarter conference call, we chose to sunset our Edify Retail Banking
System, which will result in lower cost in 2001 and beyond. However, as a result
of the RBS sunset, some Customers put their projects on hold. This resulted in
substantial reduction in revenue from RBS customers in the fourth quarter.
However, it does not mean that these customers will not continue as S1 customers
or ultimately migrate to other S1 platforms. It just means that the sunset of
the Edify RBS system allowed them to step back from their implementation
schedules and evaluate a new migration to other platforms in future quarters.
Next, let me discuss the VerticalOne - Yodlee transaction. When our deal with
Yodlee was announced in the fourth quarter, it effectively froze the aggregation
market in a quarter where technology purchases typically are the highest. Not
only did this result in lower sales, but with the pending merger with Yodlee, we
continued to make substantial investments in the core operations of VerticalOne
through the closure of the transaction. We remain very excited about the core
technology and the benefit the VerticalOne - Yodlee combination offers to the
financial services market place. The combination of VerticalOne and Yodlee
uniquely positions S1 now as a significant shareholder in the category killer.
As you are probably aware, that deal closed yesterday as did Yodlee's additional
round of financing.
In terms of our technology platform, we continue to implement our Open eFinance
Architecture and have received positive feed back from industry analysts and
customers. Such an initiative helps strengthen our market position for the
long-term. Our Open eFinance Architecture is a strategic and fundamental
initiative for S1 during this year because it allows us to consolidate multiple
platforms and streamline our business operations. A number of the expenses
relating to this initiative were incurred in the fourth quarter.
Turning to operations, we developed a more focused operating structure in the
fourth quarter by establishing the Edify Voice Recognition and Customer
Interaction group unit as a strategic business unit which will allow us to align
that group's efforts to maximize sales synergies and motivate employees. The
legal and employee costs related to this SBU occurred and were substantially
expensed in the fourth quarter.
Internationally, we continued our expansion in both EMEA and APAC regions. The
seeding of core international managers resulted in expatriate expenses that were
completed and expensed during the fourth quarter. Also in the fourth quarter,
our data center in EMEA went on line. The capital employed in the EMEA data
center leads to
7
revenue today and more in the future. But, the costs of bringing the data center
into operation with staffing and equipment were greater than our original
estimates. Finally, as you know, we hired a new CEO during the fourth quarter.
As you might guess, the search and relocation costs for Sr. executives are not
insubstantial. In addition to my new post, we are going to augment our
management team at S1 and we have aggressively taken steps to do so in the
fourth quarter. We will be hiring several new senior managers. As an example, we
are well under way toward obtaining new senior executives in the two key
positions of Chief Financial Officer and Sr. Vice President, Marketing. Early in
my tenure Bob and I discussed my needs and came to the mutual decision that S1
should commence its search for a new CFO. Bob has served S1 well during his
tenure here but we are now well underway with this search. With regard to
marketing, we will be establishing a new position of Senior Vice President,
Marketing to lead both product management and Marketing/Communications (MarCom)
for S1. This individual will help create a more dominant S1 brand and unify our
enterprise eFinance application offerings. This search is also well underway. In
addition to these two senior level searches we have also pressed ahead with
identifying people that will fill the new positions of Vice President,
World-Wide Channels and Vice President Customer Support. I am happy to report
that the Vice President Customer Support has already been filled. These
management level activities are indications of our commitment to improved
operating performance and efficiencies. The majority of these expenses related
to these executives occurred in the fourth quarter.
Now, I would like to turn to our business outlook for 2001. As we begin fiscal
year 2001, S1 is positioned in an exciting market with a combination of
challenges and significant opportunities. Today, I want to make some very
general observations, only, as you know we have a full fourth quarter conference
call scheduled for February 13, 2001. I joined S1 because, of any company that
offers products and services in the eFinance space, there are none, that I am
aware of, that have the same depth and breadth of capabilities now possessed by
the S1 eFinance suite. We are seeing a rapid convergence among banks, insurance
and investment management companies, which is blurring, the business boundaries
in this market place. This convergence is driving financial institutions to
think more about an integrated end-to-end eFinance offering which will help them
grow revenues and less about basic transaction processing. S1 is focused on
enabling our customers to deliver an integrated eFinance experience. Helping our
customers create this experience across their complete financial products that
span the Enterprise will be our focus for 2001.
I want to affirm that I am committed to driving S1 to EBITDA breakeven in 2001.
My personal expectation for S1 is to get there sooner, but we must get there no
later than the fourth quarter of 2001. Better management of our cash resources
and drive toward positive EBITDA are cornerstones in our 2001 business plan. My
compensation and the entire executive team's compensation is aligned with these
cornerstones.
On the revenue side, our new and existing customers must drive our revenue. As
previously discussed, in the fourth quarter our EMEA data center signed new
major customer commitments for the Consumer Suite. These multiyear consumer
suite
8
opportunities will provide revenue growth in 2001. In the United States, our NT
based Community and Regional banking product (that's our Q-UP application) had a
great quarter and signed 60 new bank contracts with financial institutions. Our
community and regional banking product continues to demonstrate it is the
customer's choice for packaged applications, repeatedly winning over competitors
who offer tool-kit or build your own products in-house. And, the health of S1's
Edify Call Center, Customer Interaction and Voice Recognition solutions (you
will hear us call it Customer Interaction) channel continue to make headway in
the financial market place. S1's customer interaction and voice recognition
solutions strategy was validated in the fourth quarter as Fleet signed a $1.8
million contract to implement that solution by the third quarter of 2001. That
deal was significant because it demonstrates the breadth of our enterprise
eFinance initiative from NT based internet banking to integrated eFinance
applications of insurance, investment, small business to platform and customer
interaction solutions. Fleet has now purchased from S1 both our voice
recognition/customer interaction solution as well as our corporate/small
business products. In 2001 you will see us drive toward growing revenue from new
customers as well as broader application penetration in existing customers,
further validating our enterprise eFinance strategy.
To sustain this company though, our focus must be on our infrastructure too. We
are focusing on our business planning. When we finish that plan, we intend to
work it. To do so, we must augment the bench strength of our management team
that I have already discussed. We are building greater rigor and discipline into
our business planning activities. Growing our business, managing our operations,
delivering our new technology platform, all drive S1 toward profitability, in
other words, with our plan we must now execute!
Before turning this back to Sam for questions, I want to make a final personal
comment. After being here a little more than 50 days, I appreciate even more
what I believed to be true as I assessed S1 before accepting this position. I
see the opportunity to build on an existing and strong technology foundation, on
a committed employee team and in an environment of creative vigor. I look
forward to demonstrating that promise in future results.