Tier Reports Fiscal 2008 Second Quarter Results

Tier Technologies, Inc. (Nasdaq:TIER) today announced results for the quarter ended March 31, 2008 and provided updates on ongoing strategic growth initiatives. "During the second quarter of 2008, we continued to negotiate definitive agreements on substantially all of the units being held for sale,” said Ronald Rossetti, Chairman and Chief Executive Officer for Tier. "The dispositions, once completed, will allow us to focus on structuring both the continuing operations of our electronic payments processing ("EPP”) business and to position the requisite corporate support to facilitate operational growth.” Mr. Rossetti continued, "As we divest non-core assets, we expect to generate additional cash from these transactions. The primary use of this cash will be to fund growth initiatives in our core EPP business and to fund sales and marketing initiatives.” Conference Call Tier will host a conference call tomorrow at 9:00 a.m. Eastern Time to discuss these results. To access the conference call, please dial (888) 335-3240 and provide conference ID #44916334. The conference call will also be broadcast live via the Internet at www.tier.com. A replay will be available at www.tier.com approximately 24 hours after the end of the call or by calling (800) 642-1687 and entering conference ID #44916334 from approximately two hours after the end of the call until 11:59 p.m. Eastern Time on May 20, 2008. Second Quarter Fiscal 2008 Results For the quarter ended March 31, 2008, Tier reported revenues of $26.0 million, a 13.9% increase over the same quarter last year. Net loss was $3.5 million, or $0.18 per fully-diluted share. Continuing operations reported a loss of $2.9 million, or $0.15 per fully-diluted share, while our discontinued operations reported a net loss of $0.6 million, or $0.03 per fully-diluted share. Continuing operations include Electronic Payment Processing or EPP, certain wind-down businesses and corporate costs. On a standalone basis, our core EPP business reported quarterly revenues of $24.6 million or a 19.9% increase over the same quarter last year. We continue to experience strong growth, both in the number of transactions processed and the Dollar volume of payments processed on behalf of our customers. Corporate overhead costs, which support both continuing and discontinued operations, were $3.6 million for the quarter, down $1.0 million from the same quarter last year. We continue to make progress on our previously announced plans to divest non-core businesses. Corporate overhead should continue to decline as these businesses are sold. Tier’s discontinued operations reported revenues of $14.1 million for the quarter, down 19.3% from the same quarter last year. The decrease is primarily due to the ending of a contract for payment processing services in June 2007. The shift to lower cost electronic payment alternatives at other payment processing centers also contributed to the lower revenues. Liquidity As of March 31, 2008, Tier had $71.7 million in cash and cash equivalents, and investments in marketable securities, and $11.6 million in restricted investments. During the three months ended March 31, 2008, Tier liquidated $20.7 million of auction rate securities and invested the funds in a money market account. Tier continues to hold $31.1 million in auction rate securities as long-term investments. These investments are revenue bonds and asset backed notes issued by state agencies. The investments are AAA-rated and collateralized with student loans and guaranteed under the Federal Family Education Loan Program. Tier has no short-term or long-term debt. About Tier Technologies, Inc. Tier Technologies, Inc. primarily provides federal, state and local government and other public sector clients with electronic payment processing and other transaction processing services. Headquartered in Reston, Virginia, Tier Technologies serves over 3,000 electronic payment processing clients throughout the United States, including federal, state, and local governments, educational institutions, utilities and commercial clients. Through its subsidiary, Official Payments Corp., Tier delivers payment processing solutions for a wide range of markets. For more information, see www.tier.com and www.officialpayments.com. Statements made in this press release that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Tier undertakes no obligation to update any such forward-looking statements. Each of these statements is made as of the date hereof based only on current information and expectations that are inherently subject to change and involve a number of risks and uncertainties. Actual events or results may differ materially from those projected in any of such statements due to various factors, including, but not limited to: the impact of governmental investigations; the potential loss of funding by clients, including due to government budget shortfalls or revisions to mandated statutes; the timing, initiation, completion, renewal, extension or early termination of client projects; the Company’s ability to realize revenues from its business development opportunities; the timing and completion of the divestment of the Company’s non-core assets; and unanticipated claims as a result of project performance, including due to the failure of software providers or subcontractors to satisfactorily complete engagements. For a discussion of these and other factors which may cause our actual events or results to differ from those projected, please refer to the Company's annual report on Form 10-K for the fiscal year ended September 30, 2007 filed with the SEC.     TIER TECHNOLOGIES, INC. Consolidated Balance Sheets   March 31, September 30, (in thousands)   2008   2007 (unaudited) ASSETS: Current assets: Cash and cash equivalents $ 40,635 $ 16,516 Investments in marketable securities — 57,815 Accounts receivable, net 3,881 4,909 Unbilled receivables 443 545 Prepaid expenses and other current assets 1,821 2,169 Assets of discontinued operations 39 672 Current assets—held-for-sale     35,500       36,196   Total current assets 82,319 118,822   Property, equipment and software, net 4,082 3,743 Goodwill 14,526 14,526 Other intangible assets, net 15,548 17,640 Investments in marketable securities 31,111 — Restricted investments 11,526 11,526 Other assets     362       167   Total assets   $ 159,474     $ 166,424     LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities: Accounts payable $ 850 $ 877 Accrued compensation liabilities 3,188 4,653 Accrued subcontractor expenses 339 504 Accrued discount fees 4,974 4,529 Other accrued liabilities 4,161 4,213 Deferred income 2,105 2,649 Liabilities of discontinued operations 41 421 Current liabilities—held-for-sale     10,993       10,864   Total current liabilities 26,651 28,710 Other liabilities     180       200   Total liabilities     26,831       28,910       Shareholders’ equity: Preferred stock, no par value; authorized shares: 4,579; no shares issued and outstanding — — Common stock and paid-in capital; shares authorized: 44,260; shares issued: 20,439 and 20,425; shares outstanding: 19,555 and 19,541 187,928 186,417 Treasury stock—at cost, 884 shares (8,684 ) (8,684 ) Accumulated other comprehensive loss (1,414 ) — Accumulated deficit     (45,187 )     (40,219 ) Total shareholders’ equity     132,643       137,514   Total liabilities and shareholders’ equity   $ 159,474     $ 166,424         TIER TECHNOLOGIES, INC. Consolidated Statements of Operations (unaudited)   Three months ended Six months ended March 31,   March 31, (in thousands, except per share data)   2008   2007   2008   2007 Revenues   $ 25,961     $ 22,797     $ 54,916     $ 47,598       Costs and expenses: Direct costs 19,518 17,147 41,752 35,291 General and administrative 6,873 8,528 13,982 13,910 Selling and marketing 2,005 1,964 4,119 3,753 Depreciation and amortization     1,330       1,334       2,625       2,666   Total costs and expenses     29,726       28,973       62,478       55,620   Loss from continuing operations before other income and income taxes     (3,765 )     (6,176 )     (7,562 )     (8,022 )   Other income: Equity in net income of unconsolidated affiliate — 177 — 986 Interest income, net     824       607       1,790       1,484   Total other income     824       784       1,790       2,470     (Loss) from continuing operations before income taxes (2,941 ) (5,392 ) (5,772 ) (5,552 ) Income tax provision     12       7       28       67     Loss from continuing operations (2,953 ) (5,399 ) (5,800 ) (5,619 ) (Loss) income from discontinued operations, net     (584 )     9,137       832       11,571     Net (loss) income   $ (3,537 )   $ 3,738     $ (4,968 )   $ 5,952     (Loss) earnings per share—Basic and diluted: From continuing operations $ (0.15 ) $ (0.28 ) $ (0.29 ) $ (0.28 ) From discontinued operations     (0.03 )     0.47       0.04       0.59   (Loss) earnings per share—Basic and diluted   $ (0.18 )   $ 0.19     $ (0.25 )   $ 0.31     Weighted average common shares used in computing: Basic and diluted (loss) earnings per share 19,551 19,501 19,547 19,500     TIER TECHNOLOGIES, INC. Consolidated Statements of Cash Flows   Six months ended March 31, (in thousands)   2008   2007 CASH FLOWS FROM OPERATING ACTIVITIES:   Net (loss) income $ (4,968 ) $ 5,952 Less: Income from discontinued operations, net     832       11,571   Loss from continuing operations, net (5,800 ) (5,619 ) Non-cash items included in net income: Depreciation and amortization 2,697 2,745 Provision for doubtful accounts 31 (473 ) Equity in net income of unconsolidated affiliate — (986 ) Accrued forward loss on contract 107 (13 ) Pending settlement of pension contract — 1,190 Share-based compensation 1,415 1,180 Other 48 1 Net effect of changes in assets and liabilities: Accounts receivable and unbilled receivables 1,098 (179 ) Prepaid expenses and other assets 125 305 Accounts payable and accrued liabilities (1,434 ) (281 ) Income taxes payable 28 26 Deferred income     (544 )     (429 ) Cash used in operating activities from continuing operations (2,229 ) (2,533 ) Cash provided by operating activities from discontinued operations     4,628       7,354   Cash provided by operating activities     2,399       4,821   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (7,325 ) (3,108 ) Sales and maturities of marketable securities 32,615 1,000 Purchase of restricted investments — (9,260 ) Sales and maturities of restricted investments — 3,348 Purchase of equipment and software (921 ) (462 ) Repayment of notes and accrued interest from related parties — 4,249 Other investing activities     —       (75 ) Cash provided by (used in) investing activities from continuing operations 24,369 (4,308 ) Cash used in investing activities from discontinued operations     (2,716 )     (1,593 ) Cash provided by (used in) investing activities     21,653       (5,901 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 96 32 Capital lease obligations and other financing arrangements     (26 )     (12 ) Cash provided by financing activities from continuing operations 70 20 Cash used in financing activities from discontinued operations     (3 )     (3 ) Cash provided by financing activities 67 17 Effect of exchange rate changes on cash     —       (8 ) Net increase (decrease) in cash and cash equivalents 24,119 (1,071 ) Cash and cash equivalents at beginning of period     16,516       18,468   Cash and cash equivalents at end of period   $ 40,635     $ 17,397       TIER TECHNOLOGIES, INC. Consolidated Statements of Operations—Continuing Operations   Continuing Operations (in thousands)   EPP   Wind-down   Corporate &Eliminations   Total Three months ended March 31, 2008:       Revenues   $ 24,575   $ 1,529     $ (143 )   $ 25,961   Costs and expenses: Direct costs 18,736 782 — 19,518 General and administrative 2,465 393 4,015 6,873 Selling and marketing 1,769 63 173 2,005 Depreciation and amortization     892     355       83       1,330   Total costs and expenses     23,862     1,593       4,271       29,726   (Loss) income from continuing operations before other income and income taxes     713     (64 )     (4,414 )     (3,765 ) Other income: Interest income (expense)     —     —       824       824   Total other income     —     —       824       824   (Loss) income from continuing operations before taxes 713 (64 ) (3,590 ) (2,941 ) Income tax provision     12     —       —       12   (Loss) income from continuing operations   $ 701   $ (64 )   $ (3,590 )   $ (2,953 )   Three months ended March 31, 2007: Revenues   $ 20,490   $ 2,400     $ (93 )   $ 22,797   Costs and expenses: Direct costs 15,343 1,804 — 17,147 General and administrative 1,624 1,761 5,143 8,528 Selling and marketing 1,692 279 (7 ) 1,964 Depreciation and amortization     799     367       168       1,334   Total costs and expenses     19,458     4,211       5,304       28,973   (Loss) income from continuing operations before other income and income taxes     1,032     (1,811 )     (5,397 )     (6,176 ) Other income: Equity in net income of unconsolidated affiliate — — 177 177 Interest income     —     —       607       607   Total other income     —     —       784       784   (Loss) income from continuing operations before taxes 1,032 (1,811 ) (4,613 ) (5,392 ) Income tax provision     7     —       —       7   (Loss) income from continuing operations   $ 1,025   $ (1,811 )   $ (4,613 )   $ (5,399 )     TIER TECHNOLOGIES, INC. Consolidated Statements of Operations—Continuing Operations   Continuing Operations (in thousands)   EPP   Wind-down   Corporate &Eliminations   Total Six months ended March 31, 2008:       Revenues   $ 52,523     $ 2,675     $ (282 )   $ 54,916   Costs and expenses: Direct costs 39,854 1,898 — 41,752 General and administrative 4,774 846 8,362 13,982 Selling and marketing 3,656 182 281 4,119 Depreciation and amortization     1,724       726       175       2,625   Total costs and expenses     50,008       3,652       8,818       62,478   (Loss) income from continuing operations before other income and income taxes     2,515       (977 )     (9,100 )     (7,562 ) Other income: Interest income (expense)     (2 )     —       1,792       1,790   Total other income (expense)     (2 )     —       1,792       1,790   (Loss) income from continuing operations before taxes 2,513 (977 ) (7,308 ) (5,772 ) Income tax provision     28       —       —       28   (Loss) income from continuing operations   $ 2,485     $ (977 )   $ (7,308 )   $ (5,800 )   Six months ended March 31, 2007: Revenues   $ 42,729     $ 5,032     $ (163 )   $ 47,598   Costs and expenses: Direct costs 31,925 3,366 — 35,291 General and administrative 2,937 2,192 8,781 13,910 Selling and marketing 3,248 481 24 3,753 Depreciation and amortization     1,602       734       330       2,666   Total costs and expenses     39,712       6,773       9,135       55,620   (Loss) income from continuing operations before other income and income taxes     3,017       (1,741 )     (9,298 )     (8,022 ) Other income: Equity in net income of unconsolidated affiliate — — 986 986 Interest income     —       —       1,484       1,484   Total other income     —       —       2,470       2,470   (Loss) income from continuing operations before taxes 3,017 (1,741 ) (6,828 ) (5,552 ) Income tax provision     67       —       —       67   (Loss) income from continuing operations   $ 2,950     $ (1,741 )   $ (6,828 )   $ (5,619 )     TIER TECHNOLOGIES, INC. Consolidated Statements of Operations—Discontinued Operations   Discontinued Operations (in thousands)   GBPO   PSSI   Eliminations   Total Quarter Ended March 31, 2008:       Revenues   $ 7,074   $ 7,032     $ —     $ 14,106   Costs and expenses: Direct costs 3,216 5,874 (144 ) 8,946 General and administrative 475 1,647 (70 ) 2,052 Selling and marketing 134 557 (25 ) 666 Depreciation and amortization — 20 — 20 Write-down of goodwill and intangibles     57     2,985       —       3,042   Total costs and expenses     3,882     11,083       (239 )     14,726   Income before other income and income taxes 3,192 (4,051 ) 239 (620 ) Other income     25     —       —       25   Income before income taxes 3,217 (4,051 ) 239 (595 ) Income tax provision     —     —       —       —   Income before gain on discontinued operations 3,217 (4,051 ) 239 (595 ) Gain on discontinued operations     —     —       11       11   Income from discontinued operations, net   $ 3,217   $ (4,051 )   $ 250     $ (584 )   Quarter Ended March 31, 2007: Revenues   $ 10,519   $ 6,955     $ —     $ 17,474   Costs and expenses: Direct costs 7,322 5,562 (93 ) 12,791 General and administrative 700 1,325 173 2,198 Selling and marketing 250 601 67 918 Depreciation and amortization 1 28 — 29 Write-down of goodwill and intangibles     —     —       —       —   Total costs and expenses     8,273     7,516       147       15,936   Income before other income and income taxes 2,246 (561 ) (147 ) 1,538 Other income     —     —       —       —   Income before income taxes 2,246 (561 ) (147 ) 1,538 Income tax provision     —     —       —       —   Income before gain on discontinued operations 2,246 (561 ) (147 ) 1,538 Gain on discontinued operations     —     —       7,599       7,599   Income from discontinued operations, net   $ 2,246   $ (561 )   $ 7,452     $ 9,137       TIER TECHNOLOGIES, INC. Consolidated Statements of Operations—Discontinued Operations   Discontinued Operations (in thousands)   GBPO   PSSI   Eliminations   Total Six Months Ended March 31, 2008:       Revenues   $ 14,207   $ 13,641     $ —     $ 27,848 Costs and expenses: Direct costs 7,520 10,920 (282 ) 18,158 General and administrative 939 3,149 (29 ) 4,059 Selling and marketing 684 925 (10 ) 1,599 Depreciation and amortization — 39 — 39 Write-down of goodwill and intangibles     143     3,358       —       3,501 Total costs and expenses     9,286     18,391       (321 )     27,356 Income before other income and income taxes 4,921 (4,750 ) 321 492 Other income     25     304       —       329 Income before income taxes 4,946 (4,446 ) 321 821 Income tax provision     —     —       —       — Income before gain on discontinued operations 4,946 (4,446 ) 321 821 Gain on discontinued operations     —     —       11       11 Income from discontinued operations, net   $ 4,946   $ (4,446 )   $ 332     $ 832   Six Months Ended March 31, 2007: Revenues   $ 21,074   $ 14,319     $ —     $ 35,393 Costs and expenses: Direct costs 15,205 10,412 (163 ) 25,454 General and administrative 1,480 2,661 115 4,256 Selling and marketing 447 1,164 44 1,655 Depreciation and amortization 2 54 — 56 Write-down of goodwill and intangibles     —     —       —       — Total costs and expenses     17,134     14,291       (4 )     31,421 Income before other income and income taxes 3,940 28 4 3,972 Other income     —     —       —       — Income before income taxes 3,940 28 4 3,972 Income tax provision     —     —       —       — Income before gain on discontinued operations 3,940 28 4 3,972 Gain on discontinued operations     —     —       7,599       7,599 Income from discontinued operations, net   $ 3,940   $ 28     $ 7,603     $ 11,571