ORCC Online Resources Corp. (MM)

Online Resources Corporation (NASDAQ: ORCC), a leading provider of digital financial services, today reported its financial and operating results for the three months ended September 30, 2012.

• Revenue was $41.3 million, compared to $38.4 million in the third quarter of 2011.
• Net loss available to common stockholders was $0.2 million, or $0.01 per share, compared to a net loss of $1.7 million, or $0.05 per share, in the third quarter of 2011.
• Ebitda, a non-GAAP measure, was $6.8 million, compared to $5.7 million in the third quarter of 2011.
• Adjusted Ebitda, a non-GAAP measure that adjusts Ebitda for equity compensation expense and other expenses, was $7.8 million, compared to $7.1 million in the third quarter of 2011.
• Core net income, a non-GAAP measure, was $1.8 million, or $0.05 per diluted share, compared to $0.7 million, or $0.02 per diluted share, in the third quarter of 2011.

“Revenue and earnings were better than expected in the third quarter,” said Joseph L. Cowan, president and chief executive officer of Online Resources. “During the quarter we benefited from higher professional services revenue in our banking business that is non-recurring in nature. Excluding the higher professional services revenue, revenue and earnings would still have been at the high end of guidance.”

“As can be seen from the sequential decline in earnings in the third quarter, we have entered the major investment stage of our strategic growth plan,” he added. “We anticipate that these investments will continue to grow in the fourth quarter of 2012. These investments in product management, marketing, sales and client services, operations and technology should allow us to drive increased revenue and earnings growth in late 2013 and beyond.”

Outlook for Fourth Quarter 2012

Online Resources provided the following guidance for the fourth quarter of 2012. These statements are forward-looking, and actual results may differ materially.

• Revenue for the quarter is expected to be between $39.1 and $41.1 million.
• Ebitda1,2 for the quarter is expected to be between $3.5 and $5.0 million
• Adjusted Ebitda1,2,5 for the quarter is expected to be between $4.9 and $6.2 million.
• Core net income1,3,4,5,6 is expected to be between $0.00 and $0.02 per share.

(1)   The Company uses non-GAAP (Generally Accepted Accounting Principles) financial measures, including Ebitda, adjusted Ebitda and core net income, to evaluate performance and establish goals. It believes that these measures are valuable to investors in assessing the Company’s operating results when viewed in conjunction with GAAP results.   (2) Ebitda is defined as net income (loss) before interest, taxes, depreciation and amortization expense. Adjusted Ebitda is defined as net income (loss) before interest, taxes, depreciation and amortization, equity compensation expense, reserve for potential legal liability, strategic alternatives process costs, transition costs (including severance, retention, advisory and ORCC India start up costs) and other income (expense). Some or all of these items may not be applicable in any given reporting period.   (3) Core net income is defined as net income (loss) available to common stockholders before, on a pre-tax basis unless otherwise noted, the amortization of acquisition-related intangible assets, equity compensation expense, income tax benefit or expense from the change in valuation allowance, income (costs) related to the fair market valuation of certain derivatives and mark-to-market investments, preferred stock accretion related to the redemption premium, reserve for potential legal liability, net of tax, strategic alternatives process costs, net of tax, transition costs (including severance, retention, advisory and ORCC India start up costs), net of tax, and all other non-recurring charges. Some or all of these items may not be applicable in any given reporting period.   (4) Excludes estimates for amortization of acquisition-related intangible assets of $0.6 million, equity compensation expense of $0.9 million and preferred stock accretion related to the redemption premium of $0.4 million.   (5) Adjusted Ebitda and core net income exclude $0.3 million in transition costs. These costs are tax-effected in the calculation of core net income.   (6) Core net income per share calculated using estimated shares outstanding of 33.3 million.  

Conference Call and Web Cast

The Company’s management will host a conference call to discuss the results at 5:00 p.m. EST today. The conference call dial-in number is (877) 303-6496 for domestic participants and (707) 287-9318 for international participants. Alternatively, a live web cast of the conference call will be available through the "Investors" section of Online Resources' web site at www.orcc.com. The conference call and web cast will be recorded and available for playback from 8:00 p.m. EST on November 8th until midnight on Thursday, November 15th. For the conference call playback, dial (855) 859-2056 for domestic participants and (404) 537-3406 for international participants and enter code 58810948. For web cast replay, go to the “Investors” section of www.orcc.com.

About Online Resources Corporation

Online Resources Corporation (NASDAQ: ORCC) powers financial interactions between millions of consumers and the company’s financial institution and biller clients. Backed by its proprietary payments gateway that links banks directly with billers, the company provides web and phone-based financial services, electronic payments and marketing services to drive consumer adoption. Founded in 1989, Online Resources is the largest financial technology provider dedicated to the online channel. For more information, visit www.orcc.com.

This news release contains forward-looking statements based on Online Resources Corporation management's current expectations and beliefs and a number of assumptions concerning future events made with information that is currently available. The words "will," "would," "may," "should," "estimate," "project," "forecast," "intend," "expect," "believe," "target," "designed," "plan," and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are not a guarantee of any results or performance and are subject to a number of known and unknown risks, uncertainties and other factors which could cause actual performance or results to differ materially and adversely from any results or performance expressed or implied by such forward-looking statements. Certain factors that might cause such a difference include, but are not limited to: a history of losses and anticipation of future losses; potential fluctuations in operating results; dependence on the marketing efforts of third parties; potential loss of one or more material clients; potential need for additional capital; potential inability to prevent systems failures and security breaches; potential inability to expand certain services and products in the event of a substantial increase in demand for such services and products; competitive pressures; ability or inability to attract and retain skilled personnel; reliance on patents and other intellectual property; potential change in the rate of user adoption of certain products and services; exposure to consolidation in the financial services industry; and government regulatory developments. For a more detailed description of the factors that could cause such differences, readers are advised to review Online Resources Corporation’s latest filings with the Securities and Exchange Commission, including (but not limited to) the information provided under the heading "Risk Factors" in our latest Annual Report on Form 10-K (which filings are available, among other places, from the SEC's EDGAR database at www.sec.gov and via the Company's website at www.ORCC.com). Online Resources assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Online Resources Corporation Quarterly Operating Data (In millions, Unaudited)                 4Q10   1Q11   2Q11   3Q11   4Q11   1Q12   2Q12   3Q12 BANKING SERVICES Payment Services - Full Service Revenue $8.2 $8.4 $8.1 $7.8 $7.9 $7.8 $7.6 $7.5 Bill Payment Transactions 11.1 11.6 11.3 11.3 11.4 11.5 11.4 11.5   Payment Services - Remittance Revenue $6.5 $5.9 $5.6 $5.5 $5.1 $5.3 $4.8 $4.5 Bill Payment Transactions - LCR 6.3 6.6 6.7 6.0 6.0 6.1 6.0 5.8 Bill Payment Transactions - Non LCR 20.5 19.8 19.3 19.4 19.0 19.8 19.3 18.9   Other Revenue $7.7 $6.8 $7.2 $6.9 $7.2 $6.7 $6.3 $8.2   EBPP SERVICES Payment Services - User Paid Revenue $3.9 $4.7 $4.5 $4.7 $4.7 $5.8 $5.4 $5.5 Bill Payment Transactions 1.4 1.6 1.6 1.7 1.7 1.9 1.6 1.7   Payment Services - Biller Paid Revenue $8.8 $10.8 $10.0 $10.1 $10.1 $12.0 $11.6 $11.9 Bill Payment Transactions 17.9 20.5 19.6 20.5 21.0 22.8 23.2 23.9   Other Revenue $2.6 $2.7 $3.1 $3.4 $3.7 $3.7 $4.7 $3.7   Online Resources Corporation Consolidated Statements of Operations (In thousands, except per share data)     THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,   2012       2011     2012       2011   (Unaudited) (Unaudited) Revenues: Account presentation services $ 2,744 $ 2,918 $ 8,548 $ 8,378 Payment services 29,384 28,082 89,662 85,948 Relationship management services 1,505 1,664 4,565 5,195 Professional services and other   7,661     5,747     20,234     16,497   Total revenues 41,294 38,411 123,009 116,018   Expenses: Cost of revenues   21,691     21,194     62,362     63,960   Gross profit 19,603 17,217 60,647 52,058   General and administrative 8,743 7,966 26,556 27,127 Reserve for potential legal liability - - - 7,700 Selling and marketing 5,001 4,760 14,674 15,165 Systems and development   2,470     2,605     7,849     7,951   Total expenses   16,214     15,331     49,079     57,943   Income (loss) from operations 3,389 1,886 11,568 (5,885 )   Other income (expense) Interest income 29 21 78 77 Interest expense (463 ) (308 ) (1,261 ) (376 ) Other income (expense)   11     (2 )   (16 )   (2 ) Total other income (expense)   (423 )   (289 )   (1,199 )   (301 ) Income (loss) before tax provision (benefit) 2,966 1,597 10,369 (6,186 ) Income tax provision (benefit)   602     771     3,671     (2,383 ) Net income (loss) 2,364 826 6,698 (3,803 ) Preferred stock accretion   2,590     2,501     7,671     7,389   Net loss available to common stockholders $ (226 ) $ (1,675 ) $ (973 ) $ (11,192 )   Net loss available to common stockholders per share: Basic $ (0.01 ) $ (0.05 ) $ (0.03 ) $ (0.35 ) Diluted $ (0.01 ) $ (0.05 ) $ (0.03 ) $ (0.35 )   Shares used in calculation of net loss available to common stockholders per share: Basic 32,723 32,032 32,512 31,815 Diluted 32,723 32,032 32,512 31,815   Online Resources Corporation Condensed Consolidated Balance Sheets (In thousands)     SEPTEMBER 30, DECEMBER 31, 2012 2011 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 34,455 $ 31,290 Accounts receivable, net 19,900 17,596 Deferred tax asset, current portion 2,189 2,189 Prepaid expenses and other current assets   5,661   5,751 Total current assets 62,205 56,826   Property and equipment, net 18,351 20,987 Deferred tax asset, less current portion 23,590 26,713 Goodwill 181,516 181,516 Intangible assets 6,493 9,288 Deferred implementation costs, less current portion, and other assets   9,193   9,042 Total assets $ 301,348 $ 304,372   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,417 $ 1,251 Accrued expenses 15,754 17,566 Notes payable, senior secured debt, current portion 11,250 12,750 Deferred revenues, current portion, and other current liabilities   8,053   8,412 Total current liabilities 36,474 39,979   Notes payable, senior secured debt, less current portion - 7,500 Deferred revenues, less current portion, and other long-term liabilities   4,132   4,979 Total liabilities 40,606 52,458   Redeemable convertible preferred stock 127,765 120,095   Stockholders' equity   132,977   131,819 Total liabilities and stockholders' equity $ 301,348 $ 304,372   Online Resources Corporation Condensed Consolidated Statements of Cash Flows (In thousands)   NINE MONTHS ENDED SEPTEMBER 30,   2012       2011   (Unaudited)   Operating activities Net income (loss) $ 6,698 $ (3,803 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred tax expense (benefit) 3,123 (2,579 ) Depreciation and amortization 9,795 12,274 Equity compensation expense 2,136 1,785 Write off and amortization of debt issuance costs 439 187 Loss on disposal of assets 828 5 Provision for losses on accounts receivable 304 73 Change in fair value of theoretical swap derivative (244 ) (555 ) Reserve for potential legal liability - 7,700 Changes in certain other assets and liabilities   (5,706 )   1,108   Net cash provided by operating activities 17,373 16,195 Investing activities Purchases of property and equipment   (5,168 )   (5,630 ) Net cash used in investing activities (5,168 ) (5,630 ) Financing activities Net proceeds from issuance of common stock (72 ) 750 Repayment of 2007 notes (9,000 ) (14,500 ) Debt issuance costs   -     (815 ) Net cash used in financing activities   (9,072 )   (14,565 ) Net increase (decrease) in cash and cash equivalents 3,133 (4,000 ) Impact of foreign currency 32 (35 ) Cash and cash equivalents at beginning of year   31,290     29,127   Cash and cash equivalents at end of period $ 34,455   $ 25,092     Online Resources Corporation Reconciliation of Non-GAAP Measures (In thousands, except per share data)     THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,   2012       2011     2012       2011   (Unaudited) (Unaudited) Reconciliation of ebitda (See Note 1): Net income (loss) $ 2,364 $ 826 $ 6,698 $ (3,803 ) Depreciation and amortization (incl. loss on disposal of assets) 3,386 3,819 10,623 12,279 Interest expense, net 434 287 1,183 299 Income tax provision (benefit)   602     771     3,671     (2,383 ) Ebitda (See Note 1) $ 6,786   $ 5,703   $ 22,175   $ 6,392       Reconciliation of adjusted ebitda (See Note 2): Net income (loss) $ 2,364 $ 826 $ 6,698 $ (3,803 ) Depreciation and amortization (incl. loss on disposal of assets) 3,386 3,819 10,623 12,279 Equity compensation expense 712 585 2,136 1,785 Reserve for potential legal liability - - - 7,700 Strategic process costs - - - 874 Transition costs 332 844 2,782 3,396 Other (income) expense 423 289 1,199 301 Income tax provision (benefit)   602     771     3,671     (2,383 ) Adjusted Ebitda (See Note 2) $ 7,819   $ 7,134   $ 27,109   $ 20,149     Reconciliation of core net income (See Note 3): Net loss available to common stockholders $ (226 ) $ (1,675 ) $ (973 ) $ (11,192 ) Preferred stock accretion related to redemption premium 423 415 1,263 1,238 Change in fair value of theoretical swap derivative 35 (36 ) 244 (555 ) Reserve for potential legal liability, net of tax - - - 4,736

Strategic alternatives process costs, net of tax

- - - 538 Transition costs, net of tax 265 436 1,797 2,089 Change in tax valuation allowance - (192 ) - (192 ) Equity compensation expense 712 585 2,136 1,785 Amortization of intangible assets   603     1,135     2,809     3,767   Core net income (see Note 3) $ 1,812   $ 668   $ 7,276   $ 2,214     Reconciliation of core net income per share: Diluted net loss available to common stockholders $ (0.01 ) $ (0.05 ) $ (0.03 ) $ (0.35 ) Preferred stock accretion related to redemption premium 0.01 0.01 0.04 0.04 Change in fair value of theoretical swap derivative - - 0.01 (0.02 ) Reserve for potential legal liability, net of tax - - - 0.15

Strategic alternatives process costs, net of tax

- - - 0.02 Transition costs, net of tax 0.01 0.01 0.05 0.07 Change in tax valuation allowance - (0.01 ) - (0.01 ) Equity compensation expense 0.02 0.02 0.06 0.06 Amortization of intangible assets 0.02 0.04 0.08 0.12 Other, including impact of treasury method and rounding   -     -     (0.01 )   (0.01 ) Core net income per share $ 0.05   $ 0.02   $ 0.22   $ 0.07     Notes: 1.   Ebitda is a non-GAAP measure we define as net income (loss) before interest, taxes, depreciation and amortization expense.   2. Adjusted Ebitda is a non-GAAP measure we define as net income (loss) before interest, taxes, depreciation and amortization, equity compensation expense, reserve for potential legal liability, strategic alternatives process costs, transition costs (including severance, retention and ORCC India start up costs), restructuring costs and other expense. Some or all of these items may not be applicable in any given reporting period.   3. Core net income is a non-GAAP measure we define as net income (loss) available to common stockholders before the amortization of acquisition-related intangible assets, equity compensation expense, income tax benefit or expense from the change in valuation allowance, income (costs) related to the fair market valuation of certain derivatives and mark to market investments, preferred stock accretion related to the redemption premium, reserve for legal liability, net of tax, strategic alternatives process costs (including severance, retention and ORCC India start up costs), net of tax, transition costs, net of tax, restructuring costs, net of tax, and all other non-recurring charges. Some or all of these items may not be applicable in any given reporting period.