<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 2, 1999
SECURITY FIRST TECHNOLOGIES CORPORATION
---------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-24931 58-2395199
- ------------------------------------ ------------------ ---------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
3390 PEACHTREE ROAD, NE, SUITE 1700, ATLANTA, GEORGIA 30326
------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (404) 812-6200
----------------
NOT APPLICABLE
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On November 2, 1999, Security First Technologies Corporation ("S1")
issued a press release describing its results of operations for the third
quarter of 1999. That press release is filed as Exhibit 99.1 to this report.
Also on November 2, 1999, S1 held an analyst conference call during which S1
discussed its third quarter results and presented certain other material
relating to S1 and its operations. That material is filed as Exhibit 99.2 to
this report.
On November 2, 1999, S1 and Intuit Inc. entered into Amendment No. 1
to the certain Stock Purchase and Option Agreement between the parties dated
May 16, 1999. A complete copy of Amendment No. 1 is filed as Exhibit 10.1 to
this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.1 Amendment No. 1 to Stock Purchase and Option Agreement
dated as of November 2, 1999 by and between S1 and
Intuit Inc.
99.1 Press release, dated November 2, 1999.
99.2 Materials presented during analyst conference call held
November 2, 1999
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SECURITY FIRST TECHNOLOGIES CORPORATION
---------------------------------------
(Registrant)
/s/ Lisa Wilkie
---------------------------------
Lisa Wilkie
Controller
Date: November 3, 1999
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.1 Amendment No. 1 to Stock Purchase and Option Agreement,
dated as of November 2, 1999 by and between S1 and
Intuit Inc.
99.1 Press release, dated November 2, 1999.
99.2 Materials presented during analyst conference call held
November 2, 1999
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1 TO STOCK PURCHASE AND OPTION AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AND OPTION AGREEMENT (the
"Amendment") is dated as of the 2nd day of November, 1999, and is entered into
by and between Security First Technologies Corporation, a Delaware corporation
(the "Corporation") and Intuit Inc., a Delaware corporation ("Purchaser").
RECITALS:
A. The parties hereto have previously entered into that
certain Stock Purchase and Option Agreement, dated May 16, 1999 (the
"Agreement"), pursuant to which Purchaser agreed to purchase a certain number of
shares of Common Stock (as such term is defined in the Agreement) of the
Corporation and the Corporation granted Purchaser an option to purchase
additional shares of Common Stock upon the terms and conditions contained in the
Agreement.
B. The parties desire to amend and replace Section 2.1 of the
Agreement.
C. All capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual promises, representations, warranties, covenants and conditions set forth
herein and in the Agreement, the sufficiency of which is hereby acknowledged,
the parties mutually agree as follows:
SECTION 1. AMENDMENT.
Effective as of the date hereof, Section 2.1 of the Agreement
shall be deleted and the following shall be substituted in lieu thereof:
"2.1 GRANT OF OPTION.
The Corporation does hereby grant to Purchaser an option (the
"Option") to subscribe for and purchase 3,029,187 shares of Common Stock;
provided, however, that (1) if the Corporation closes on the "Merger," as
contemplated by and defined in that certain Agreement and Plan of Merger
dated as of May 16, 1999 (the "Edify Agreement") by and among the
Corporation, Sahara Strategy Corporation and Edify Corporation (the
"Edify Business Combination Transaction") on or
<PAGE> 2
before March 31, 2000, the number of shares constituting the Option
Shares shall be increased by 600,000; and (2) if the Corporation closes
on both (x) the "Transaction," as contemplated by and defined in that
certain Share Purchase Agreement II dated as of September 21, 1999, by
and among S1 Europe Holdings N.V., a Belgian corporation (naamloze
vennootschap ("N.V.")) and a subsidiary of the Corporation, each of the
stockholders of FICS Group N.V., a Belgian corporation registered with
the Brussels Registry of Commerce under number 515450 ("FICS"), who are
signatories thereto, and as may be joined by other stockholders from time
to time, and for the limited purposes stated herein, S1 and FICS (the
"Share Purchase Agreement II"), and (y) the "S1 Issuance" as contemplated
by and defined in that certain Stock Purchase Agreement II dated as of
September 21, 1999 by and among the Corporation, the individuals and
entities who are signatories thereto, and as may be joined by other
individuals and entities from time to time (the "Stock Purchase Agreement
II"), and for the limited purposes set forth therein, FICS, on or before
March 31, 2000, then the number of shares constituting the Option Shares
shall be increased by 950,000; and (3) the number of shares constituting
the Option Shares shall be increased by a number of shares equal to 9.9%,
rounded to the nearest whole number, of the total number of shares of
Common Stock sold from time to time pursuant to Section 1.2 of the Stock
Purchase Agreement II, up to a maximum of 445,000 Option Shares; and (4)
the maximum number of shares constituting the Option Shares shall never
exceed the difference between (A) 5,995,000 and (B) the total number of
shares of Common Stock "beneficially owned" as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), by Purchaser or any "affiliate" as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of Purchaser,
excluding the Option Shares. The Option shall vest and therefore become
exercisable, if at all, only upon the closing of the Edify Business
Combination Transaction as contemplated by Section 9.1 of the Edify
Agreement (the "Edify Closing"). If the Edify Closing does not occur on
or before March 31, 2000, the Option will be void in all respects. If
vested, the Option shall be exercisable, in whole or in part, at any time
from the date of the Edify Closing until 5:00 p.m. Eastern time on the
fifth anniversary of the Closing hereunder."
SECTION 2. AGREEMENT OTHERWISE UNCHANGED.
Except as otherwise specifically amended herein, the balance of
the Agreement shall remain unchanged and in full force and effect.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to Stock Purchase and Option Agreement to be executed and delivered as of
the date first above written.
SECURITY FIRST TECHNOLOGIES CORPORATION
By: /s/ Robert F. Stockwell
---------------------------------------
Name: Robert F. Stockwell
Title: Chief Financial Officer
INTUIT INC.
By: /s/
---------------------------------------
Name:
Title:
-3-
<PAGE> 1
Exhibit 99.1
CONTACTS:
FINANCIAL/INVESTOR: MEDIA:
Bob Zwerneman Marcy Theobald
Vice President of Investor Relations Public Relations Manager
Security First Security First Technologies
Technologies
404-812-6225 404-812-6254
[email protected] [email protected]
SECURITY FIRST TECHNOLOGIES REPORTS RECORD
THIRD QUARTER 1999 AND NINE MONTHS RESULTS
HIGHLIGHTS:
- - EXCLUDING OTHER REVENUES, REVENUES INCREASED 233% OVER THIRD QUARTER
1998 AND 25% OVER SECOND QUARTER 1999
- - INCLUDING OTHER REVENUES, REVENUES INCREASED 279% OVER THIRD QUARTER
1998 AND 58% OVER SECOND QUARTER 1999
- - GROSS MARGINS IMPROVED 439% OVER THIRD QUARTER 1998 AND 42% OVER
PREVIOUS QUARTER
- - EXCLUDING CHARGES TIED TO THE FORTHCOMING ACQUISITIONS OF EDIFY, FICS
AND VERTICALONE, EBITDA TOTALED ($140) THOUSAND
- - EXCLUDING CHARGES RELATED TO ACQUISITIONS, THE COMPANY POSTED A NET LOSS
OF $0.8 MILLION OR $0.03 PER SHARE.
- - TOTAL NUMBER OF DATA CENTER END USERS INCREASED 112% YEAR OVER YEAR AND
ROSE 42% OVER SECOND QUARTER 1999
- - TOTAL VFM END USER ACCOUNTS AT SEPTEMBER 30 INCREASED TO NEARLY 1.2
MILLION, UP FROM 387 THOUSAND A YEAR AGO
- - THE COMPANY RECEIVED ALL REQUIRED REGULATORY CLEARANCES FOR ITS
ACQUISITIONS OF EDIFY, FICS AND VERTICALONE. STOCKHOLDER MEETING TO VOTE
ON ACQUISITIONS SCHEDULED FOR NOVEMBER 10, 1999
ATLANTA, NOVEMBER 2, 1999 - Security First Technologies Corporation
(NASDAQ:SONE), a leading provider of Internet-based applications for the
financial services industry, reported revenues of $24.8 million for the quarter
ended September 30, 1999, a 279% increase from $6.5 million for the quarter
ended September 30, 1998. Software licenses revenues were $2.3 million, or 111%
above the prior year. Professional services revenues increased to $14.8 million
in the third quarter 1999, a 294% increase over the prior year quarter. Data
Center revenues of $2.1 million in the third quarter were 124% above the level
recorded during the same period last year. Other revenue of $5.7 million
represented the re-sale of third-party software and equipment for key customers
that have contracted with the Company on a turnkey basis for both software and
services.
<PAGE> 2
The Company recorded a 42% sequential increase in the number of end
users processed through the Securities First Technologies Data Center. Data
Center revenues were essentially flat versus the immediate prior quarter due
largely to the Company's minimum fee structure.
Excluding Other Revenues, gross margin for the third quarter 1999
improved to 44%, up from 31% in the third quarter 1998 and stable with the
immediate prior quarter. Additional costs at the Company's new Norcross-based
Technology Center, which became operational in the middle of the third quarter,
caused the Data Center margin to post a negative gross margin of $91 thousand.
As previously announced, this new center adds significant capacity for the
Company's future growth.
At September 30, 1999, the number of accounts powered by Security First
Technologies increased to nearly 1.2 million, up 201% or an addition of 778
thousand over September 30, 1998. The estimated total number of Virtual
Financial Manager(TM) (VFM) end users increased to 444 thousand as of September
30, 1999, a 193% increase from September 30, 1998 and a 41% increase
sequentially.
In the third quarter 1999, Security First Technologies incurred a net
loss from continuing operations of approximately $2.7 million, or $0.10 per
share, compared to $5.1 million, or $0.23 per share, for the third quarter 1998.
Excluding merger and integration charges related to the previously announced
acquisitions of Edify Corporation, FICS Group N.V. and VerticalOne Corporation,
the Company reported a third quarter loss of $800 thousand or $0.03 per share.
Excluding acquisition charges, for the nine months ended September 30, 1999,
Security First Technologies incurred a net loss from continuing operations of
$5.8 million, or $0.22 per share compared to $17.0 million, or $0.79 per share,
for the nine months ended September 30, 1998.
Excluding charges related to acquisitions, Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) continued to improve to almost
breakeven for the third quarter 1999, compared to a negative $5.0 million in the
prior year quarter.
FINANCIAL SUMMARY:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS
THIRD QUARTER ENDED SEPTEMBER 30
- ---------------------- -------------------------
1999 1998 1999 1998
---------- --------- --------- -------
<S> <C> <C> <C> <C>
Revenues $ 24,799 $ 6,545 $ 52,474 $ 14,522
Operating loss $ 3,456 $ 5,131 $ 9,630 $ 21,740
Loss from
continuing operations(1) $ 828 $ 4,969 $ 5,792 $ 17,017
Loss per share(1) $ 0.03 $ 0.22 $ 0.22 $ 0.79
EBITDA(1) ($ 141) ($ 4,260) ($ 3,397) ($ 15,409)
EBITDA per share (1) ($ 0.01) ($ 0.19) ($ 0.13) ($ 0.72)
Average shares
outstanding 27,268 22,351 26,137 21,647
</TABLE>
(1) Excludes charges in the amounts of $1.85 million for 3Q99, $0.11 million for
3Q98 and $2.31 million and $4.28 million for the first nine months of 1999 and
1998 respectively for amortization of goodwill and acquisition charges.
<PAGE> 3
"Our third quarter performance continues to highlight the strengths of
our technology and the successful execution of our business plan," said James S.
Mahan III, chief executive officer of Security First Technologies. "Since we
believe that our success is tied to our customers' success, we continued to
focus on enhancing our solutions with the announced acquisition agreement with
VerticalOne and through establishing relationships with leading solutions
providers such as Reuters and FinanCenter. With our critical mass of customers,
partners, and resources, we intend to continue to serve as the catalyst for the
development of industry standards, the delivery of robust applications that
address global needs, and the acceptance of Internet financial services by the
mass markets that our customers serve."
"We are especially proud that EBITDA, excluding integration costs, were
nearly breakeven at the end of the third quarter, ahead of schedule," added
Robert F. Stockwell, executive vice president and chief financial officer.
"Additionally, during the third quarter we made significant progress identifying
the critical steps we intend to take over the next 18 months to efficiently
integrate global operations without disrupting revenue growth. Moreover, unlike
many companies, we do not anticipate any revenue shortfall as a result of Y2K."
ACQUISITION DEVELOPMENTS
During the third quarter of 1999, Security First Technologies made
several strategic announcements. To further extend its product offering, on
September 24, 1999, Security First Technologies announced plans to acquire
Atlanta-based VerticalOne Corporation in a deal valued at $166 million. Under
the terms of the agreement, Security First Technologies will issue VerticalOne
stockholders approximately 3.86 million shares of common stock. Security First
Technologies will also issue approximately 2.5 million Security First
Technologies options both in exchange for VerticalOne options held by employees
and for new options issued to VerticalOne employees.
Earlier this year, Security First Technologies announced plans to
acquire Edify Corporation (NASDAQ:EDFY), a Santa Clara, California-based leading
global provider of Internet and voice e-Commerce portal solutions, and FICS
Group, N.V., a Brussels, Belgium-based leading vendor of financial electronic
commerce and regulatory reporting software. Although the terms of the Edify
agreement remain unchanged, Security First Technologies announced in the third
quarter 1999 a new FICS agreement which calls for Security First Technologies to
issue 10 million shares of its common stock to FICS shareholders and provides
the FICS stockholders the ability to receive up to an additional 4.5 million
shares if FICS meets certain financial goals through approximately the first
quarter of 2002. In addition, Security First Technologies will exchange
approximately 1.2 million Security First Technologies options for the currently
outstanding options held by FICS employees and will grant an additional 2.8
million Security First Technologies options to FICS employees. The value of the
FICS deal is $556 million.
In connection with the FICS, Edify and VerticalOne transactions,
Security First Technologies has received all regulatory clearances related to
the acquisitions. Security First Technologies shareholders are scheduled to vote
on the announced acquisitions of Edify, FICS and VerticalOne, as well as a
corporate name change to 'S1 Corporation', at a special shareholder meeting on
November 10, 1999. Assuming shareholders vote in favor of the transactions, the
acquisitions are expected to close shortly thereafter.
<PAGE> 4
GROWTH/KEY INITIATIVES
During the third quarter 1999, the company announced the launch of its
Technology Center in Norcross, Georgia. The new Technology Center, which houses
the Data Center and other operations, was launched in order to accommodate the
Internet banking industry's explosive growth and to meet its customers'
increasing outsourcing needs. In conjunction with the new Technology Center
launch, Security First Technologies announced its partnership with Comdisco to
provide the Internet-based financial services industry's most advanced recovery
services available, with its most aggressive service ensuring full systems
recovery for its Data Center customers in less than an hour.
In an effort to further enhance its VFM suite of Internet-based
financial services solutions, Security First Technologies announced in the third
quarter 1999 that it has partnered with Reuters to offer news content and
personalized investment information through its latest Internet-based financial
services application, VFM Relationship Management(TM). In addition, the Company
established a relationship with FinanCenter, Inc., one of the leading providers
of online financial calculators, to offer the CalcBuilder(TM) brand of personal
financial calculators to its customers through VFM. Also in the third quarter
1999, Security First Technologies announced that its Customer Engagements team
has successfully migrated all of its required direct financial institution
customers to VFM 4.0.
In September, Security First Technologies had its annual Users
Conference & Strategy Forum in Atlanta, Georgia. "We received an extremely
positive response from our customers and partners who attended our Users
Conference & Strategy Forum," continued Mahan. "The Forum allowed us the
opportunity to showcase our technology and talent to current and prospective
customers of all sizes. As important, in a week-long meeting in Atlanta in early
October, our sales and marketing teams re-committed to the new S1 Corporation
and its effort to become the leading Internet-based financial services
provider."
ABOUT SECURITY FIRST TECHNOLOGIES
Security First Technologies (NASDAQ: SONE) builds, delivers and operates
integrated, transactional and brandable Internet applications for financial
institutions. Security First Technologies' secure solutions are available for
in-house implementations or can be outsourced to the Security First Technologies
Data Center. Security First Technologies also offers training, product
integration and customer service center outsourcing. Security First
Technologies, through direct sales and channel partnerships, has agreed to
provide software applications and technology to more than 100 financial
entities. Security First Technologies can be reached at www.s1.com.
The Company will hold a conference call to discuss third quarter 1999
results at 5:00 PM EST on November 2, 1999. To listen to the call, please visit
www.vcall.com.
FORWARD-LOOKING STATEMENTS
Statements in this news release concerning future results, performance,
expectations or intentions are forward-looking statements. Actual results,
performance or developments may differ materially from forward-looking
statements as a result of known or unknown
<PAGE> 5
risks, uncertainties and other factors, including those identified in the
Company's filings with the Securities and Exchange Commission, press releases
and other public communications.
<PAGE> 6
SECURITY FIRST TECHNOLOGIES CORPORATION AND
SECURITY FIRST TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share, per customer and per employee data)
(Unaudited)
<TABLE>
<CAPTION>
9/30/1998 12/31/1998 3/31/1999 6/30/1999 9/30/1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $ 1,069 $ 2,273 $ 2,308 $ 2,330 $ 2,260
Professional services 3,748 4,942 7,722 10,911 14,769
Data center 927 1,350 1,547 2,044 2,072
Other 801 1,093 423 390 5,698
------------ ------------ ----------- --------- --------
Total revenues 6,545 9,658 12,000 15,675 24,799
------------ ------------ ----------- --------- --------
Direct costs:
Software licenses 20 443 133 99 99
Professional services 2,028 2,928 4,978 6,463 8,512
Data center 1,937 1,633 1,687 2,029 2,163
Other 778 993 344 333 4,425
------------ ------------ ----------- --------- --------
Total direct costs 4,763 5,997 7,142 8,924 15,199
------------ ------------ ----------- --------- --------
Gross margin 1,782 3,661 4,858 6,751 9,600
Operating expenses:
Selling and marketing 955 1,560 1,079 1,174 1,153
Product development 3,717 3,918 4,375 4,514 5,296
General and adminstrative 1,370 2,184 1,592 2,132 3,291
Depreciation and amortization 761 3,297 1,194 1,267 1,465
Amortization of goodwill and acquisition charges 110 103 103 353 1,851
------------ ------------ ----------- --------- --------
Total operating expenses 6,913 11,062 8,343 9,440 13,056
------------ ------------ ----------- --------- --------
Operating loss (5,131) (7,401) (3,485) (2,689) (3,456)
Interest income 52 141 227 527 777
------------ ------------ ----------- --------- --------
--------------------------------------------------------------
Loss from continuing operations (5,079) (7,260) (3,258) (2,162) (2,679)
Loss from discontinued operations (750) (170) - - -
------------ ------------ ----------- --------- --------
Net loss $ (5,829) $ (7,430) $ (3,258) $ (2,162) $ (2,679)
------------ ------------ ----------- --------- --------
EBITDA $ (5,010) $ (4,171) $ (2,188) $ (1,319) $ (1,991)
EBITDA (2) $ (5,010) $ (4,171) $ (2,188) $ (1,069) $ (140)
Net loss per common share:
Loss per common share from continuing operations before one
time charges, amortization of goodwill and acquistion
charges $ (0.22) $ (0.20) $ (0.13) $ (0.07) $ (0.03)
Loss per common share from one time charges, amortization of
goodwill and acquisition charges (0.01) (0.11) - (0.01) (0.07)
------------ ------------ ----------- --------- --------
Loss per common share from continuing operations (0.23) (0.31) (0.13) (0.08) (0.10)
Loss per common share from discontinued operations (0.03) (0.01) - - -
------------ ------------ ----------- --------- --------
Net loss per common share $ (0.26) $ (0.32) $ (0.13) $ (0.08) $ (0.10)
------------ ------------ ----------- --------- --------
Weighted average common shares outstanding 22,351,474 23,193,948 24,698,334 26,051,942 27,628,446
Common shares outstanding at end of period 22,606,688 24,527,004 25,076,292 27,557,074 27,701,489
Gross margin percentages:
Software licenses $ 1,049 $ 1,830 $ 2,175 $ 2,231 $ 2,161
Percentage 98% 81% 94% 96% 96%
Professional services $ 1,720 $ 2,014 $ 2,744 $ 4,448 $ 6,257
Percentage 46% 41% 36% 41% 42%
Data center $ (1,010) $ (283) $ (140) $15 $ (91)
Percentage (109%) (21%) (9%) 1% (4%)
------------ ------------ ----------- --------- --------
Gross margin before other revenue $ 1,759 $ 3,561 $ 4,779 $ 6,694 $ 8,327
------------ ------------ ----------- --------- --------
Percentage 31% 42% 41% 44% 44%
------------ ------------ ----------- --------- --------
Other $ 23 $ 100 $ 79 $ 57 $ 1,273
Percentage 3% 9% 19% 15% 22%
------------ ------------ ----------- --------- --------
Total gross margin $ 1,782 $ 3,661 $ 4,858 $ 6,751 $ 9,600
------------ ------------ ----------- --------- --------
Percentage 27% 38% 40% 43% 39%
------------ ------------ ----------- --------- --------
Data center revenue per quarterly average customers $ 14.75 $ 15.21 $ 15.99 $ 18.34 $ 14.52
Professional services revenue per average professional services FTE $ 54,000 $ 51,000 $ 60,000 $65,000 $81,000
Number of end-users:
Data center 77,000 93,000 100,200 114,500 163,000
Third party data processors 7,500 16,000 24,000 38,000 71,000
Direct software licensees(1) 67,000 104,000 139,000 162,000 209,500
--------------------------------------------------------------
Total 151,500 213,000 263,200 314,500 443,500
--------------------------------------------------------------
Number of end-user accounts:
Data center 128,000 148,000 161,000 181,000 254,000
Third party data processors 15,000 42,000 62,000 104,000 202,000
Direct software licensees(1) 244,000 352,000 469,000 547,000 709,000
--------------------------------------------------------------
Total 387,000 542,000 692,000 832,000 1,165,000
--------------------------------------------------------------
</TABLE>
(1)Information is based on discussions with officials of direct licensees.
(2)Excludes charges in the amounts of $250 thousand in Q299 and $1.85 million
for Q399 for acquisition charges.
<PAGE> 7
SECURITY FIRST TECHNOLOGIES CORPORATION AND
SECURITY FIRST TECHNOLOGIES, INC.
Selected Financial Data
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- --------------------------------
1999 1998 1999 1998
----------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 2,260 $ 1,069 $ 6,898 $ 2,508
Professional services 14,769 3,748 33,402 8,805
Data center 2,072 927 5,663 1,831
Other 5,698 801 6,511 1,378
----------------------------------- --------------------------------
Total revenues 24,799 6,545 52,474 14,522
----------------------------------- --------------------------------
Direct costs:
Software licenses 99 20 331 60
Professional services 8,512 2,028 19,953 5,314
Data center 2,163 1,937 5,879 5,585
Other 4,425 778 5,102 1,292
----------------------------------- --------------------------------
Total direct costs 15,199 4,763 31,265 12,251
----------------------------------- --------------------------------
Gross margin 9,600 1,782 21,209 2,271
----------------------------------- --------------------------------
Operating expenses:
Selling and marketing 1,153 955 3,406 3,163
Product development 5,296 3,717 14,185 10,707
General and administrative 3,291 1,370 7,015 3,810
Depreciation and amortization 1,465 761 3,926 2,050
Amortization of goodwill and acquisition charges 1,851 110 2,307 4,281
----------------------------------- --------------------------------
Total operating expenses 13,056 6,913 30,839 24,011
----------------------------------- --------------------------------
Operating loss (3,456) (5,131) (9,630) (21,740)
Interest income 777 52 1,531 442
----------------------------------- --------------------------------
Loss from continuing operations (2,679) (5,079) (8,099) (21,298)
Loss from discontinued operations - (750) - (2,077)
----------------------------------- --------------------------------
Net loss $ (2,679) $ (5,829) $ (8,099) $ (23,375)
----------------------------------- --------------------------------
Net loss per common share:
Loss per common share from continuing operations
before one time charges, amortization of goodwill
and acquisition charges $ (0.03) $ (0.22) $ (0.22) $ (0.79)
Loss per common share from one time charges,
amortization of goodwill and acquisition charges $ (0.07) $ (0.01) $ (0.09) $ (0.20)
----------------------------------- --------------------------------
Loss per common share from continuing operations $ (0.10) $ (0.23) $ (0.31) $ (0.99)
Loss per common share from discontinued
operations $ - $ (0.03) $ - $ (0.09)
----------------------------------- --------------------------------
Net loss per common share $ (0.10) $(0.26) $ (0.31) $ (1.08)
----------------------------------- --------------------------------
Weighted average common shares outstanding 27,628,446 22,351,474 26,136,974 21,646,646
Common shares outstanding at end of period 27,701,489 22,606,688 27,701,489 22,606,688
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------------------
<S> <C> <C>
Cash 28,830 14,504
Investment securities 16,367 3,936
Accounts receivable, net 22,141 17,520
Other current assets 7,559 1,310
Noncurrent assets 46,357 11,023
Total assets 121,254 48,293
Liabilities 34,343 31,064
Stockholders' equity 86,911 17,229
</TABLE>
<PAGE> 1
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]
<PAGE> 2
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.
<PAGE> 3
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.
<PAGE> 4
SLIDE 4
FINANCIAL RESULTS
(AS REPORTED)
<TABLE>
<CAPTION>
ACTUAL CONSENSUS VARIANCE
------- ----------- ----------
<S> <C> <C> <C>
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
</TABLE>
[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.
<PAGE> 5
SLIDE 5
ANALYSIS OF 3Q RESULTS
(AS REPORTED VS. NORMALIZED)
<TABLE>
<CAPTION>
"NORMALIZED"
REPORTED ADJUSTMENTS BUSINESS
-------- ----------- ------------
<S> <C> <C> <C>
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)
</TABLE>
[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.
<PAGE> 6
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.
<PAGE> 7
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.
<PAGE> 8
SLIDE 8
GROSS MARGIN PERCENTAGES
<TABLE>
<CAPTION>
Q3 98 Q4 98 Q1 99 Q2 99 Q3 99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
[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.
<PAGE> 9
SLIDE 9
VFM USERS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
GROWTH OVER AVERAGE
NUMBER SEP 30, 1998 REV/CUSTOMER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
[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.
<PAGE> 10
SLIDE 10
[GRAPH OF TOTAL END USER CUSTOMERS]
<TABLE>
<CAPTION>
Number
of End
Users 25,000 27,000 50,000 102,000 151,500 213,000 263,200 314,500 443,500
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter Q397 Q497 Q198 Q298 Q398 Q498 Q199 Q299 Q399
</TABLE>
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.
<PAGE> 11
SLIDE 11
CASH FLOW
<TABLE>
<CAPTION>
Q3 98 Q4 98 Q1 99 Q2 99 Q3 99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
[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.
<PAGE> 12
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.
<PAGE> 13
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]
<PAGE> 14
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]
<PAGE> 15
SLIDE 15
THANK YOU FOR YOUR TIME!
