TIER Tier Reit, Inc.

Tier Technologies, Inc. (Nasdaq:TIER), a leading provider of transaction processing and packaged software and systems integration solutions for public sector clients, today announced results for its fiscal second quarter ended March 31, 2005. Net revenues for the fiscal 2005 second quarter were $35.3 million, an increase of 19% as compared to $29.7 million in the fiscal 2004 second quarter, and the highest second quarter net revenues in Tier's history. Year over year net revenue growth was driven primarily by increased adoption of the transaction processing services of Tier's Electronic Payment Processing segment, and by increased revenues of the Packaged Software and Systems Integration segment. Net income from continuing operations per diluted share was $0.06 in the fiscal 2005 second quarter, as compared to net income from continuing operations per diluted share of $0.07 in the same period a year ago. Cash, cash equivalents and investments on March 31, 2005 totaled $60.6 million as compared to $69.5 million on September 30, 2004. This decrease is primarily attributable to an increase in capital expenditures and start-up costs relating to the Michigan Child Support State Disbursement Unit project, and to Tier's first quarter strategic investment in CPAS Systems. "Tier outperformed internal expectations on both the top and bottom line in the second quarter," said James R. Weaver, Chairman and Chief Executive Officer. "We are very pleased to report 19% year over year revenue growth, leading to record second quarter revenues of $35.3 million. Our Electronic Payment Processing segment generated impressive second quarter annual revenue growth of 34%, and organic revenue growth of 21% for the second consecutive quarter, as well as double digit increases in dollars processed across all payment types." Mr. Weaver continued, "The second quarter was a pivotal one for our Government Business Process Outsourcing segment, and as of the end of April, processing of transactions has begun at our Michigan Child Support State Disbursement Unit project. The overall start-up project costs were less than projected, which should contribute to the bottom line in future periods." "Tier's balance sheet remains strong with cash, cash equivalents and investments of $60.6 million, and provides excellent flexibility to continue growing the business both organically and through acquisitions," Weaver stated. "The kind of consistently strong financial results reported today are enabled by Tier's transaction processing focused business model. We believe that Tier's financial strength, and broad transaction processing expertise position the company well for future opportunities," added Weaver. Financial Outlook For the fiscal third quarter of 2005, Tier currently expects revenues of between $47.0 million to $48.0 million, and earnings per diluted share of $0.17 to $0.18. For the full fiscal year 2005, Tier currently expects revenues of between $147.0 million to $149.0 million, and earnings per diluted share of $0.28 to $0.30. These amounts represent management's current expectations about Tier's future financial performance, based on information available at this time. 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 (800) 399-0129. The conference call will also be broadcast live via the Internet at www.Tier.com. A replay will be available at www.Tier.com or by calling (800) 642-1687 and entering 5539560 from two hours after the end of the call until 11:59 p.m. Eastern Time on May 12, 2005. About Tier Tier is a leading provider of transaction processing and packaged software and systems integration services for public sector clients. We combine our understanding of enterprise-wide systems with domain knowledge enabling our clients to rapidly channel emerging technologies into their operations. We focus on sectors that we believe are driven by forces that make demand for our services less discretionary and are likely to provide us with recurring long-term revenue streams. Tier is included in the Russell 3000(R) Index. More information about the Company is available at www.Tier.com. Statements made in this press release that are not historical facts, including statements regarding expectations for future revenues, earnings, and expenses, are forward-looking statements that are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. 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 potential loss of funding by clients, including due to government budget shortfalls or revisions to mandated statutes; failure to achieve anticipated gross margin levels with respect to individual projects, including due to unanticipated costs incurred in fixed-price or transaction-based projects; the timing, initiation, completion, renewal, extension or early termination of client projects; the Company's ability to realize revenues from its business development opportunities and achieve cost savings from its restructuring activities; 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 year ended Sept. 30, 2004, our most recent quarterly report on Form 10-Q for the quarter ended December 31, 2004, as well as other filings with the SEC. -0- *T (Financial tables follow) TIER TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets March 31, September 30, (in thousands) 2005 2004 ---------------------------------------------------------------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 40,052 $ 35,174 Short-term investments 16,347 20,909 Accounts receivable, net 20,285 16,091 Unbilled receivables 6,343 5,046 Short-term portion of notes and accrued interest receivable from related parties 488 405 Prepaid expenses and other current assets 7,424 6,699 ---------------------------------------------------------------------- Total current assets 90,939 84,324 Property, equipment and software (net of $21,171 and $22,941 depreciation and amortization at March 31, 2005 and September 30, 2004, respectively) 12,143 7,158 Long-term notes and accrued interest receivable from related parties, less current portion 2,182 2,001 Goodwill 40,594 37,824 Other acquired intangible assets, net 28,454 30,761 Long-term investments 797 10,135 Restricted investments 3,391 3,329 Other assets 1,912 1,937 ---------------------------------------------------------------------- Total assets $180,412 $177,469 ====================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accrued liabilities $ 7,913 $ 7,501 Income taxes payable 7,139 7,007 Deferred income 5,587 5,269 Accrued compensation liabilities 5,088 4,623 Accounts payable 3,158 2,626 Accrued subcontractor expenses 3,065 2,478 Other current liabilities 145 228 ---------------------------------------------------------------------- Total current liabilities 32,095 29,732 Other liabilities 1,935 1,787 ---------------------------------------------------------------------- Total liabilities 34,030 31,519 ---------------------------------------------------------------------- Commitments and contingencies Shareholders' equity: Common stock, no par value (Class B stock authorized: 42,600 shares; Class B stock issued and outstanding 20,356 and 20,324 shares at March 31, 2005 and September 30, 2004, respectively) 172,387 172,136 Notes receivable from shareholders (1,773) (1,773) Accumulated other comprehensive loss (252) (258) Accumulated deficit (23,980) (24,155) ---------------------------------------------------------------------- Total shareholders' equity 146,382 145,950 ---------------------------------------------------------------------- Total liabilities and shareholders' equity $180,412 $177,469 ====================================================================== TIER TECHNOLOGIES, INC. Condensed Consolidated Statements of Operations (unaudited) Three Months Ended Six Months Ended March 31, March 31, ----------------- ----------------- (in thousands, except per share data) 2005 2004 2005 2004 ---------------------------------------------------------------------- Net revenues $35,277 $29,659 $66,956 $56,169 Costs and expenses: Direct costs 23,061 19,399 44,944 37,367 General and administrative 6,871 6,293 13,751 12,593 Selling and marketing 3,013 1,756 5,592 3,133 Depreciation and amortization 1,570 1,107 3,120 2,238 Restructuring and other charges -- 5 -- 1,261 ---------------------------------------------------------------------- Total costs and expenses 34,515 28,560 67,407 56,592 ---------------------------------------------------------------------- Income (loss) before other income (loss), income taxes and discontinued operations 762 1,099 (451) (423) ---------------------------------------------------------------------- Other income (loss): Equity in net loss of unconsolidated affiliate (152) -- (252) -- Net interest income 519 293 898 570 ---------------------------------------------------------------------- Total other income 367 293 646 570 ---------------------------------------------------------------------- Income before income taxes and discontinued operations 1,129 1,392 195 147 Provision for income taxes 20 35 20 70 ---------------------------------------------------------------------- Net income from continuing operations 1,109 1,357 175 77 Income (loss) from discontinued operations, net of income taxes -- 164 -- (1,401) ---------------------------------------------------------------------- Net income (loss) $ 1,109 $ 1,521 $ 175 $(1,324) ====================================================================== Income from continuing operations, net of income taxes: Per basic share $ 0.06 $ 0.07 $ 0.01 $ -- Per diluted share $ 0.06 $ 0.07 $ 0.01 $ -- Income (loss) from discontinued operations, net of income taxes: Per basic share $ -- $ 0.01 $ -- $ (0.07) Per diluted share $ -- $ 0.01 $ -- $ (0.07) Net income (loss): Per basic share $ 0.06 $ 0.08 $ 0.01 $ (0.07) Per diluted share $ 0.06 $ 0.08 $ 0.01 $ (0.07) Shares used in computing: Basic income (loss) per share 19,464 18,808 19,448 18,755 Diluted income (loss) per share 19,539 19,217 19,573 19,083 TIER TECHNOLOGIES, INC. Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended March 31, ----------------- (in thousands) 2005 2004 ---------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 175 $ 77 Non-cash items included in net income: Depreciation and amortization 4,190 3,287 Recognized loss on impairment of investments -- 135 Provision for doubtful accounts 469 272 Recognized loss from forgiveness of employees' notes -- 8 Equity loss in 45%-owned unconsolidated affiliate 252 -- Net effect of changes in assets and liabilities: Accounts receivable (4,663) 8,581 Prepaid expenses and other assets (2,262) (347) Accounts payable and accrued liabilities 2,298 5,040 Deferred revenue 318 51 ---------------------------------------------------------------------- Net cash provided by operating activities from continuing operations 777 17,104 ---------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturities and sales of available-for-sale securities 18,377 15,515 Purchases of available-for-sale securities (3,715) (11,841) Purchase of equipment and software (6,593) (908) Investment in subsidiaries and unconsolidated affiliate (4,093) -- Restricted investments (62) -- Other 41 (31) ---------------------------------------------------------------------- Net cash from continuing operations provided by investing activities 3,955 2,735 ---------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of Class B common stock 251 1,177 Capital lease obligations and other financing arrangements (44) (87) ---------------------------------------------------------------------- Net cash from continuing operations provided by financing activities 207 1,090 ---------------------------------------------------------------------- Net cash provided by continuing operations 4,939 20,929 Net cash (used in) provided by discontinued operations (61) 542 ---------------------------------------------------------------------- Net increase in cash and cash equivalents 4,878 21,471 Cash and cash equivalents at beginning of period 35,174 13,928 ---------------------------------------------------------------------- Cash and cash equivalents at end of period $40,052 $35,399 ====================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 14 $ 28 Income taxes paid (refunded), net $ 126 $(6,939) Supplemental disclosures of non-cash transactions: Equipment acquired under capital lease obligations and other financing arrangements $ 40 $ -- *T