Tier Reports Fiscal 2008 First Quarter Results

Tier Technologies, Inc. (Nasdaq:TIER) today announced results for the quarter ended December 31, 2007 and provided updates on ongoing strategic growth initiatives. "During the first quarter of 2008, we continued to make progress toward divesting our non-core assets and building upon our already strong framework for our EPP business,” said Ronald Rossetti, Chairman and Chief Executive Officer for Tier. "Once we have divested these businesses and focus solely on growing our EPP business,” Mr. Rossetti continued, "I believe our EPP business will continue to provide long-term sustainable value for our shareholders.” Conference Call Tier will host a conference call today at 5:00 p.m. Eastern Time to discuss these results. To access the conference call, please dial (888) 335-3240 and provide conference ID #33127998. 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 #33127998 from approximately two hours after the end of the call until 11:59 p.m. Eastern Time on February 20, 2008. First Quarter Fiscal 2008 Results For the quarter ended December 31, 2007, Tier reported revenues of $29.2 million, an 11.7% increase over the same quarter last year; however, due to additional investments that Tier continues to make in further expanding and streamlining its EPP business, Tier reported a loss of $1.4 million, or $0.07 per fully diluted share, which represents a $3.6 million or 164% decrease over the results reported for the same quarter last year. Tier’s continuing operations, which includes corporate overhead that is shared by both continuing and discontinued operations, reported a loss of $2.9 million, or $0.15 per fully diluted share, while the Company’s discontinued operations reported income of $1.5 million, or $0.08 per fully diluted share. Tier’s continuing operations are composed of three major categories: Tier’s core EPP business, wind-down operations and corporate overhead, which supports both continuing and discontinued operations. Revenues from Tier’s core EPP business were $27.9 million, up $5.7 million or 26% from the same quarter last year. EPP revenues for the quarter were driven primarily by strong transaction and payment volume growth of 41% and 32%, respectively, from the same quarter last year. For the quarter, EPP generated income of $1.8 million, or $0.09 per fully diluted share. This represents a $0.1 million, or 7%, increase over the same quarter last year. The net income reported by EPP for the quarter was relatively constant compared to the same period last year primarily due to increased spending to support ongoing strategic growth initiatives. Wind-down operations reported a loss of $1.0 million, or $0.05 per fully diluted share. During fiscal 2008, we expect to complete the wind-down of two businesses that generated losses of $0.5 million during the current quarter and during the next five years we expect to wind-down a third business that generated an additional $0.5 million loss during the quarter. As our wind-down efforts progress, we expect that the performance of these units will improve in late fiscal 2008 and 2009. Tier’s corporate overhead, which includes the Company’s governance and shared-services, which support both continuing and discontinued operations, reported $3.7 million of net costs, or $0.19 per fully diluted share, during the first quarter of fiscal 2008. We expect the costs for these shared services to diminish significantly after we sell and/or wind-down our GBPO and PSSI businesses. Tier’s discontinued operations reported income of $1.5 million, or $0.08 per fully diluted share, a $0.8 million decrease from the same quarter last year. The income from discontinued operations for the quarter, which excludes the costs for shared corporate overhead, included a $0.3 million gain from the divestiture of the Company’s independent validation and verification business that was sold on December 31, 2007. The remaining $1.2 million of income from discontinued operations reported in the quarter was generated by GBPO and PSSI operations that are held-for-sale. Liquidity As of December 31, 2007, Tier had $77.2 million in cash and cash equivalents, and investments in marketable securities, and $11.5 million in restricted investments. During the three months ended December 31, 2007, Tier’s continuing and discontinued operations generated $4.9 million of cash, of which $1.8 million was generated by our continuing operations. 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   (in thousands) December 31, 2007   September 30, 2007 (unaudited) ASSETS: Current assets: Cash and cash equivalents $ 21,010 $ 16,516 Investments in marketable securities 56,140 57,815 Accounts receivable, net 5,396 5,083 Unbilled receivables 263 546 Prepaid expenses and other current assets 2,117 2,160 Assets of discontinued operations 208 504 Current assets—held-for-sale   36,049       36,201   Total current assets 121,183 118,825   Property, equipment and software, net 4,235 3,745 Goodwill 14,526 14,526 Other intangible assets, net 16,594 17,640 Restricted investments 11,526 11,526 Other assets   178       162   Total assets $ 168,242     $ 166,424     LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities: Accounts payable $ 1,065 $ 878 Accrued compensation liabilities 4,598 4,710 Accrued subcontractor expenses 611 522 Accrued discount fees 6,825 4,529 Other accrued liabilities 4,487 4,160 Deferred income 2,402 2,649 Liabilities of discontinued operations 164 304 Current liabilities—held-for-sale   10,961       10,958   Total current liabilities 31,113 28,710 Other liabilities   192       200   Total liabilities $ 31,305     $ 28,910     Commitments and contingencies   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: 20,429 and 20,425; shares outstanding: 19,545 and 19,541   187,271 186,417 Treasury stock—at cost, 884 shares (8,684 ) (8,684 ) Accumulated deficit   (41,650 )     (40,219 ) Total shareholders’ equity $ 136,937       137,514   Total liabilities and shareholders’ equity $ 168,242     $ 166,424   TIER TECHNOLOGIES, INC. Consolidated Statements of Operations   Three months endedDecember 31, (in thousands, except per share data)   2007       2006   Revenues $ 29,192     $ 26,136     Costs and expenses: Direct costs 22,402 19,276 General and administrative 7,248 5,446 Selling and marketing 2,113 1,766 Depreciation and amortization   1,296       1,332   Total costs and expenses   33,059       27,820   Loss from continuing operations before other income and income taxes   (3,867 )     (1,684 )   Other income: Equity in net income of unconsolidated affiliate — 809 Interest income, net   967       877   Total other income   967       1,686     (Loss) income from continuing operations before income taxes (2,900 ) 2 Income tax provision   16       60     Loss from continuing operations (2,916 ) (58 ) Income from discontinued operations, net   1,485       2,272     Net (loss) income $ (1,431 )   $ 2,214     (Loss) earnings per share—Basic and diluted From continuing operations $ (0.15 ) $ — From discontinued operations   0.08       0.11   (Loss) earnings per share—Basic and diluted $ (0.07 )   $ 0.11     Weighted average common shares used in computing: Basic and diluted (loss) earnings per share 19,543 19,499 TIER TECHNOLOGIES, INC. Consolidated Statements of Cash Flows   Three months ended December 31, (in thousands)   2007       2006   CASH FLOWS FROM OPERATING ACTIVITIES:   Net (loss) income $ (1,431 ) $ 2,214 Less: Income from discontinued operations, net   1,485       2,272   Loss from continuing operations, net (2,916 ) (58 ) Non-cash items included in net income: Depreciation and amortization 1,314 1,361 Loss on retirement of equipment and software — 1 Provision for doubtful accounts (225 ) (371 ) Equity in net income of unconsolidated affiliate — (809 ) Accrued forward loss on contract 99 (8 ) Share-based compensation 790 348 Impairment of assets (27 ) — Deferred rent 9 6 Net effect of changes in assets and liabilities: Accounts receivable and unbilled receivables 195 (1,658 ) Prepaid expenses and other assets 12 91 Accounts payable and accrued liabilities 2,734 302 Income taxes payable 15 199 Deferred income   (247 )     (181 ) Cash provided by (used in) operating activities from continuing operations 1,753 (777 ) Cash provided by operating activities from discontinued operations   3,122       4,900   Cash provided by operating activities   4,875       4,123   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (3,925 ) — Sales and maturities of marketable securities 5,600 — Purchase of restricted investments — (3,260 ) Sales and maturities of restricted investments — 3,312 Purchase of equipment and software (778 ) (285 ) Other investing activities   —       (1 ) Cash provided by (used in) investing activities from continuing operations 897 (234 ) Cash used in investing activities from discontinued operations   (1,269 )     (715 ) Cash used in investing activities   (372 )     (949 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 29 — Capital lease obligations and other financing arrangements   (36 )     (7 ) Cash used in financing activities from continuing operations (7 ) (7 ) Cash used in financing activities from discontinued operations   (2 )     (1 ) Cash used in provided by financing activities (9 ) (8 ) Effect of exchange rate changes on cash   —       (6 ) Net increase in cash and cash equivalents 4,494 3,160 Cash and cash equivalents at beginning of period   16,516       18,468   Cash and cash equivalents at end of period $ 21,010     $ 21,628   TIER TECHNOLOGIES, INC. Consolidated Statements of Operations—Continuing Operations   Continuing Operations (in thousands) EPP   Wind-down   Corporate &Eliminations   Total Quarter ended December 31, 2007:       Revenues $ 27,948   $ 1,382     $ (138 )   $ 29,192   Costs and expenses: Direct costs 21,118 1,284 — 22,402 General and administrative 2,310 591 4,347 7,248 Selling and marketing 1,887 118 108 2,113 Depreciation and amortization   833     372       91       1,296   Total costs and expenses   26,148     2,365       4,546       33,059   (Loss) income from continuing operations before other income and income taxes   1,800     (983 )     (4,684 )     (3,867 ) Other income: Interest income   —     —       967       967   Total other income   —     —       967       967   (Loss) income from continuing operations before taxes 1,800 (983 ) (3,717 ) (2,900 ) Income tax provision   16     —       —       16   (Loss) income from continuing operations $ 1,784   $ (983 )   $ (3,717 )   $ (2,916 ) Quarter ended December 31, 2006: Revenues $ 22,239   $ 3,967     $ (70 )   $ 26,136   Costs and expenses: Direct costs 16,582 2,694 — 19,276 General and administrative 1,313 553 3,580 5,446 Selling and marketing 1,556 203 7 1,766 Depreciation and amortization   803     367       162       1,332   Total costs and expenses   20,254     3,817       3,749       27,820   (Loss) income from continuing operations before other income and income taxes   1,985     150       (3,819 )     (1,684 ) Other income: Equity in net income of unconsolidated affiliate — — 809 809 Interest income   —     —       877       877   Total other income   —     —       1,686       1,686   Income (loss) from continuing operations before taxes 1,985 150 (2,133 ) 2 Income tax provision   60     —       —       60   (Loss) income from continuing operations $ 1,925   $ 150     $ (2,133 )   $ (58 ) TIER TECHNOLOGIES, INC. Consolidated Statements of Operations—Discontinued Operations   Discontinued Operations (in thousands) GBPO   PSSI   Eliminations   Total Quarter Ended December 31, 2007:               Revenues $ 6,896   $ 6,610     $ —     $ 13,506 Costs and expenses:       Direct costs 4,134 5,047 (138 ) 9,043 General and administrative 387 1,501 41 1,929 Selling and marketing 551 368 15 934 Depreciation and amortization — 20 — 20 Write-down of goodwill and intangibles   25     373       —       398 Total costs and expenses   5,097     7,309       (82 )     12,324 Income before other income and income taxes 1,799 (699 ) 82 1,182 Other income   —     303       —       303 Income before income taxes 1,799 (396 ) 82 1,485 Income tax provision   —     —       —       — Income from discontinued operations, net $ 1,799   $ (396 )   $ 82     $ 1,485 Quarter Ended December 31, 2006:               Revenues $ 9,220   $ 7,364     $ —     $ 16,584 Costs and expenses: Direct costs 6,750 4,894 (114 ) 11,530 General and administrative 658 1,144 192 1,994 Selling and marketing 198 563 — 761 Depreciation and amortization 1 26 — 27 Write-down of goodwill and intangibles   —     —       —       — Total costs and expenses   7,607     6,627       78       14,312 Income before other income and income taxes 1,613 737 (78 ) 2,272 Other income   —     —       —       — Income before income taxes 1,613 737 (78 ) 2,272 Income tax provision   —     —       —       — Income from discontinued operations, net $ 1,613   $ 737     $ (78 )   $ 2,272