In addition to historical information, this Form 10-Q may contain
forward-looking statements relating to
For purposes of this discussion and analysis, we are assuming and relying upon
the reader's familiarity with the information contained in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, in the
Form 10- K for the year ended
Overview
12
--------------------------------------------------------------------------------
On
Our results vary in part depending on the size and number of software licenses recognized as well as the value and number of professional services contracts recognized in a particular period. As we continue to grow our Processing Services business, we continue to gain economies of scale on the investment we have made in the infrastructure, resources, processes and software features developed over the past number of years to support this growing side of our business. We are adding new processing customers at a faster pace than we are adding new license customers, resulting in steady growth in the processing revenue stream. However, we also receive license revenue and are experiencing growth in our professional services revenue due to the addition of Goldman Sachs Group, Inc. as a customer in 2018, referred to as "Customer A" in the Notes to Consolidated Financial Statements. In total, this customer represented 84% and 71% of our consolidated revenues in the first quarters of 2022 and 2021, respectively. We expect future professional services, maintenance, and license revenue from this customer for the remainder of 2022 and future years; however, the amount and timing will be dependent on various factors not in our control such as the number of accounts on file and the level of customization needed by the customer. License revenue from this customer, similar to other license arrangements, is tiered based on the number of active accounts on the system. Once the customer achieves each tier level, they receive a perpetual license up to that number of accounts; inactive accounts do not count toward the license tier. The customer receives an unlimited perpetual license at a maximum tier level that allows them to utilize the software for any number of active accounts. They previously used the software for a single institution. In the first quarter of 2022 they added an additional customer, resulting in additional one-time license fees. Support and maintenance fees are charged based on the tier level achieved and increase at new tier levels.
The infrastructure of our multi customer environment is scalable for the future.
A significant portion of our expense is related to personnel, including
approximately 850 employees located in
Our revenue fluctuates from period to period and our results are not necessarily indicative of the results to be expected in future periods. It is difficult to predict the level of consolidated revenue on a quarterly or annual basis for a number of reasons, including the following:
? Software license revenue in a given period may consist of a relatively small
number of contracts and contract values can vary considerably depending on the
software product and scope of the license sold. Consequently, even minor delays
in delivery under a software contract (which may be out of our control) could
have a significant and unpredictable impact on the consolidated revenue that we
recognize in a given quarterly or annual period.
? Customers may decide to postpone or cancel a planned implementation of our
software for any number of reasons, which may be unrelated to our software or
contract performance, but which may affect the amount, timing and
characterization of our deferred and/or recognized revenue.
? Customers typically require our professional services to modify or enhance
their
strategy and operational requirements, which vary from customer to customer and
period to period.
? The timing of new processing customer implementations is often dependent on
third party approvals or processes which are typically not under our direct
control.
We continue to maintain a strong cash position. We intend to use cash balances
to support the domestic and international operations associated with our
13
--------------------------------------------------------------------------------
Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes to Consolidated Financial Statements presented in this quarterly report.
Revenue - Total revenue in the three-month period ended
? Revenue from services was
services, software maintenance and support services, and professional services
were greater in the first quarter of 2022 as compared to the first quarter of
2021 due to an increase in the number of customers and accounts on file and an
increase in the number and value of professional services contracts completed
during the first quarter of 2022. We expect that processing services will
continue to grow as our customer base increases; however, the time required to
implement new customer programs could be delayed due to third party integration
and approval processes. It is difficult to predict with accuracy the number and
value of professional services contracts that our customers will require in a
given period. Customers typically request our professional services to modify
or enhance their
business strategy and operational requirements, which vary from customer to
customer and period to period.
? Revenue from products, which is primarily software license fees, was
the comparable period in 2021. The increase results from our largest customer
adding a new institution to our platform in the first quarter of 2022,
resulting in one-time license fees, as discussed above, and multiple new tiers
due to the additional active accounts added from a conversion completed in the
first quarter of 2022 and account growth from existing customers.
Cost of Revenue - Total cost of revenue was 31 percent and 50 percent of total
revenue in the three-month periods ended
Operating Expenses - In the three-month period ended
Investment Income (Loss) - In the quarter ended
Other Income, net - In the quarter ended
Income Taxes - Our effective tax rate for the quarter ended
14
--------------------------------------------------------------------------------
Liquidity and Capital Resources
Our cash balance at
During the quarter ended
We expect to have sufficient liquidity from cash on hand as well as projected
customer payments to support our operations and capital equipment purchases in
the foreseeable future. Currently we expect to use cash in excess of what is
required for our current operations for opportunities we believe will expand our
FinTech business, as exemplified in transactions described in Notes 3 and 4,
although there can be no assurance that appropriate opportunities will arise. In
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, liquidity or results of operations.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
is based upon our Consolidated Financial Statements which have been prepared in
accordance with accounting principles generally accepted in
Factors That May Affect Future Operations
Future operations are subject to risks and uncertainties that may negatively impact our future results of operations or projected cash requirements. It is difficult to predict future quarterly and annual results with certainty.
Among the numerous factors that may affect our consolidated results of operations or financial condition are the following:
? Our largest customer represented 84% of our consolidated revenues for the three
months ended
obligations related to the services provided, there is risk of breach of
contract and loss of the customer and related future revenues. Additionally,
loss of the customer and related future revenues or a reduction in revenues
could result if they or their customers choose an alternative service provider,
build an in-house solution, or decide to exit the business or service line that
falls under the services that we provide for them.
? Weakness or instability in the global financial markets could have a negative
impact due to potential customers (most of whom perform some type of financial
services) delaying decisions to purchase software or initiate processing
services.
? Increased federal and state regulations and reluctance by financial
institutions to act as sponsor banks for prospective customers could result in
losses and additional cash requirements. ? Delays in software development projects could cause our customers to postpone
implementations or delay payments, which would increase our costs and reduce
our revenue and cash. ? We could fail to deliver software products which meet the business and
technology requirements of our target markets within a reasonable time frame
and at a price point that supports a profitable, sustainable business model.
15
--------------------------------------------------------------------------------
? Our processing business is impacted, directly or indirectly, by more
regulations than our licensed software business. If we fail to provide services
that comply with (or allow our customers to comply with) applicable regulations
or processing standards, we could be subject to financial or other penalties
that could negatively impact our business. ? A security breach in our platform could expose confidential information of our
customers' account holders, hackers could seize our digital infrastructure and
hold it for ransom or other cyber risk events could occur and create material
losses in excess of our insurance coverage. ? Software errors or poor quality control may delay product releases, increase
our costs, result in non-acceptance of our software by customers or delay
revenue recognition. ? We could fail to expand our base of customers as quickly as anticipated,
resulting in lower revenue and profits and increased cash needs. ? We could fail to retain key software developers and managers who have
accumulated years of know-how in our target markets and company products or
fail to attract and train a sufficient number of new software developers and
testers to support our product development plans and customer requirements at
projected cost levels. ? Increasing and changing government regulations inthe United States and foreign
countries related to such issues as data privacy, financial and credit
transactions could require changes to our products and services which could
increase our costs and could affect our existing customer relationships or
prevent us from getting new customers. ? Delays in anticipated customer payments for any reason would increase our cash
requirements and could adversely impact our profits. ? Competitive pressures (including pricing, changes in customer requirements and
preferences, and competitor product offerings) may cause prospective customers
to choose an alternative product solution, resulting in lower revenue and
profits (or losses). ? Our future capital needs are uncertain and depend on a number of factors;
additional capital may not be available on acceptable terms, if at all. ? Volatility in the markets, including as a result of political instability,
civil unrest, war or terrorism, or pandemics or other natural disasters, such
as the recent outbreak of coronavirus, could adversely affect future results of
operations and could negatively impact the valuation of our investments. ? Other general economic and political conditions could cause customers to delay
or cancel purchases.
© Edgar Online, source