Here is S1's latest financials. This is an interesting company. The fact that it has links with 14 of the top 100 financial institutions seems to me to be the key to this deal.
Why pay in stock instead of cash? I think this is the preferrable transaction. Stock is much cheaper than cash. BVSN has cash of approx 63 mill which they should rightfully conserve for acquiring new technology. This seems to be more of a cross-marketing deal to me.
They have 24 mill shares outstanding. If i understand the transaction correctly, they are going to issue approximately 200,000 shares to S1 resulting in a dilution of less than 1%. Also, I wouldn't worry to much about the inequities in the stock value. That $10 mill convertible preferred is going to be a huge drain on S1 stock price for the next 18 months. For an interesting lesson on convertible preferreds, look at a company called ANCR.
SFNB/SECURITY FIRST TECHNOLOGIES REPORTS SECOND QUARTER 1998 RESULTS
Date: August 10, 1998
Released by: Security First Technologies
ATLANTA, August 10, 1998-- For the quarter ended June 30, 1998, Security First Network Bank (NASDAQ:SFNB), and Security First Technologies, Inc. (S1), incurred a net loss from continuing operations of $8.1 million, or $0.75 per share, compared to a net loss from continuing operations of $5.8 million, or $0.69 per share, for the second quarter, 1997.
The second quarter 1998 loss includes approximately $2.6 million or $0.24 per share, of goodwill amortization and other charges related to an acquisition during the fourth quarter 1997. Excluding these charges, the net loss from continuing operations for the second quarter was $5.5 million or $0.51 share compared to $5.5 million or $0.65 in the second quarter 1997. Including discontinued operations, the second quarter net loss was $9.0 million, or $0.83 per share, in 1998 and $6.5 million, or $0.77 per share, in second quarter 1997.
For the six months ended June 30, 1998, the Company incurred a net loss from continuing operations of $16.2 million, or $1.52 per share as compared to a net loss of $12.5 million or $1.49 per share in the same period in 1997. For the six months ended June 30, 1998, the net loss from continuing operations, excluding amortization and other acquisition charges, was $11.0 million or $1.03 per share, as compared to $11.8 million or $1.41 per share for the six months ended June 30, 1997.
As of June 30, 1998, 32 institutions including SFNB, are offering S1's Virtual Financial Managertm (VFM) product suite to customers enabling them to bank, pay bills, view credit card statements and manage their money over the Internet. As of July 30, 1998, management estimates there are more than 263,000 accounts using S1 technology worldwide through its three distribution channels. More than 94,600 accounts are represented through the S1 Data Center; 8,400 are accounts of financial institutions using the product suite through third party data processors; and it is estimated that 160,000 are accounts of financial institutions with direct licenses of the software.
View SFNB/S1 Consolidated Statement
Second Quarter 1998 Compared to Second Quarter 1997
During the second quarter 1998, S1 had revenues of $4.5 million, a 58% increase over $2.9 million in the second quarter 1997. Total gross margin was $474,000 in the second quarter 1998 compared to a negative $752,000 in the comparable period in 1997.
Total operating expenses, excluding amortization of goodwill and acquisition charges, increased $1.6 million or 31% between second quarter 1998 and 1997. The increase in operating expenses is attributed primarily to the increase in product development expenses related to the development of enhancements for the existing software as well as the development of new modules for the VFM suite of products.
Second Quarter 1998 Compared to First Quarter 1998
During the second quarter of 1998, S1 had revenues of $4.5 million, an increase of 33% over first quarter of 1998.
S1 Data Center revenues in the second quarter of 1998 were $594,000, a 92% increase over the first quarter of 1998. The average quarterly revenue per billable customer processed in the Data Center, including customers processed for SFNB, increased to $13.34 in the second quarter 1998 from $9.64 in the first quarter 1998, a 38% increase as a result of minimum fees for Data Center services. The negative operating margin for Data Center services declined in the second quarter 1998 to $1.2 million from $1.5 million in the first quarter 1998.
As of the end of the second quarter of 1998, 12 financial institutions were online through the Data Center. During the month of June, including SFNB accounts, the Data Center processed in excess of 94,600 Internet banking accounts, which represented approximately 58,100 billable customers.
Software license fees, which are earned upon the sale and installation of S1's software in a financial institution's data center or in a third party data processing center, amounted to $770,000 in the second quarter 1998 and remained consistent with the prior quarter in 1998. Management anticipates that as third party data processors bring additional sites online, software license fees should increase in future quarters.
Revenues from professional services, which includes implementation and consulting fees, amounted to $3.2 million in the second quarter, an increase of $736,000 or 30% over the first quarter of 1998. During the second quarter of 1998, the professional services operating margin was 30%, a decrease over first quarter 1998 due to higher levels of pass-through expenses. Management anticipates that this will move back toward 40% in future quarters as pricing for professional services stabilizes.
Capital Resources and Cash Flow
As of June 30, 1998, S1 had $8.9 million in cash and investment securities and $4.6 million in accounts receivable available to fund operations. During the second quarter of 1998, S1 used $4.0 million to fund continuing operations as compared to $4.9 million in the first quarter 1998.
Additionally, as previously announced, management anticipates that the banking operations (reflected as discontinued operations) of the Company will be sold to Royal Bank of Canada (RBC) resulting in up to $9.0 million additional cash available to fund software operations. The sale is expected to close in September 1998. Also, the Company has granted to RBC options to purchase a total of $10 million of common stock over a period of 21 months following the closing.
In addition, the Company will receive $10 million from the sale of preferred stock to a major financial services entity following the closing of the sale of SFNB assets to Royal Bank.
Total cash available to fund operations over the next 12 months is estimated at $33 million, which includes $9 million cash on hand, $9 million to be received upon the sale of the banking operations, $10 million from the sale of the preferred stock and $5 million anticipated to be received upon the exercise of the RBC options.
Discontinued Operations
As was previously disclosed, management has entered into a formal plan to sell its banking assets and related liabilities, which totaled $59.5 million on June 30, 1998. For financial statement purposes the results of SFNB's banking operations have been reflected as "discontinued operations." The banking assets held for sale are presented net of related liabilities and the net losses from banking operations are segregated on the statement of operations and reported as "discontinued operations."
For the second quarter of 1998, the banking operations reported a net loss of $862,000 as compared to net loss of $465,000 in the first quarter of 1998. The increase in the net loss is attributed to non-cash charges related to the sale of the banking operations.
Other Recent Announcements
During the second quarter, S1 announced a $10 million equity investment in the company by a major financial services entity, following the closure of the sale of SFNB banking operations. The $10 million in preferred stock (which will be based upon the average closing price per share of SFNB common stock for each of the ten trading days preceding the sale of the banking operations) will be convertible to common stock at a 40 percent premium of the closing price of the stock. For example, if the preferred stock were purchased at a per share price of $21.16 (the average closing price per share of SFNB common stock for each of the ten trading days preceding August 10, 1998), the entity would purchase a total of 472,590 shares of preferred stock and those shares would be convertible into 337,609 shares of common stock.
Additionally, S1 announced a multi-year, multi-million dollar contract with Citibank to provide data processing services through the S1 Data Center for a portion of Citibank's Internet-based financial services transactions.
S1 also announced a letter of intent with NationsBank Military Banking, to use S1's technology platform to offer financial services worldwide to U.S. military personnel.
On June 30, 1998, S1 and BroadVision, Inc. signed an agreement to develop a significant alliance that includes cross equity investment, joint product development, joint marketing and a major reseller relationship.
In the first quarterly Internet Banker Scorecardtm, from Gomez Advisors, Inc., a leading independent authority devoted to on-line financial services, SFNB and S1 technology were prominently positioned in the market place. SFNB placed second overall out of 97 institutions rated. S1 provided the technology behind three of the top five and 10 of the top 20 institutions that either use S1 technology directly or through M&I Data Services.
About Security First Network Bank
Security First Network Bank (Nasdaq:SFNB) (www.sfnb.com), the world's first Internet bank opened its doors to the Internet community on October 18, 1995. FDIC-insured SFNB provides its services using Virtual Financial Managertm (VFM), a software system created by and licensed through its wholly owned subsidiary, Security First Technologies (S1).
About Security First Technologies (S1)
Security First Technologies (S1) is a wholly owned subsidiary of the world's first Internet bank, Security First Network Bank (NASDAQ:SFNB). S1 develops integrated, brandable Internet applications that enable financial institutions to offer products, services and transactions over the Internet in a secure environment. S1 also offers strategic marketing support, training, product integration, and customer and data service center outsourcing. S1, through direct sales and channel partnerships, has agreed to provide software applications and technology to 81 financial entities, including 14 of the top 100 U.S. financial institutions. S1 can be reached at www.S1.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 risks, uncertainties and other factors, including those identified in the Company's prospectus dated May 3, 1996 and those described from time to time in the Company's other filings with the Office of Thrift Supervision, press releases and other communications.
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