S1 CORPORATION Q4 2008 EARNINGS CALL TRANSCRIPT.

press x to close
Seeking Alpha

* Home
* The Macro View
* Stocks & Sectors
* Global Markets
* ETFs
* Investing Ideas
* Breaking News
* Transcripts
* Register | Login

Email:
Password:
<script type="text/javascript">GA_googleFillSlot_sa("Search_195x45_Dropdown");</script>
Loading...
Authors:
<script type="text/javascript">GA_googleFillSlot_sa("Search_195x45_Quote_Dropdown");</script>
Loading...
Symbols:

Home » Software Stocks » Transcripts
S1 Corporation Q4 2008 Earnings Call Transcript
Page 1 out of 10| March 05, 2009 | about stocks: SONE

*
Font Size:
*
Print
* Email
* TweetThis
*
o Single Page View
o Jump to Q&A

S1 Corporation (SONE)

Q4 2008 Earnings Call

March 5, 2009 8:30 am ET

Executives

Johann Dreyer - President, Chief Executive Officer

Paul Parrish - Chief Financial Officer

Jan Kruger - President, Global Enterprise Business

Analysts

John Kraft - D. A. Davidson & Co.

George Sutton - Craig-Hallum Capital

Brett Huff - Stephens, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the S1 fourth quarter and full year 2008 earnings call. (Operator Instructions)

I'd now like to turn the conference over to our host, Johann Dreyer, Chief Executive Officer. Please go ahead, sir.

Johann Dreyer

Thank you very much and thank you for joining us today. I am doing this call today from Cape Town in South Africa and the rest of the team is in Atlanta, so we might experience slight delays on the line. We hope that the event turns out to be technically working well.

In Atlanta we have Paul Parrish, our new CFO, who joined us since the last earnings call. I would like to welcome Paul in this forum. We're looking forward to a long and successful relationship. Also in Atlanta I have Jan Kruger, who heads up the Enterprise division worldwide

Before I hand over to Paul to review our financial results I'd like to remind you that on today's call we will be making forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act. These include statements with respect to our financial condition, results of operations, and business, and these statements, including statements regarding expected revenue from State Farm, are based on our current beliefs as well as assumptions made using information currently available to us.

Because these statements reflect our current views concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. The risk factors included in our reports filed with the Securities and Exchange Commission provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Except as provided by law, we undertake no obligation to update any forward-looking statement.

I will now hand the call over to Paul to review our financial results. Paul?

Paul Parrish

Thank you, Johann, and good morning to everyone on the call. I will begin with a high level review of our operating results.

Starting with revenue, the quarterly comparisons to prior year and as the press release indicates, our total revenue increased 10% to $58.6 million during the 2008 fourth quarter compared to the 2007 fourth quarter, representing a 7% increase in the Enterprise segment and a 12% increase in the Postilion segment.

NOTE: the starting of the quarterly compaison to prior year and as the press realeas indicates

For the year ended December 31, 2008 compared to the same period in 2007, our total revenue increased 11%, representing a 13% increase in the Enterprise segment and a 10% increase in the Postilion segment.

Net income for the 2008 fourth quarter compared to the 2007 fourth quarter decreased $1.1 million. Included in the 2008 fourth quarter was $3.5 million of stock-based compensation expense as compared to $600,000 in 2007 fourth quarter. Excluding the stock-based compensation expense in comparative quarters, our net income increased $1.8 million or 25%.

Net income for the year ended December 31, 2008 compared to the same period in 2007 increased 12%. Stock-based compensation expense included was $8.1 million in 2008 and $8.5 million in 2007.

Basic and diluted EPS was $0.10 per share for the 2008 fourth quarter as compared to $0.11 per share for the 2007 fourth quarter. The effect of share-based compensation expense included in the EPS calculations were $0.06 per share for 2008 fourth quarter and $0.01 per share in the 2007 fourth quarter.

NOTE: the basic and diluted ESP was $0.10 per shares for the 2008 fourth quarter as compared to $0.11 per share for the 2007 fourth quarter.

Basic and diluted EPS for the year ended December 31, 2008 was $0.38 per share as compared to $0.32 per share for the year ended December 31, 2007.

Adjusted EBITDA increased to $10.5 million in the 2008 fourth quarter, a $400,000 improvement from the 2007 fourth quarter. For 2008, adjusted EBITDA was $43 million compared to $38.1 million for the same period in 2007. The increases in adjusted EBITDA reflect the growth in our revenue tempered by our continued investment in customer satisfaction, as we have highlighted throughout the year. Those figures exclude stock-based compensation expense.

Cash flow from operating activities increased 8.9% for the full year 2008 over 2007, which reflects the increase in net income year-over-year.

Now I'll take a closer look at the numbers. I'd like to highlight three items regarding our revenue growth.

First, the revenue growth is organic.

Second, the total revenue from international operations increased 3% for the quarter and 26% for the full year compared to the same periods in 2007. This includes foreign exchange rate fluctuations which adversely impacted our revenue in 2008 fourth quarter by $2 million and for the full year 2008 by $1.3 million. I will discuss in more detail the impact of the foreign exchange rate fluctuations in a few moments.

Third, excluding the State Farm relationship, revenue from all other customers increased 15% for both the fourth quarter and for the year ended December 31, 2008 compared to the same periods in 2007. State Farm revenue was $42.1 million in 2008. As previously announced, we expect approximately $80 million in revenue from State Farm business from 2009 until it concludes at the end of 2011, of which we expect $35 to $37 million in 2009.

Now focusing on expenses and our financial statements. Approximately 17% of our revenues and 21% of our operating expenses were transacted in currencies other than U.S. dollars. We believe most of our international operations are naturally hedged for foreign currency changes as our international locations generally invoice their customers and satisfy their obligations in their local currency. Therefore, our revenue may be impacted by foreign currency fluctuations from these international operations, but the impact to our net income is generally minimized.

However, our development centers in India and South Africa are not naturally hedged as our costs are in the local currency, but they are funded in U.S. dollars or British pounds. Accordingly, currency fluctuations in the Indian rupee or South African rand may impact our net income. For 2008 fourth quarter, expenses were positive impacted by $2.7 million and for the full year 2008 was positive impacted by $2.5 million. Operating income was positive impacted in the 2008 fourth quarter by $701,000 and for the full year 2008 by $1.1 million. Operating income was adversely impacted in the 2007 fourth quarter by $297,000 and the full year 2007 adversely impacted by $840,000.

For the 2008 fourth quarter, direct costs increased 4% compared to the prior year primarily in the cost for professional services, support and maintenance, which is line with the growth in revenue from professional service projects, and customer support, partially offset by the favorable foreign exchange rate fluctuations. As a percentage of revenue, the direct cost declined from 48% in fourth quarter 2007 to 46% in 2008 fourth quarter, mainly due to the better margins on a higher volume of professional services, partially offset by foreign currency fluctuations.

Sales and marketing costs were higher in the 2008 fourth quarter as compared to the same period in 2007 as both segments had higher commission expense due to increased bookings, increased sales staff to support growth and higher share-based compensation expense, which was partially offset by favorable foreign exchange rate fluctuations.

Sales and marketing was 18% of total revenue for the 2008 fourth quarter. Included in sales and marketing was $1.3 million of share-based compensation expense. Excluding the share-based compensation, sales and marketing was 16% of total revenues for the 2008 fourth quarter.

Product development expenses increased in the 2008 fourth quarter compared to the same period in 2007 primarily as the Enterprise group continues to build out product functionality across all channels for both domestic and international customers, offset by favorable foreign exchange rate fluctuations.

General and administrative expenses increased in the 2008 fourth quarter compared to the same period in 2007 primarily due to the higher share-based compensation expense, partially offset by the favorable foreign exchange rate fluctuations.

For the full year 2008, direct cost increased 8% compared to the prior year, primarily in the cost of professional services, support and maintenance, which is in line with growth in revenue, partially offset by foreign exchange rate fluctuations. I'd like to point out that the 2007 third quarter includes a reversal of a $1.3 million contract loss reserve which reduced this expense line item in 2007. The contract loss reserve had been accrued as an expense in the 2005 fourth quarter.

As a result of increased commissions on higher bookings during 2008, sales and marketing costs increased for the full year 2008 as compared to 2007. Sales and marketing was 16% of total revenues for the full year 2008 as compared to 15% for the full year 2007. Excluding share-based compensation, sales and marketing was 15% of total revenues for the full year 2008.

Product development expenses increased for the full year 2008 compared to 2007 primarily as the Enterprise group continues to build out product functionality across all channels for both domestic and international customers, partially offset by lower compensation expense and foreign exchange rate fluctuations. As a percent of revenues, product development expense was 13% for the full year 2008 as compared to 12% in 2007.

General and administrative expenses decreased $400,000 for the full year 2008 compared to 2007. The decrease was related to higher professional consulting fees in 2007 and the benefit of foreign exchange offset by additional stock-based compensation expense in 2008. Total general and administrative as a percent of revenue was 11% for 2008. Excluding share-based compensation, G&A was 10%.

Turning to the segments, let's discuss the Enterprise segment first. And you can find the Enterprise segment information on Table 5.

Enterprise segment's total revenue increased 7% for 2008 fourth quarter as compared to the 2007 fourth quarter.

Software license revenue increased in the 2008 fourth quarter as compared to the same period in 2007 due primarily to high demand for our Treasury Online solutions. Professional services revenue increased by 9%, reflecting an increased number of customer projects, especially for our Treasury Online solutions. Our data center and support and maintenance revenue was relatively unchanged except for foreign exchange rate fluctuations.

As we communicated to you in the last quarter, there will be no revenue recorded in the license line from the international to large international agreement that we entered into in the 2008 third quarter. While we expect the agreement to be a profitable relationship for S1, the services required by this customer will represent an investment in the development of functional enhancements which we plan to leverage in the region. This investment resulted in discounted professional services which GAAP requires us to allocate from the license amount to professional services revenue.

For the full year Enterprise segment's total revenue increased 13% as compared with the same period in 2007.

Software license revenue increased 36% due primarily to high demand for our Treasury Online solutions and for our $600,000 settlement in 2008 with an international customer of an amount previously reserved as uncollectible in 2007. Support and maintenance revenue increased 5% due primarily to an increase in licensing for our Treasury Online solutions and international business. Professional services revenue increased 12%, reflecting an increased number of customer projects for our retail and Treasury Online solutions and work related to a multi-channel implementation for a large international bank. Data center revenue increased 11% due primarily to the migration of a Postilion self-service banking customer to Enterprise in 2007 and an increase in transaction volumes for our existing Enterprise customers.

For the quarter and yearly comparisons, excluding State Farm revenue, revenue from all other Enterprise customers increased 18% and 22%, respectively. The Enterprise segment improved gross profit margins 208 basis points to 50.4% in the quarterly comparisons and 238 basis points to 51.1% for the yearly comparisons.

For the 2008 fourth quarter as compared with the 2007 fourth quarter, product development costs increased as the Enterprise group continues to build out product functionality across all channels and we had higher share-based compensation expense, but our operating expense benefited from foreign rate fluctuations.

Enterprise generated $1.7 million in operating income in the 2008 fourth quarter, a $2.6 million decrease from the same period in 2007. Enterprise adjusted EBITDA was $5.1 million in 2008 fourth quarter, a decrease of $900,000 from the same period in 2007. For 2008, Enterprise generated $11.8 million in operating income as compared to $10.8 million in 2007 due to higher revenues and gross margin improvements tempered by investments in customer satisfaction initiatives. Enterprise adjusted EBITDA increased $1 million to $21.8 million for 2008 as compared to 2007.

Let's now discuss our Postilion segment. For the Postilion segment, as presented to Table 6, total revenue increased 12% in the fourth quarter of 2008. This included a 23% increase in licenses revenue when compared with the 2007 fourth quarter, primarily due to increased licensing activity for our payment processing and card management solutions.

Postilion segment software licenses revenue includes subscription revenue of $2.7 million in the 2008 fourth quarter by comparison to $2 million in the fourth quarter of 2007. As we previously highlighted, this is a long-term recurring revenue being generated by the subscription model, even though it is appearing in the software license revenue line.

Support and maintenance revenue increased to 8% and professional services revenue increased 52%, reflecting Postilion's continued strong licensing activity in the payment solutions business, tempered by foreign exchange rate fluctuations.

Postilion data center revenue is down 18% in the 2008 fourth quarter as compared with the prior year, partly due to the conversion of customers to long-term subscription contracts and customer attrition in our self-service banking business.

For the year end, Postilion segment's total revenue increased 10%. This includes a 20% increase in license revenue when compared with the same period in 2007, partly due to increased licensing of our Postilion payment solutions. Postilion segment's software license revenue includes subscription revenue of $9.2 million by comparison to $6.4 million for the same period in 2007.

Support and maintenance revenue increased 9% and professional services revenue increased 29%, reflecting Postilion's continued strong licensing activity in the payment space, tempered by foreign exchange rate fluctuations.

Postilion's data center revenue was down 12% as compared with the prior year, partly due to the conversion of customers to long-term subscription contracts, the migration of Postilion self-service banking customers to Enterprise, and customer attrition in the self-service banking business. Postilion data center revenue for 2008 also includes a hosted payments customer that went live in late 2007.

We have described the Postilion subscription revenue on previous calls as including the right to use software and the right to revenue maintenance support and enhancements. In some cases these subscriptions include data center services. The continued growth in subscription revenue reflects the broader acceptance of Postilion's self-service banking products and the subscription model in the community and regional space. Over time we anticipate that growth and subscription model will have a negative impact on support and maintenance revenue and data center revenue, while a positive impact on software licenses revenue.

Postilion segment improved gross profit margins 226 basis points to 59% in 2008 fourth quarter as compared with the prior year quarter. Postilion operating income increased $300,000 in the 2008 fourth quarter compared to the fourth quarter of 2007.

The benefit we received from foreign exchange rate fluctuations for our operating expenses were offset by higher share-based compensation expense for the quarterly comparisons. Postilion's adjusted EBITDA increased $1.4 million in the 2008 fourth quarter as compared to the same period in 2007.

Gross profit margins were relatively unchanged at 58% in the yearly comparisons. For the full year, Postilion's operating income increased $3.9 million compared to the same period in 2007, reflecting growth in revenue while holding margins flat, lower share-based compensation expense, and the bottom line benefited from foreign currency fluctuations. Postilion's adjusted EBITDA increased $3.9 million in 2008 as compared to the same period in 2007.

Now turning to the cash flows on Table 3, cash and cash equivalents plus short-term investments were $65.3 million as of the end of 2008, down $3.5 million from the prior year. We used our cash from operating activities to fund our capital expenditures, capital lease and debt payments and our share repurchase program. Purchases of property, equipment and technology totaled $1.5 million for the 2008 fourth quarter as compared to $1.3 million for the 2007 fourth quarter. For the full year, capital expenditures totaled $8.7 million for 2008 as compared to $9.7 million for 2007.

Under our authorized share repurchase program, we repurchased 2.8 million shares for approximately $14.9 million during the fourth quarter of 2008 and 4.4 million shares for approximately $25.1 million during the full year 2008. Since December 2006 we have repurchased 21.5 million shares with a total cost of $131 million.

We have approximately $6 million of restructuring charges remaining to be paid after paying out approximately $3.5 million in 2008. We expect to pay $2.3 million over the next 12 months and then the remaining balance through the middle of 2011.

For S1's income taxes, income tax expense relates partially to cash expenses for state income taxes, alternative minimum tax in the U.S., and taxes in international jurisdictions where we do not have net operating losses. We anticipate our international operations continue to grow, our cash taxes will increase as we do not have NOLs in most international jurisdictions. Additionally, we released approximately $2 million of our valuation allowance for deferred taxes in the fourth quarter 2008 related to some international jurisdictions. As we continue to evaluate our business going forward, we may release additional valuation allowance for deferred tax assets as soon as the second half of 2009.

As of December 31, 2008, S1 has approximately $220 million of domestic NOLs which are fully reserved. Of this amount, $200 million relates to stock option expense, the benefit of which will go directly to shareholder's equity if ever used. Currently for income tax purposes we recognize deferred revenue as taxable income in the United States which creates a temporary tax difference. In 2009 we intend to adopt a tax accounting method that is consistent with the financial reporting method, which should offset our financial income for tax purposes and possibly increase our domestic NOLs. It is anticipated the change will significantly reduce our U.S. federal income taxes and state income taxes in 2009.

So with non-option-related NOLs remaining in U.S. and foreign jurisdictions, we expect our tax provision should have an effective rate of 17% to 20% for GAAP purposes for 2009 and 37% or more after 2009, even though a significant portion of this GAAP tax provision would be noncash through the utilization of the option-related NOLs.

Looking forward to 2009, we've estimated the full year 2009 revenues to be in the range of $240 to $245 million and adjusted EBITDA in the range of $47 to $50 million. Excluding State Farm, we expect year-over-year revenue growth of 10% to 11.5%.

That concludes my discussion on the 2008 fourth quarter and full year financial results, and I'll turn the call back over to Johann.

Johann Dreyer

Thank you, Paul.

Well, to start off, I am very pleased with the results of the fourth quarter and of the full year. I think it was a very solid quarter, a very solid year. We've added a number of large new customers in the fourth quarter and throughout 2008 we sold significant deals.

At a high level I would like to touch on the following topics today. Obviously, the most important topic is the effect of the economy on our business, so I will address that first, and then I will discuss the general state of our business, both the Enterprise and Postilion segments, and provide some color around the numbers that Paul just went through. So let's start off with the impact of the economy on our business.

If we look at the S1 Corporation pipeline, the pipeline remains very strong and, as a matter of fact, is growing. Now typically what people say in a recession or a recession environment, one of the first signs that you see is that your pipeline is growing, but no deal comes out of the pipeline. That is not the case with what we've seen over the last several months. We track our pipeline flow on a very regular basis, and we have not seen any slowdown in the deals that we sign or new deals moving into the pipe. So we do not see the impact of what's happening out there on our pipeline at this tie.

In the fourth quarter we signed - it was one of the best bookings quarters since this management team came onboard, a very, very good bookings quarter. We signed a number of key strategic deals that I will talk about later. And the irony is actually that we've signed such large deals that, in the case of Postilion Payments, that our revenue recognition for some of those deals will change from upfront licenses to percentage of complete revenue recognition, which makes the visibility for the rest of the year pretty solid; however, it might have some softening impact on the first quarter as a result of that revenue recognition treatment.

So if I look at the pipe and if I look at the deals that we've booked over the last three months and I take it even up to the end of February because a lot of businesses saw slowdown in January and February - you know, if I take our last 12 trailing months - the February that just passed was our [fifth] best month in the last year. So we haven't seen a slowdown in the first two months of this year yet either. So if I look at our pipe, I cannot see the effect of the economy out there.

Now having said that, obviously it's a very unstable environment out there, and so one has to consider to what extent you trust what's in your pipe. There's no guarantee that customers or prospects that's in our pipe right now might decide to defer any new purchases for any period of time, and obviously we don't have visibility into that. But if I purely have to look at the pipeline, the pipeline flow up to this point, we have not seen that.

Now obviously giving guidance in this very, very uncertain environment is difficult. We try to err on the conservative, realistic side rather than on the aggressive realistic side. But if I look at the current pipe and the bookings that we've had over the last three months, I'm pretty confident about the numbers that we put forward.

Again, having said that, a very unstable environment out there, very unpredictable, but our pipe looks very good.

I would like to carry on and talk about the general state of our business, both the Enterprise and Postilion segments. As I mentioned before, it's one of the best booking quarters that we've had since the current management team was put in place 2.5 years ago both in terms of size of deals, both in terms of strategic value of deals, as well as the profitability of the deals.

On the Enterprise side, as we mentioned in the press release, we licensed a new customer for multiple applications and with extremely good cross-sells. Now, you will remember that throughout last year I spoke about customer satisfaction and the need for us to up our success rate in cross-sells. Two years ago, three years ago, our success as a result of our low customer satisfaction in the Enterprise group, our success rate in terms of cross-selling was lower than I would expect.

Now, we've put a lot of effort into customer satisfaction over the last two years. What we do, just as background, we send out a customer satisfaction survey to all our customers on a yearly basis. It's very simple; it's 15 portions where customers rank us on a scale of 1 to 10 on our customer support, our professional services, our product and the company in general, and then we score each customer according to that response.

Over the last two years the Americas division of Enterprise increased customer satisfaction by 23% and on the international side - we did not do a customer satisfaction two years ago - over the last 12 months, their customer satisfaction has increased 13%. Fairly significant numbers over the last two years, and I would say that as a result of that our ability to effectively cross-sell into our existing customer base has increased significantly. We are much more active in any new deal that comes up at an existing customer for a different application.

I want to give you one or two examples. We have one of the top five banks in the U.S. as a customer and we measured their satisfaction two years ago, a year ago, and again this year. As a matter of fact, the last customer set went out about four weeks ago. And this bank moved from a score of 3.27 two years ago to a score of 8.43 four weeks ago. Significant movement - that was in our Treasury Online division - and we are pretty pleased about the significant progress that we have made in customer satisfaction.

I think there's still room for improvement; we will still invest in that. But our goal is to exist this year as the financial services software company with the highest customer sat in our space. I believe it is crucial in the current economic environment that we have extremely happy customers because that is where we'll get our revenue from in the next year.

On the Postilion Payments side, again, a great quarter. We signed yet another top 10 retailer in the U.K. We now have five of the top 10 retailers in the U.K., and you might remember that we entered 2008 with two of the top 10 retailers in the U.K. as customers and we added three of the top 10 retailers in 2008. So a very, very successful year, where we've gone from a minor player in that market to the dominating player in that market.

We continued to expand our strategic position in Saudi Arabia by signing the Arab National Bank. Another very strategic deal for us was signing the first large merchant acquirer in the U.S. for our company. We have a long history of providing systems to merchant acquirers throughout the world, but we've never had success with that product in the U.S.; we've never broken into that market. But in December we did sign our first significant deal with a significant merchant acquirer in the U.S., and so we're pretty excited about that. We believe that that is opening up a potential new market for us.

And then also in the fourth quarter we signed a deal with one of the largest quick service restaurants and fast-food chains that operates internationally based in the U.S. in the world again, a great achievement there.

And then going on to the Postilion community and regional financial institution, signed three new customers, all substantial bookings, and we're very pleased about that. You might have heard from the numbers that we had some attrition during the year in that area of our business. We believe that that will bottom out during this year and that we are extremely well positioned with our new product to pick up new customers, sign new customers and then start growing that business in 2010.

So in closing, again, we are very pleased with the quarter. We obviously have a strong balance sheet and the cash flow from our operations is very, very solid. We have a strong recurring revenue stream. Our headcounts are at the right levels. Our pipelines are looking really healthy and there's good deal flow into and out of the pipe. We're very well positioned in the marketplace with a modern product set, good geographical diversification, good industry diversification. We have substantially increased our customer satisfaction. So it might be a difficult environment it is a difficult environment out there - but we are looking forward to the remainder of 2009.

Thank you very much for joining the call. I will now hand back to the operator to answer any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from John Kraft - D. A. Davidson & Co.

John Kraft - D. A. Davidson & Co.

My first question is about the stock comp. It was higher than we were looking for. I know that the SARs can cause some volatility, but was there anything one-time in there, anything catchup or anything related to why that was so much higher than it's been recently?

Paul Parrish

The stock price is the main driver on that.

Johann Dreyer

And if you can recall, John, our stock price was $8 on the 31st of December, so a significant driver there.

John Kraft - D. A. Davidson & Co.

And then in the domestic community bank Postilion business, the new wins are obviously encouraging there. I don't recall you talking about wins in that area for a long time. Is that related, do you think, to the improving reputation, customer satisfaction and all that, or is that the new products that people are getting excited about?

And also, as far as the implementation status, what's the status of the new product and implementation of the customer base?

Johann Dreyer

In terms of why are people buying the product, obviously the product is fairly unique in the marketplace or actually completely unique in the marketplace in that it addresses all the frontend channels for a community bank on one platform. So I think we have a compelling product for anybody that's looking around to buy a new product.

Obviously, the biggest impact on customer satisfaction in our existing customers over the last several years were our lack of investment in the legacy product starting seven, eight years ago, and since the release of the new product, obviously, we've addressed that.

So I think there's truth in both those first two questions of yours. What was the third point, John? I didn't jot that down.

John Kraft - D. A. Davidson & Co.

Well, as far as the implementation of how many -

Johann Dreyer

Oh, how many have we implemented? I don't have the exact number for you, but currently we're probably in the mid-20s to light 20s have been implemented.

John Kraft - D. A. Davidson & Co.

And that's going to be primarily a 2009 event?

Johann Dreyer

It's going to spill over to 2010. And obviously it does have some cost implications for us and has had some cost implications. We said with between our voice and our personal Internet banking or retail Internet banking and our business, Internet banking, we said in excess of 1,000 customers. So you can make the sum. It's quite an exercise to convert all of those. And while we're doing that and for the past year or year and a half or two years we've been carried deal costs in terms of product development, in terms of professional services, and so forth.

So we see that 2009 is a major conversion year, but some of that will bleed into 2010.

John Kraft - D. A. Davidson & Co.

Okay, that's what I was getting at, when that headwind evaporates.

Paul, as far as the FX, are you for 2009 assuming basically things stay about flat?

Paul Parrish

Well, my crystal ball on FX is never as clear as I want it to be, so you can just look at what's occurred the first two months of this year and significant changes that are continuing. I don't know if that's now bottomed. I just don't have that crystal ball. But through the end of February there were still significant fluctuations in the currency.

John Kraft - D. A. Davidson & Co.

But you're not assuming -

Johann Dreyer

I think, John, the point is that really to a large extent we are naturally hedged, okay? The only exposure that we would have - in that our international revenue and our international costs in these currencies typically match up - our only real exposure would be on the Indian rupee. If that were to strengthen without any of the other currencies strengthening against the U.S. dollar, that would affect our bottom line.

The effect of foreign currency is really a top line effect for us. As the foreign currencies weaken against the U.S. dollar, we will see our revenue going down, but we won't necessarily see an impact on EBITDA. Typically our EBITDA stays pretty close to flat.

John Kraft - D. A. Davidson & Co.

Along the sales and marketing, the bookings, are these new percentage of completion projects, are the commissions paid going to be paid ratably along that -

Johann Dreyer

No, the commissions are paid upfront.

John Kraft - D. A. Davidson & Co.

For everything you sell?

Johann Dreyer

For most of our deals, commissions are paid upfront and that's why you saw a pretty - you know, you've got to incent your sales force. And effectively, I'm a firm believer that you reward a win as quickly as possible. So most of our deals the salesperson is paid pretty much upfront and that's why you would see significant commission numbers in Q4, but the revenue in many cases actually only hits afterwards.

Operator

Your next question comes from George Sutton - Craig-Hallum Capital.

George Sutton - Craig-Hallum Capital

Johann, I wanted to have you spend a little bit more time on Treasury Online, obviously something you addressed a few times in the call. Could you explain why that has been as strong as it has, what's unique about it in the market?

Johann Dreyer

Well, you know, it's, I think, the investment that we've put into the product over the last several years is finally bearing the fruit that we anticipated. It's a very strong product suite. It has some unique ACH features. The way its entitlements are structured, it's very well geared towards the corporate banking, Internet banking for the large corporations of a bank.

And I think we've engaged our customers. Many of them are in the top 15 banks in the U.S.; we've engaged them. We've guilt a product that really meets of the market. We've stabilized it. We spend a lot of investment on it and we spend a lot of time with our customers. And we built our customer relationships over the last 2.5 years.

George Sutton - Craig-Hallum Capital

Is that a product that might benefit in this kind of very challenging environment, where banks are really looking for stability in the treasury area?

Johann Dreyer

Look, it is the one area where it seems banks are willing to spend. It's in the part of business of the bank where money is made, okay? The banks make money with this product. And it's crucial for the banks to maintain a great service for their large corporations. And we believe our Treasury Online product is best of breed and we've been very successful with that.

George Sutton - Craig-Hallum Capital

You know, we've been hearing and reading a lot about the strength of mobile applications and you, of course, came out I believe in the fall with your capabilities there and announced a certain number of initial customers. Can you give us an update on the mobile side of the business for you?

Johann Dreyer

You know, we've actually signed quite a few mobile deals during the quarter in 2008, but I just don't have the actual numbers with me, but a fair amount of deals. However, the value of mobile deals is not nearly as big as the value of a Treasury Online deal.

George Sutton - Craig-Hallum Capital

Paul, with respect to share repurchases, can you update us on what is still remaining under authorization and if you can give us any sense as to, you know, should we expect the same level of activity that we've seen from you of late?

Paul Parrish

Well, we evaluate that regularly on what we ought to be doing with our funds. I believe remaining under our agreement's about $9.6 million remaining is authorized that could be purchased. And no decisions around how active we'll be in that market, but it's clearly something we evaluate regularly.

George Sutton - Craig-Hallum Capital

There's nothing that necessarily changes in your rules of the 10b-5?

Paul Parrish

No.

Operator

(Operator Instructions) Your next question comes from Brett Huff - Stephens, Inc.

Brett Huff - Stephens, Inc.

One quick question on the sales and marketing line. This was asked a little bit differently before. Even if I - I think my math is right - even if I back out the implications for share-based comp both in 4Q '07 and 4Q '08, I still get a pretty reasonably high - something like 80 basis points higher - expense as a percent of revenue year-over-year. Is that a good proxy for the impact of those commission dollars that were paid or is there something else in there, Paul?

Paul Parrish

As we referenced in my comments, that's what we're pointing to - it's the increased commissions on those bookings, and Johann had discussed that in his comments, too.

Brett Huff - Stephens, Inc.

And so just to make sure, those are one-time payments and so the revenue coming in from that won't cost us anything more from a sales point of view in general?

Paul Parrish

Correct.

Johann Dreyer

Now, Brett, hopefully we can have the same level of bookings every quarter, in which case unfortunately you're never going to see the costs coming down.

Brett Huff - Stephens, Inc.

That's right. Have you guys seen any change in your receivables at all, doubtful accounts, things like that in terms of ability to pay or worries about that at all?

Paul Parrish

The company has made significant progress over this past year in receivables and brought to a very good status receivables, and we haven't seen any change in that over the last few months. Clearly in an environment like this it's something you want to focus on, but we haven't seen any indications of those changing.

Brett Huff - Stephens, Inc.

And then the last question I had was when I look at the mix of revenue from last quarter or the year-over-year to now, obviously the license number was stronger than either of those two comparisons, yet it doesn't look like the gross margin, at least on a GAAP basis, was up all that much. Aside from the share-based comp, is it the customer sat investment that's going on there or is there something else?

Paul Parrish

We also got the improvement to licenses for subscriptions. That increases the licenses, and that's coming out of your maintenance and your data center lines.

Operator

And we have no further questions, so please continue.

Johann Dreyer

Well, again from my side, thank you very much for joining us today. Just to reiterate, we're pretty pleased about the quarter - pipelines are strong, pipeline flow is good. We obviously are facing a difficult environment out there, but I have the full confidence that we will have a good year in 2009 and we are looking forward to the remainder of the year.

Thank you very much for joining us today.

Operator

Thank you. And ladies and gentlemen, this conference call will be available for replay. The replay of the conference starts today, March 5 at 10:30 a.m. Eastern Time in the United States. The replay runs for two weeks until the date of March 19 at midnight Eastern Time in the United States. You may access the AT&T teleconference replay system by dialing 1-800-4756701. Please enter the access code 984488. International participants dial 320-365-3844. Those numbers again, 1-800-475-6701. International participants dial 1-320-365-3844. The replay access code, 984488.

Well, that will conclude our conference call for today. We thank you for your participation and for using AT&T's executive teleconference service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

* 1
* 2
* 3
* 4
* 5
* 6
* 7
* 8
* 9
* 10
* Next Page

Other Articles on SONE

* S1: Optimistic EPS Guidance Could Be Misplaced Sep 17, 2007
* Jim Cramer's Mad Money Lightning Round Picks, Nov. 17 Nov 19, 2006

Previous SONE Transcript:

* S1 Corporation Q3 2008 Earnings Call Transcript


SONE Stock Alerts

Get the latest SONE
commentary and analysis
by daily email.
We don't spam

* Was this positive or negative for the company? Why?
* What is the most important quote from this transcript?

Add your comment
Name / Pseudonym (*required)change
Your Website/Blog (optional)change
Comment:
Submitting comment, please wait ...
Seeking Alpha's Transcript Center -- Broad coverage. Powerful search.
And it's free... Why are you paying for something less good?

Attention "Gold Bugs" How to Save $600 an Ounce On Rarest Form of Gold in the World www.sovereignsociety.com

The Motley Fool's Top Pick for 2009 Click here for your FREE report today! www.fool.com

Turn a $200 investment into $1.2 Million Snatch up undervalued stocks and win with scientifically selected plays www.pennysleuth.com
Search This Transcript:
Text not found.
Most Frequent Words
in this transcript:
2007 2008 business compared compensation customer customers enterprise expense fluctuations foreign fourth full income increased international johann last million new now paul period postilion product quarter rate revenue same year
Compare to:
Previous Statements by SONE

1. S1 Corporation Q3 2008 Earnings Call Transcript
2. S1 Corporation Q2 2008 Earnings Call Transcript
3. S1 Corporation Q1 2008 Earnings Call Transcript

Other Companies in this Sector

1. Smith Micro Software, Inc. Q4 2008 Earnings Call Transcript
2. ArcSight, Inc. F3Q09 (Qtr End 1/31/09) Earnings Call Transcript
3. Wind River Systems, Inc. Q4 2008 Earnings Call Transcript


More Transcripts
Latest Transcripts

1. Clearwire Corporation Q4 2008 Earnings Call Transcript
2. Smith Micro Software, Inc. Q4 2008 Earnings Call Transcript
3. Home Inns & Hotels Management Inc. Q4 2008 Earnings Call Transcript

Most Popular Transcripts

1. American Capital Ltd. Q4 2008 Earnings Call Transcript
2. Crosstex Energy Q4 2008 Earnings Call Transcript
3. Eagle Bulk Shipping, Inc. Q4 2008 Earnings Call Transcript

Most Popular Searches across all transcripts

1. "eagle ford"
2. "goodwill impairment" and EBITDA
3. currency losses 2009
4. "goodwill impairment" AND "EBITDA"
5. pension AND expense

To search across transcripts, find the most recent and most popular and view by sector, try: Seeking Alpha's Transcript Center
Sign up for Seeking Alpha RSS Feeds
Most Emailed Articles

1. Eight Companies That Are Hiking Dividends
2. Celgene Corporation: Take the Money and Run
3. 5 Dow Stocks with the Safest Dividends
4. The World's 50 Safest Banks in 2009
5. The High Dividend Stock Investor's Collapsing Dollar Survival Guide, Part 1

* Get alerts by Email/Blackberry
* Get live feeds (RSS)

Free E-Newsletters
Wall Street Breakfast -
Sample
The Macro View -
Sample
Investing Ideas -
Sample
Jim Cramer's Picks -
Sample
Stocks & Sectors -
Sample
Global Markets -
Sample
Alternative Energy Investing -
Sample
ETF Daily -
Sample
The Daily Dispatch -
Sample
We don't spam

Popular Tools
Stock Market Toolbar
Stock Search Add-on
Power Search
Email Alerts
Live Feeds (RSS)

About Seeking Alpha
About Us
Contact Us
What's New
Readers Feedback
Advertise With Us

Contributors
Contribute an Article
Feature Your Book
Our Contributors
Anonymous Contributions
Dispute an Article?

Legal
Terms of Use
Privacy
Copyright

Stock Market Opinion & Analysis
Loading...
Symbols:
Authors: