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EXHIBIT 99.2
SLIDE 1
SECURITY FIRST TECHNOLOGIES
Third Quarter Teleconference
James S. (Chip) Mahan, III, CEO
Daniel H. Drechsel, COO
Robert F. Stockwell, CFO
November 2, 1999
[S1 LOGO]
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SLIDE 2
FORWARD LOOKING STATEMENT
THE PRESENTATION MAY INCLUDE A DISCUSSION OF CERTAIN SUBJECTS THAT WILL
CONTAIN FORWARD-LOOKING INFORMATION, INCLUDING PROJECTIONS ON REVENUES,
EXPENSES, CASH FLOWS, PRODUCT ROLLOUTS AND PRODUCT PRICING. INFORMATION
CONCERNING FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS IN THIS
PRESENTATION ARE AVAILABLE IN THE COMPANY'S MOST RECENT ANNUAL REPORT ON
FORM 10-K.
Please contact Sandy Mitchelson at 404-812-6426 to obtain a copy of the
Annual Report on Form 10-K.
For questions related to the information contained within this
presentation, contact Bob Zwerneman, V.P Investor Relations at
404-812-6225.
[S1 LOGO]
We welcome you all to the third quarter earnings conference call. We also want
to welcome any listeners on Vcall on the Web. With me is Chip Mahan, our CEO and
Dan Drechsel, our COO. Also with us today is Bob Zwerneman, our newly appointed
V.P. of Investor Relations.
The presentation materials we will be reviewing have been faxed out to everyone
in advance. If you have not received the presentation materials, please call
Anita Mazur at 480-614-3021. Additionally, the entire presentation is on the Web
at www.s1.com/q399.
The first item on the agenda is to remind everyone that we will be making
forward looking statements which are conditioned on the information noted on
slide 2.
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SLIDE 3
AGENDA
- Third Quarter Financial Review
- Merger Update
- Operational Update
- Integration Update
[S1 LOGO]
If you will now turn to the third slide, I will briefly review the agenda. I
will review the financial highlights of the quarter, cover some brief details
related to the forthcoming mergers, then Dan will review the operations for the
quarter and comment on our integration initiatives.
Chip will review the integration of the four companies.
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SLIDE 4
FINANCIAL RESULTS
(AS REPORTED)
ACTUAL CONSENSUS VARIANCE
------- ----------- ----------
TOTAL REVENUE 24.8 16.7 8.1
DIRECT COST 15.2 9.2 (6.0)
------- ------- --------
GROSS MARGIN 9.6 7.5 2.1
OPERATING EXPENSES 9.7 8.1 (1.6)
GOODWILL & ACQUISITION CHARGES 1.9 0.1 (1.8)
------- ------- --------
EBITDA (2.0) (0.7) (1.3)
DEPRECIATION & AMORTIZATION (1.5) (1.3) (0.2)
INTEREST INCOME 0.8 0.5 0.3
------- ------- --------
NET LOSS (2.7) (1.5) 1.2
------- ------- --------
LOSS PER SHARE (0.10) (0.05) (0.05)
LOSS PER SHARE* (0.03) (0.05) 0.02
[S1 LOGO]
*Excluding acquisition charges.
We are extremely pleased with the quarterly financial results both from a year
over year comparison and the sequential quarterly comparisons.
During the third quarter, revenues of $24.8 million greatly exceeded the
consensus by over $8.0million or by 47%. However, a good portion of this
performance was, in-part, elevated by a turnkey contract with major customers
where we sell third-party software and hardware which totaled slightly over $5.7
million.
Operating expenses, excluding integration expenses related to the announced
acquisitions of FICS and Edify, came in above the consensus estimate by
approximately $700 thousand. This increase in operating costs was primarily
driven the need to expand the infrastructure necessary to manage a global
company.
In addition, excluding the integration costs of $1.9 million, our EBITDA was
essentially break even at a negative $141,000 or a half million better than
consensus.
The net loss, net of the $1.9 million acquisition charges was $0.03 per share,
which was $0.02 per share better than expected.
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SLIDE 5
ANALYSIS OF 3Q RESULTS
(AS REPORTED VS. NORMALIZED)
"NORMALIZED"
REPORTED ADJUSTMENTS BUSINESS
-------- ----------- ------------
TOTAL REVENUE 24.8 (5.7) 19.1
DIRECT COST 15.2 (4.4) 10.8
------- ------- ---------
GROSS MARGIN 9.6 (1.3) 8.3
OPERATING EXPENSES 9.7 (1.1) 8.6
INTEGRATION EXPENSES 1.9 (1.9) -
------- ------- ---------
EBITDA (2.0) 1.7 (0.3)
D&A (1.5) - (1.5)
INTEREST INCOME 0.8 - 0.8
------- ------- ---------
NET LOSS (2.7) 1.7 (1.0)
------- ------- ---------
LOSS PER SHARE (0.10) 0.06 (0.04)
[S1 LOGO]
Because of the increase in Other Revenues and the significant charges we are
incurring to expand the company in anticipation of the acquisitions, we have
attempted to normalize the income statement for you on this slide. As I discuss
the various operating characteristics for the quarter, I will do so in relation
to the normalized income statement.
The left column presents the reported 3Q results. The column labeled
adjustments, takes into account the impact of:
(1) the effects of the unusually large other revenue line item of $5.7 million,
as well as the costs associated with that item of $4.4 million We consider the
sale of equipment and other items a normal part of our business which we
routinely provide for our customers. However, due to the significant amount in
this quarter, we have backed it out to more clearly reflect normalized
operations.
(2) the impact of sizing-up our business to capitalize on the global
infrastructure that we are building of slightly more than a million dollars
during the third quarter and
(3) the effects of the identifiable acquisition costs we incurred during the
quarter related to the Edify, FICS and VerticalOne acquisitions.
Giving effect to these adjustments, the EPS was a loss of $0.04 per share and
the adjusted EBITDA was approximately $300 thousand, or still nearly break-even.
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SLIDE 6
QUARTERLY YEAR OVER YEAR COMPARISON
(AS ADJUSTED)
- Total revenues up 233%
- Software licenses up 111%
- Services revenues up 294%
- Data center revenues up 124%
- Total operating expenses up 65%*
[S1 LOGO]
* Excludes goodwill amortization and acquisition costs
Our financial results continue to reflect not only the opportunity, but our
execution strategy. We believe the results are very impressive.
Comparing the third quarters, adjusted revenues are up 279% while expenses,
excluding goodwill and integration expenses, are up only 65%.
Professional services revenues were up 294% reflecting the large amount of work
being done to bring several major institutions online as well as new product
implementations for other existing customers.
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SLIDE 7
3RD QUARTER 1999 VS. 2ND QUARTER 1999
(AS ADJUSTED)
- Total revenues up 25%
- Services revenues up 35%
- Data center revenues level
- Total operating expenses up 23%*
[S1 LOGO]
* Excludes goodwill amortization and acquisition costs
Looking at sequential quarterly growth, we also continue to see excellent
progress.
Total adjusted revenues are up 25%, while adjusted operating expenses, excluding
goodwill and integration expenses, increased by 11%.
For the third consecutive quarter, software licenses remained stable at $2.3
million.
Professional services revenues were up 35% and the services gross margin
remained at 42% which is slightly above our target level for this line item.
This line item also includes product enhancement fees, or funded development of
approximately $3.1 million.
Despite very strong counts in our end-user numbers and accounts in our data
center, revenues at $2 .1 million were up only slightly over the second quarter.
Much of this is tied to our minimum fee structure which customers initially pay,
even when their customer counts have yet to establish themselves.
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SLIDE 8
GROSS MARGIN PERCENTAGES
Q3 98 Q4 98 Q1 99 Q2 99 Q3 99
- --------------------------------------------------------------------------------
SOFTWARE
LICENSES 98% 81% 94% 96% 96%
PROFESSIONAL
SERVICES 46% 41% 36% 41% 42%
DATA CENTER (109)% (21)% (9)% 1% (4)%
- --------------------------------------------------------------------------------
GROSS MARGIN
BEFORE OTHER 31% 42% 41% 44% 44%
OTHER 3% 9% 19% 15% 22%
- --------------------------------------------------------------------------------
TOTAL 27% 38% 40% 43% 39%
[S1 LOGO]
As I stated earlier, we continued to see a strong performance in our definable
gross margins, starting at 10% in the second quarter of 1998 and moving up to
44% in the second and third quarters of this year.
Our data center margins slipped back slightly tied to the additional expenses
associated with the new center we brought on-line in mid-August. We believe that
as we move into the first half of 2000 and our customers go live with their
programs, our data center margins should continue to trend higher.
As I previously noted, professional services remain above our target gross
margin of 40%.
Also of note is the margin on other revenues. As you can see, as we assisted our
customers in implementing turn key solutions, we were able to derive a 22%
margin on this activity.
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SLIDE 9
VFM USERS AS OF SEPTEMBER 30, 1999
GROWTH OVER AVERAGE
NUMBER SEP 30, 1998 REV/CUSTOMER
- --------------------------------------------------------------------------------
END USERS:
- ----------
DATA CENTER 163,000 112% 14.52
3(RD) PARTY DATA
PROCESSORS 71,000 847%
DIRECT LICENSES 209,500 213%
TOTAL 443,500 193%
- --------------------------------------------------------------------------------
ACCOUNTS 1,165,000 201%
[S1 LOGO]
During the quarter, end user customers increased to nearly 444 thousand, double
the number we hosted at the beginning of the year
The average revenue per customer decreased from $18.34 to $14.52 as a result of
42% increase in data center customers while revenues remained stable. We
continue to believe that as volume of accounts rises, it will naturally drive
the average revenue per customer down towards the $9-10 level during the next
several quarters.
If you will turn to the next slide which is a graph of accounts on VFM through
our data center, third party processors and direct licensees.
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SLIDE 10
[GRAPH OF TOTAL END USER CUSTOMERS]
Number
of End
Users 25,000 27,000 50,000 102,000 151,500 213,000 263,200 314,500 443,500
Quarter Q397 Q497 Q198 Q298 Q398 Q498 Q199 Q299 Q399
As you can see on the graph, the total number of accounts on VFM has broken
through the one million level and at the end of the quarter approached 1.2
million accounts.
The rate of growth in end users of the VFM product actually accelerated in the
third quarter and we anticipate that the growth in accounts will continue to
ramp higher for the foreseeable future.
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SLIDE 11
CASH FLOW
Q3 98 Q4 98 Q1 99 Q2 99 Q3 99
- --------------------------------------------------------------------------------
EBITDA (4.3) (4.0) (2.2) (1.3) (2.0)
EBITDA * (4.3) (4.0) (2.2) (1.1) (0.1)
CASH FROM (USED IN)
CONTINUING OPERATIONS 0.6 (3.5) 7.7 (10.2) (11.6)
PP&E (0.8) (0.6) (0.7) (3.3) (5.5)
EQUITY 10.7 2.8 1.9 67.5 (0.4)
INVESTMENT IN
VERTICALONE/FICS -- -- -- (6.0) (25.0)
[S1 LOGO]
*Excluding integration expenses
As we anticipated in the last call, the positive cash flow from operations in
the first quarter was reversed and we used $10.2 million to fund operations in
the second quarter and another $11.6 million in the third quarter. The cash
usage in the third quarter was driven primarily by an increase in accounts
receivable related to the growth in revenue and other balance sheet changes.
If we exclude the identifiable integration expenses, EBITDA continues to be on a
positive trend coming in at a negative 140,000.
As indicated in prior calls, we anticipated that S1 on a stand alone basis would
reach EBITDA break even on a recurring basis in the latter part of 1999. It
appears we would deliver on this expectation in Q4 if it were not for the
opportunities we have chosen with Edify, FICS and VerticalOne.
Also during the quarter, we expended approximately $5.0 million on the new data
center. In addition, as previously announced, we made a $15 million investment
in VerticalOne as well as funded the loan to FICS.
We ended the quarter with approximately $29 million available to fund
operations.
On a pro-forma basis, as of September 30, the four companies had approximately
$70 million in cash resources.
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SLIDE 12
MERGER UPDATE
- Received Hart-Scott-Rodino clearance
- Voting by EDFY and SONE shareholders in process - November 10
shareholder meetings
- Expect to complete/close mergers shortly after approvals by
shareholders
[S1 LOGO]
Very simply, we have received all regulatory approvals necessary for the mergers
to proceed.
Both our shareholders and Edify's shareholders are in the process of voting on
the proposed transactions, along with our shareholders who have been asked to
approve a name change to S1 Corporation. Special shareholder meetings are
scheduled to be held on November 10th for both companies and, assuming that the
votes are cast in favor of the transactions, we would expect to close on the
mergers very shortly afterwards.
I would to make one final comment about the future revenues of the company.
Earlier in the year we had provided guidance that the 2000 revenues would be in
the $240 - $260 million range. We are still comfortable with that guidance.
However, the estimate included revenues associated with both the Edify IVR
business and the FICS Financial Reporting Business. We are currently studying
our alternatives for those businesses.
In that regard, as most of you are aware, we are holding an analyst conference
here in Atlanta on December 15. During that session, we will provide additional
extensive guidance on the future of the combined companies and would like to
defer additional questions on this topic until then.
With that, I would like to turn it over to Dan Drechsel, our COO.
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SLIDE 13
OPERATIONAL UPDATE
- New Data Center facility online. All clients moved successfully
to new center.
- 5.X product on track for end of year delivery into client
engagements.
- Second phase of multi-phase insurance product development
completed.
- First Andersen Consulting-led client project live in Data
Center.
[S1 LOGO]
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SLIDE 14
INTEGRATION UPDATE
- Finance and administration
- CY2000 Business Plan in process, expect board approval
December
- Sales
- mid-October worldwide sales conference product cross-training
- attack plan defined
- Products
- plans in place
- Organization
- management team in place
[S1 LOGO]
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SLIDE 15
THANK YOU FOR YOUR TIME!