Revenue in the Electronic Commerce business unit increased by $8.6 million or 26% from $32.7 million to $41.3 million for the three months ended December 31, 1997 and 1998, respectively, and by $16.4 million or 26% from $63.0 million to $79.4 million for the six months ended December 31, 1997 and 1998, respectively. On a pro forma basis, excluding the Web Investor business which was discontinued in fiscal 1998, revenue increased $8.8 million or 27% for the quarter to quarter period and by $16.8 million or 27% on a year over year basis. This increase in revenue
is due primarily to an increase in subscribers of 30% from approximately 2.0 million at December 31, 1997 to over 2.6 million at December 31, 1998. Operating losses in the Electronic Commerce business unit increased from $0.2 million to $0.8 million for the three months ended December 31, 1997 and 1998, respectively, and from $1.1 million to $5.4 million for the six months ended December 31, 1997 and 1998, respectively. On a pro forma basis, the operating loss increased from $23,000 to $778,000 for the quarter to quarter period and from $712,000 to $5.4 million for the year over year period. As previously mentioned, revenue growth has slowed temporarily as financial institutions convert their personal computer software-based front-end interfaces to the company's electronic bill payment and banking processes to more efficient web-based front-end interfaces. During this time the Company has continued to commit resources geared toward quality and efficiency improvement in anticipation of the revenue growth when financial institutions complete their technology conversions and refocus marketing efforts toward subscriber growth. These investments include additional customer care resources geared toward improved quality and significant E-Bill implementation costs, which are not offset by significant related revenue in the near term. While the Company expects revenue to grow at an increasing rate, starting with the third quarter of this fiscal year, such growth is dependent upon financial institutions completing their technology conversions and implementing planned marketing programs in a timely fashion. Finally, in January 1999, the Company announced a material Internet distribution agreement designed to promote online bill payment, bill presentment and banking opportunities to general users of the Internet. Additional up front investments (both operating and capital) resulting from this agreement will place near term downward pressure on margins, however these costs will prepare the Company for up to one million additional subscribers. In the next two quarters alone, the Company plans to spend an estimated $4.0 in incremental costs related to this agreement for the establishment of a professional services staff to support the timely and effective deployment of electronic billing and payment offerings by billers, additional customer care staff and related training activities and sales, marketing and communications program expansion.
Reported Software segment revenue declined from $16.5 million to $9.5 million for the three months ended December 31, 1997 and 1998, respectively, and from $31.7 million to $19.7 million for the six months ended December 31, 1997 and 1998, respectively. On a pro forma basis, net of the impact of divested software businesses in fiscal 1998, revenue increased by $0.7 million or 8% from $8.8 million to $9.5 million for the three months ended December 31, 1997 and 1998, respectively, and by $2.6 million or 15% from $17.1 million to $19.7 million on a year over year basis. The three months ended September 30, 1998 included $1.8 million in revenue from divested businesses, therefore, the comparison of retained businesses is revenue growth of $0.8 million in revenue growth from $17.1 million to $17.9 million for the six months ended December 31, 1997 and 1998, respectively. License sales have been lower than anticipated in the current fiscal year due primarily to purchasing moratoriums imposed by potential customers who are preparing internally for the Year 2000. The slowdown in license sales has been offset by consulting revenues earned on implementations of software licenses sold in the second half of fiscal 1998. This slowdown in license sales could continue until customers complete their Year 2000 initiatives. Reported operating income increased from $1.8 million to $3.7 million for the three months ended December 31, 1997 and 1998, respectively, and from $2.0 million to $4.9 million for the six months ended December 31, 1997 and 1998, respectively. On a pro forma basis, operating income has increased from $2.7 million to $3.7 million for the three months ended December 31, 1997 and 1998, respectively, and from $4.3 million to $4.9 million for the six months ended December 31, 1997 and 1998, respectively. Retained businesses, net of $1.6 million of operating losses in divested businesses in the three months ended September 30, 1998, achieved operating profit growth from $2.9 million to $6.5 million for the six months ended December 31, 1998. The increase in retained business profit is a reporting anomaly related to allocated corporate fixed costs in the 1997 periods. The prior year pro forma results are carrying the full burden of fixed overhead from the Software segment to avoid unreasonably impacting other segments on a restated pro forma basis. When the effect of allocations is ignored, underlying operating profit margins in the Software segment are fairly consistent from year to year.
Revenue in the Investment Services segment has increased by $1.4 million or 19% from $7.3 million to $8.8 million for the three months ended December 31, 1997 and 1998, respectively, and by $3.3 million from $14.0 million to $17.3 million for the six months ended December 31, 1997 and 1998, respectively. Increases in revenue are due primarily to an increase in portfolios managed from approximately 400,000 at December 31, 1997 to over 573,000 at December 31, 1998. Additionally, some of the focus of this division has been directed toward managing retail portfolios on behalf of several large brokerage firms. Offerings to these customers provide more narrow functionality and therefore a commensurately lower price. Operating income decreased from $1.4 million to $0.9 million for the three months ended December 31, 1997 and 1998, respectively, and increased from $2.4 million to $2.7 million for the six months ended December 31, 1997 and 1998, respectively. In the quarter ended December 31, 1998, the division
absorbed approximately $644,000 of one-time occupancy charges. Net of the one-time charges, operating income from quarter to quarter increased by $0.2 million and from year to year increased by $0.9 million. On an adjusted basis, the year over year increase in margin is the result of leveraging the infrastructure of this business in light of increased portfolio growth.
The Corporate segment represents charges for the human resources, legal, accounting and various other of the Company's unallocated overhead charges. Corporate incurred operating costs of $5.2 million in the quarter ended December 31, 1998 versus $5.1 million in the same period in 1997 and costs of $11.0 million for the six months ended December 31, 1998 versus $10.7 million in the same period of 1997. One-time charges of approximately $0.6 million were incurred in the formation of a special purpose subsidiary created to administer the Company's employee medical benefits program. Net of these one-time charges, unallocated Corporate charges were $4.7 million and $10.5 for the three and six months ended December 31,1998. The relative stability of these unallocated costs are due to successful efforts to leverage these resources as the dynamics of the other operating segments have changed over the past year.
The $0.7 million charge for in process research and development in the three month and six month periods ended December 31, 1997 resulted from the purchase of AMTI in October 1997.
Exclusivity amortization of $2.9 million in the six-month period ended December 31, 1997 was the final amortization expense related to the exclusivity arrangement the Company entered into with Intuit in conjunction with the purchase of ISC in January 1997.
The net gain on dispositions of assets is the result of various transactions in the six month periods ended December 31, 1997 and 1998. The gain of $3.9 million in the six months ended December 31, 1998 is the net result of the gain on the sale of the mortgage business of approximately $6.4 million and the loss on the sale of the imaging business of approximately $2.5 million. The gain of $25.4 million in the six month period ended December 31, 1997 is the net result of the gain on the sale of the recovery management business of $28.4 million less charges of $3.0 million related to certain equipment to be disposed of and capitalized costs where management determined the book value of the related assets exceeded their net realizable value.
The following table represents pro forma segment revenue and operating profit information, by quarter for fiscal year 1998, net of divested businesses. This information may be used to better understand underlying trends in the businesses represented.
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