Executives
Liz Bowman - Director of SEC
Ron Rossetti - Chairman and CEO
Ron Johnston - CFO
Nina Vellayan - COO
Keith Kendrick - Senior VP of Strategic Marketing
Tier Technologies, Inc. (TIER) F3Q09 (Qtr End 30/6/2009) Earnings Call August 6, 2009 5:00 AM ET
Operator
Good afternoon. At this time, I would like to welcome everyone to the Tier Technologies fiscal quarter earnings conference call. (Operator Instructions). Ms. Bowman, you may begin your conference.
Liz Bowman
My name is Liz Bowman, Director of SEC Reporting for Tier Technologies. I would like to welcome everyone to the Tier Technologies earnings conference call for the quarter ended June 30, 2009. Today’s call is scheduled for one hour.
After the market closed late we issued a press release announcing [Technical Difficulty]. In addition, we issued a copy of the prepared text of today's call and accompanying presentation, which includes charts that will be referenced during this call. A copy of these materials [Technical Difficulty] section of our website, www.tier.com.
We invite shareholders and analysts who wish to speak to management about the company and its performance to schedule a meeting by contacting our CFO, Ron Johnston, at 571 [Technical Difficulty] 33 or you may e-mail Ron at rjohnston@tier.com.
With me on the call are Ron Rossetti, Chairman and Chief Executive Officer, and Ron Johnston, Chief Financial Officer. Also in attendance are Nina Vellayan, Chief Operating Officer, [Technical Difficulty] Senior Vice President of Strategic Marketing.
A taped replay of this call will be available on the company's [Technical Difficulty] beginning Thursday, August 6 at 8 PM Eastern time until Thursday, August 20 at 11:59 p.m. Alternatively, you can hear our replay by dialing 888-335-30221-77721
I [Technical Difficulty] remind you that [Technical Difficulty] that we make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation [Technical Difficulty].
The forward-looking statements discussed on this call represent management's current expectations about the company's future performance based on the information available to us today. This information may change, and our actual results may vary materially from these forward-looking statements. We undertake no obligation to update any such forward-looking statements.
There are numerous risks and uncertainties that affect our business and [Technical Difficulty] including but not limited to [Technical Difficulty] unanticipated costs incurred in [Technical Difficulty] changes in laws and government regulatory compliance requirements, ability to attract and retain, and other risk factors that are set forth in our SEC filings.
In this call, references to the quarter or the third quarter are references to the quarter ended June 30th, 2009.
Now I would like to turn the call over to Ron Rossetti.
Ron Rossetti
Thank you Liz, and good afternoon. Let me outline the agenda for this call. First, I will update you on our financial performance during the quarter, and then I will provide a strategic update on our growing success in the biller direct market, with our electronic payment solutions [business].
Next I will ask Ron Johnston to cover our financial results for the quarter, the state of cash position, and our share repurchase program. Following Ron Johnston's remarks, I will make a few concluding remarks, and then we will open the call to your questions.
I am pleased to report that for the third quarter Tier has reported positive EBITDA of $2.8 million from continuing operations, as compared with a loss of $75,000 in the prior year quarter. The $2.9 million improvement was achieved in spite of a revenue decline of $700,000 or 1.5%, as compared with the prior year quarter.
Gross margin in our EPS business was 23.5%, up approximately 4.9 percentage points from the same period last year. The performance during the quarter brings us closer to our goal of positive EBITDA from continuing operations for the full fiscal year.
On a GAAP basis [Technical Difficulty], net income from continuing operations was $600,000 or $0.03 per share, as compared with a loss of $1.3 million or $0.07 per share in the prior year quarter. [Technical Difficulty] total company basis we achieved net income of $200,000 or $0.01 per share for the quarter, as compared with a loss of $13.6 million or $0.69 per share in the prior year quarter.
In spite of this steep decline is our tax based business, EPS net revenue growth was 25.6% for the third quarter and 15.4% for the nine months ended June 30, as compared with prior year. Ron Johnston will provide additional information on the results of the quarter later in this call.
During 2007, Management and the Board undertook a comprehensive strategic planning process to determine the most effective means of maximizing shareholder value. At the conclusion of this strategic review, it was decided to divest all of the operating units except for our EPS business. We completed our planned divestitures along with the company to focus exclusively on providing electronic payment solutions to merchants, who provide bill payment services directly to customers, which we refer to as the biller direct space.
A short overview of our strategic plan appears in Chart 3. For fiscal 2009, we established five key priorities: complete the divestitures of non-strategic assets; build a new management team; develop our marketing capabilities; build share in the biller direct market by growing transactions; developing new markets which we call verticals, and reducing our client concentration; consolidate our platforms to reduce cost; establish a unified fixed cost platform; and accelerate and expand the development and rollout of new products and features.
We are actively managing each of these priorities. The status of the major objectives are as follows: [Technical Difficulty]. We have completed all seven of the planned divestitures, a summary of the restructuring appears in Chart 4. Although always a work in progress for a growing company, a new senior management team is in place, and a review and streamlining of the next layer of management is complete.
As part of this strategic review, we have started an ongoing upgrade of the strategic information systems to allow us to establish direct relationships with the end users of the company’s services to grow transactions across verticals and deepen the strength of our primary brand, official payments.
As early proof of this effort, we recorded a 199,000 new registrations in the third quarter, more than three times the rate at this time last year. We now have more than 1.2 million consumers registered in our database.
As our new consolidated platform becomes available, we will launch new e-Commerce products and payment services for partners and biller direct clients, including additional payment channels such as mobile, walk-up payment in kiosks, a screenshot of the website appears in Chart 5.
The company has increased resources and marketing programs directed at our fastest growing verticals, higher education and utilities. During the quarter, we added clients across numerous verticals. They include two significant property tax clients Norman County, Oregon, and Loudon County, Virginia. And we expanded our services to citizens in the City of Philadelphia.
Additionally, we renewed our agreement with the State of West Virginia to collect various personal and business taxes and expanded our relationships with agencies in the states of California and New Mexico.
In higher education, we added 10 additional schools this quarter, including Regis University in Colorado, where we will begin collection tuition fees in October. This brings us to 39 new schools here to-date, in this fast growing vertical.
In total, we added a 165 new forms of payment types for the quarter. It is these types of consistent, ongoing wins that are driving our diversification and strength in categories beyond government tax collections.
During our last call, we noted that our wholly-owned subsidiary, Official Payments Corporation have been awarded a new multi-year contract for providing electronic payment solutions to the IRS. That contract has now been signed and run for [base] period of this accounting year, followed by four one year options right until December 31, 2013.
The IRS awarded a total of three contracts, including [our of course], adding another competitor in this space. We have not made any final decisions on pricing, however as we have stayed in the past, we expect that we will experience pricing pressure in the future in our federal tax vertical.
As I have noted in prior quarters, the IRS is our largest client and we are very proud to have them. However, as we invest in and grow our other payment verticals, our IRS contract is responsible for a smaller portion of our total revenues. At one time, the IRS accounted for over 80% of official payments business.
For fiscal 2009, we expect a gross revenue line for the IRS contract to be in the mid 20% range of total EPS gross revenue and peer to the mid 30% range in fiscal year 2007.
After factoring and interchanging processing costs, the contribution of the IRS contract will be less than 17% in fiscal 2009 as compared to approximately 24% in fiscal year 2007. Reducing our alliance in the IRS was an important goal beginning in 2007. Our goal continues to be to increase the growth in our other non-government verticals, so that the IRS contribution to net revenue will gradually fall to about 10% over the next several years.
Chart 6, our recent [Technical Difficulty] efforts. The IRS remains an important customer to us and while it does not generate a high gross margin percentage, it does generate a large dollar profit per transaction. Because of our diversification the loss of our IRS contract is not [Technical Difficulty] as severe level of risk today, as it did just a few years ago. In fact, all of our other verticals will generate significantly more margin contribution after interchanging processing cost than our federal income tax vertical.
Our success in developing new markets is clearly detailed in Chart 7. As you can see, we have built higher education and utilities in to full scale verticals with Tier. We are on plan to complete the consolidation of our current EPS technology platforms and data centers in mid-calendar year 2010.
To-date, we have completed the consolidation of our EPS back office operations in Auburn, Alabama. This consolidation has resulted [Technical Difficulty] reduced costs, reduced overhead and has eliminated duplicate operations and functions. Most critically, the consolidation to a single platform and backend to operation centre will provide a unified fixed-cost platform over which we can process ever-increasing numbers of transactions. With a stable fixed-cost platform, increasing transactions will mean a higher level of margin contribution per transaction.
As we have said for several quarters, these are challenging economic times and we are unable to provide revenue guidance in this environment. We simply do not expect tax revenues to return to traditional levels before 2011. While many states have balanced budget requirements, it is yet to be seen, if legislators will raise taxes in midst of the deep recession. Although, achieving revenue growth will be challenging, we continue to expect total transactions to continue growing for the foreseeable future.
For example, our IRS transactions increased 4.9% over last April, while our average payment size declined 21.6% as compared with prior years. The result was that total payment volume declined 17.8%. Our IRS revenue decline of 17.8% may sound worrisome, but put in context, overall IRS tax collections in April 2009 were down by more than 30%.
While our verticals other than income tax and K-12 meal pay plan continued to perform well. We are adjusting transaction volumes from 15.9 million to about 14.7 million transactions for fiscal 2009. Our revised forecast is for an increase of 4.4 million transactions, or more than 43.2% as compared with prior year. This is a reduction of 1.2 million transactions for the year from the prior forecast. The revised guidance appears in Chart 8.
While we anticipate minimum dollar revenue growth through the remainder of fiscal year 2009, we do anticipate continued transaction and as the economy recovers we believe dollars will follow transactions. Based on our performance this quarter, continued attention to cost management and the strength of our non-government segments, we expect to record breakeven to positive EBITDA from continuing operations for fiscal year 2009, assuming that there are no further revenue declines in other verticals.
Finally, I am convinced more than ever in our core value proposition. Our front end platform designed express need for the biller direct category. A pictorial of how we interface the payment processing networks appears in Chart 9. We are frequently compared to commercial payment processing organizations. But in fact, we outsource the basic transaction processing to several of the major payment processes, so that we and our clients can benefit from their scale efficiencies.
We bring deep domain expertise's to the major billers by providing a sophisticated, highly tailored, turnkey payments platform and processing gateway. Our payments platform utilizes multiple payment channels, including the Internet, IVR, point-of-sale, walk-up payment centers, kiosks and front end applications, including electronic bill presentment, installment plans and white-labeling capability.
Our proprietary platform in our customer care services are designed to meet the specific demands of billers offering secure, multiple payment types and channel choices and electronic receipts. We are a PCI and NACHA compliant and in addition undergone annual comprehensive audit by the IRS. Our clients choose use because we provide secured services that are extremely difficult and costly for them to provide themselves. They view us as providing complex domain expertise's that they do not have and don't wish to develop on their own.
I look forward to talking you more about our Focused Payment solutions company and addressing your questions. I will now turn the call over to Ron Johnston to discuss the third quarter results and then we'll open the call for Q&A.
Ron Johnston
Thanks, Ron. During this call, I will address our headcount position, the third quarter results, our cash position and the staffs [Technical Difficulty]. We have met our previously announced plan to reduce our total headcount to 190 odds, which includes the net additional associates added from the ChoicePay.
For the quarter, our financial reporting continues to be into continuing and discontinued operations. Included in continued operations are our core EPS business and business. Revenues from continuing operations for the quarter declined 1.5% to 44.2 million as compared to 44.9 million in the same quarter last year. We are pleased to report growth in higher education, utilities, sales and used tax and property tax.
Revenues from our income tax and K-12 education were below year-ago levels. EPS net revenue growth was 25.6% for the quarter and 15% for nine months. EPS net revenue is calculated by subtracting EPS discounting in the direct cost continuing operations from EPS growth revenues shown in the revenue section on page 29 of the same document. Chart 10 provides a summary for the calculation.
We expect the demand for our services will continue to increase, as more and more, state and local jurisdictions offer electronic payment solutions through their constituents. During the quarter, we processed over 2.4 billion of payments, which represents a 9.8% increase versus the same quarter last year.
This total increase was driven by a 52.2% increase in transaction volume. The increase in transaction volume was primarily brought about through the increased in utility transactions, helped mainly by the ChoicePay acquisition and higher education.
As Ron noted, Tier has reported positive EBITDA of 2.8 million from continued operations, as compared with a loss of 75,000 in the prior year quarter. This 2.9 million improvement was achieved in spite of the revenue decline of 700,000 or 1.5% as compared with the prior year quarter.
We define EBITDA as net income from continuing operations before income taxes, interest expense, net of interest income, depreciation and amortization and stock-based compensation. Chart 11 provides a reconciliation of net income from continuing operations to EBITDA for the three and nine months ended June 30, 2009 and 2008.
Throughout this call, Tier uses EPS net revenues and EBITDA which are non-GAAP financial measures. Tier's management believes these measures are useful for evaluating performance against [peer] companies within its industry and provide investors with additional transparency to financial measures used by management in this financial and operational decision making.
Non-GAAP financial measures should not be considered a substitute for reporting results prepared in accordance with GAAP. Tier's definition to use to calculate non-GAAP financial measures may differ from those used by other companies.
We have compared our definitions to other public companies and have found ours to be very consistent. Our wind down operations contributed $1.3 million in revenues in quarter. Gross margin from continuing operations which we calculated by subtracting our direct costs from our revenues was 24.5% for the quarter, which is 5.5 percentage points higher than the same quarter last year.
Gross margin in our EPS business was 23.5%, up approximately 4.9 percentage points from the same period last year, and overall shift in the mix of verticals and payment types helped increase overall margins in these both periods.
General and administrative expenses for continuing operations were $[6.3] million for the quarter, down 3.5% compared to the same quarter last year. The decrease in G&A was attributable primarily to the cost cutting initiatives and certain one-time savings which were offset by cost associated with (inaudible).
Selling and marketing expenses in continuing operations were $2.2 million for the quarter, down 10.3%. We are focusing our efforts [Technical Difficulty] the EPS streaming sales and marketing progress.
Net interest income was $100,000 for the quarter, about $400,000 or approximately 76% less than the same quarter last year, which reflects a decrease in economic [Technical Difficulty]. On a GAAP basis net income from continuing operations were [$600,000] or a profit of $0.03 per fully diluted share, compared to loss of $1.3 million or a loss of $0.07 per fully diluted share in the prior year quarter.
Net income from discontinued operations net of income taxes [Technical Difficulty] $400,000 or a loss $0.02 per fully diluted share in the quarter, compared to a loss of $12.3 million or a loss of 62 fully diluted share in the same year ago. These data are presented in Chart number 12.
Our financial condition and balance sheet remained strong, with total cash and marketable securities of $78.1 million at June 30, 2009. That figure is comprised of cash and cash equivalents and investment in marketable securities of $70.7 million and restricted investments of $7.4 million. Restricted investments include $1.4 million [plus] in connection with performance bonds primarily in our PSSI segment and $6 million pledged as compensating balance for an ACH bank service relationship in our EPS segment.
The consolidated balance sheet at June 30, appears in chard 13. Cash and marketable securities declined by approximately $300,000 from March 31, 2009, principally due to our stock repurchase program.
During the quarter, we repurchased shares from time-to-time in the open market through a Rule 10b5-1 plan. As of June 30, 2009, the company has repurchased 512,000 shares, as a part of this program, through July 31, 2009, total shares repurchased amounted to 712,000 or a total of $4.9 million.
Lastly, I want to mention that our Form 10-Q has been filed with the Securities and Exchange Commission. We encourage all of you to review the statements and the footnotes in order to better understand our current [Technical Difficulty].
Now, I would like to turn the call back over to Ron Rossetti.
Ron Rossetti
Thanks, Ron. Before we open the call to questions, I want to highlight the following: As we [Technical Difficulty] complete our new platform, we will have a fixed [high] spaces over which to drive an ever increasing number of transactions, thus expanding our margin contribution. We are at an inflection point [Technical Difficulty] substantial portion of our incremental revenue over our breakeven point after [interchange] and processing expenses will fall directly to the bottom line.
In combination with platform cost reductions, we will continue to seek areas of other cost reductions throughout the company. We are investing in, and successfully growing our non-government verticals to diversify and strengthen the long-term health of Tier. This point could not be clearer than to note that in spite of the steep decline in our tax-based business, net revenue increased 25.6% for the quarter, and 15.4% for the nine months ended June 30 as compared with the prior year.
In light of the progress reduction and the acquisition of [Technical Difficulty] now is to focus on executing our strategic plan. We have put a new management team in place that is confident and highly capable of executing on that plan. Biographical summaries of each member of our management team appear in Chart 14.
Everyone on this call knows how serious the economic environment is, and will continue to be for some time. Notwithstanding this environment, we are seeing increasing demand for electronic payment solutions, and we believe that the initiatives that we are pursuing offer the best means for increasing long term shareholder value.
As always, I wish to thank you for your long-term growth, investors for your continued support of Tier. Operator?
Liz Bowman
Operator, at this timing for the remainder of the hour we would like to open the call with Q&A.
Question-And-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of [Brad Ewin].
Unidentified Analyst
I am sorry if you've mentioned this. But could you give me the transaction [comment] for the third quarter. I did not catch it if you'd mentioned it?
Ron Johnston
Hang on just a minute Brad, we'd be happy to do that.
Ron Rossetti
You want the number or the percentage increase?
Unidentified Analyst
The number please. And if you have the payment volumes processed in terms of the dollars, the dollar volume process, that will be helpful too.
Ron Johnston
The total dollars processed Brad were $2.365 billion. The total transactions were 4.42 million.
Unidentified Analyst
Okay, that's very helpful. Could you just talk about your -- just assessing the landscape here, I guess with respect to taking down the transaction count a little bit here, understanding the difficult economic environment. But, as you look out to next year, could you just give us a sense as to how, your lookout over the next three years, what type of a transaction growth do you think you could see over the next two or three years? What's the reasonable target do you think?
Ron Rossetti
We really haven't focused heavily on that. But I'll certainly give you a ballpark number. I would be very disappointed to see less than a 25% to 30% transaction increase and I think we could do significantly more on average. Nina, you are in here, what, do you feel comfortable with that number.
Nina Vellayan
I do.
Ron Rossetti
Last quarter, the third quarter we drew with -- in spite of the fact that it's our largest quarter for the internal revenue and state income tax as well. And we saw a significant decline in internal revenue transactions across the Board.
Remember they were down probably 18% and 19% for the tax season in total and we were up in transaction with them, but only normally substantially below what we would expect in a normal year. We still grow transactions over 52%. So, I think I would be very, very disappointed if we couldn't have a three year CAGR of in excess of 25%.
Unidentified Analyst
That's helpful. Thank you for the clarification. Again if you mentioned this I do apologize, but Ron could you give us an update on the offshore rate securities, what are your thoughts in terms of any new news in that respect.
Ron Johnston
We continue to have literally no movement in the auctions other than [Technical Difficulty] and there was one redemption for $50,000 by counter cost accounting in California. We have joined into the UBS plan, and effective of June of next year, we'll be able to put investments at par to UBS plus the accrued interest that you have to paid.
We are receiving interest on the investments on a monthly basis, even though the interest rates are considerably lower than they have been historically. We have been approved by UBS to be able to borrow against par value of the bonds up to a total of 75% and are back in [call], and that's on a no net interest basis.
In other words they take the 75% of the whatever par we borrow against, they earn that interest, we continue to earn the interest on the 25% that they are holding as the collateral. And to-date we have not done so.
The remaining cash that we have at the present time we feel it sufficient to operate the business; have sufficient strength on the balance sheet to allow us to enter into large contracts, particularly with universities and utilities, and also have the working capital necessary for capital expenditures.
Unidentified Analyst
Great. And this is the last question, I’ll exit the floor, maybe somebody else has popped into the queue. So you processed -- the transaction count was up 52% year-over-year just on the (inaudible) update with us.
Ron Rossetti
Brad quarter-over-quarter.
Unidentified Analyst
Excuse me?
Ron Rossetti
That’s quarter-over-quarter. It was I think 40…
Nina Vellayan
42.5.
Ron Rossetti
43% for the nine months. And I think that when you look at that, what is impressive about that is, it was done in a quarter where historically, our largest transaction count was substantially down because of tax revenue, both state and federal collections.
Unidentified Analyst
Okay. I’m sorry, I must have a bad number then in my notes here. So, what was the transaction volume in the third quarter of ’08? Do you have that handy?
Ron Johnston
I do Brad. The third quarter of ’08, the transaction number was (inaudible) million.
Unidentified Analyst
That’s what I thought. So, it is actually above 52%. That's exactly (inaudible). Anyways, the basis of my question is -- I mean, it’s phenomenal volume growth, and your absolute dollars in terms of cost of goods sold went down by a couple million dollars. So, $2.4 million versus the prior year, and your gross margins on the EP side of the business were up from 19% to 23.5%. Can you just talk about what's happening there, really positive?
Ron Rossetti
What you're starting to see are the results of the comments that I made all probably 18 months ago and have been continuing making that as we begin to drive the business out of the legacy tax verticals, and as we begin to expand additional payment types, what you will see are transactions volumes going up dramatically.
With gross revenue, because gross revenue in the tax area, remember is a percentage of the dollars we collect. As in the other verticals, it's not, in many cases it's fixed fees, and therefore net revenue or what you see as gross margin and if you go into the supplement of the queue, I think it's, what page will it be on, on page 30?
Ron Johnston
31 is the breakdown of the direct cost and page 30 will show you the revenues Brad, for EPS broken out from continuing operations and there's a chart in the deck that shows that calculation of net revenue or what we also sometimes call, raw margin.
And to put some more color on Ron's answer, there's a combination of factors in the quarter that were very favorable. First of all, Nina and Keith Kendrick have been working very hard with us, not only our client partners but our operations processing partners to reduce cost associated with processing and with interchange rates.
The second reason is that we have a full quarter impact of the ChoicePay acquisition and ChoicePay has a higher preponderance of ACH transactions which drives a higher margin for us and will allow us to use some of the other payment mechanisms that we acquire through ChoicePay like walk-up channels and like in the future. So that's part of what's helping us.
Ron Johnston
Yeah, and Brad it's a combination of different payment types and different structure, plus cost reductions we've does in processing and interchange.
Unidentified Analyst
I haven't made to the page 31 of the Q, yet. So, I appreciate the color, I'll take a look at it.
Ron Rossetti
What we are doing in the Q is, we're trying to give more color, so you can look at projecting by breaking out interchange and process from other direct cost and when you look at the interchanging processing and subtracted from gross revenue, you really get what we call net revenue.
Which as I said, a substantial portion of that net revenue going into the future or substantial increases in that net revenue going into the future will drop directly to the bottom line. So we've reached that inflexion point that we've been trying to reach and talking about for 18 months or so.
Unidentified Analyst
Well how do you feel about your stated goal of getting the company to a 9% to 10% consolidated EBITDA margin?
Ron Rossetti
I think that's a very achievable goal. In fact again, we've got an economic crisis sitting on top of us. I won't give out at this call, what we have feel we've lost by from property tax and income tax, both state and federal over the last 24 months and what that effect would have been on property tax had we I mean would have been on profit had we maintained that.
As I said in my discussion, we don't think we're going to see tax revenues come back anywhere to normalization by 2011. But like debt, taxes are always going to be with us. And if we can drive transactions, dollars will follow. But we've just got to work our way through the economic crisis. What's impressive and I'm very pleased about, is our ability to drive into other verticals where they are not as affected by the economy as the tax area is.
Operator
Your next question comes from the line of Wayne Johnson.
Unidentified Analyst
This is actually [Gurel] on behalf of Wayne, just a couple of quick questions for you. So, I know you guys indicated that your other verticals are [Technical Difficulty] high margin than the federal income tax vertical. Can you just tell me what are your highest margin verticals and what percentage of revenues do you expect them to contribute down the line?
Ron Johnston
We don't give out that information other than I will tell you that and I mean, I won't give it in detail I will just tell you we are at higher. The internal revenue is our lowest margin item. So, every single vertical is higher than internal revenue, and they vary significantly depending upon, payment types that are being used and the driving of new payment types and where they are, which ones they are.
If you look at utilities and you look at higher education those are driving, but there are even some transaction-based businesses and partnership-based businesses that we're doing with [Technical Difficulty] that gives a significantly higher percentage margin than we would normally get.
Ron Rossetti
To lower dollar remember, there is a real direct relationship between the percentage we receive on per transaction and the dollars we receive per transaction. It pretty much equates to the higher the dollar per transaction the lower percentage. So and you've got a balance and manage the business and manage the margin based upon percentages as well as dollars. As I like to tell some people, I've never known a bank that would take percentages under deposit slip.
Unidentified Analyst
What I'm trying to get a grip of is are you guys trying to make the high, whatever your highest margin services to be the biggest percentage of revenues. Just then about give me other idea of where we can see margins going?
Ron Rossetti
No, no what we're trying to do, the objective is to be a biller direct business and to focus on the whole bill payment, direct bill payment segment and each of these segments may by there very nature have different margins. They are different category things, they have different margins. That doesn't mean they aren't profitable. Remember, every dollar becomes of net margin a substantial percentage hits the bottom line. So even though one vertical may be higher than another, you don't just exclude anything that provides volume over that fixed platform.
Our objective is really to cross the entire biller direct payment places. If you size the market, our payments, all payments are 9.9, call it a $10 trillion market. It breaks down 55% into regular payments, what you would consider, retail stores and things of that sort, and 45% in bill payments. Bill payments split almost 50/50 between consolidation or aggregator which are your check freeze of the world and your bank aggregation and biller direct.
So we're looking at a $2.2 trillion market and it's made up and segmented by a bunch of different types of billers and our focus is to go after vertical-by-vertical and product features and electronic solutions that best meet those verticals and drive volume over a fixed platform. Each of these verticals have different factors which will create different gross margins, but on balance all of those gross margins are significantly higher than our legacy tax business.
Operator
(Operator Instructions). You do have a follow-up question from Brad.
Unidentified Analyst
Thanks for the follow-up. Just curious, how many more quarters would you anticipate having the wind on operations going through P&L?
Ron Johnston
There are two. One is very small. It's a pension management systems and it will conclude in August [Technical Difficulty] it's a marginal profit contributor. There are some retainee's cash that we'll benefit from. The other one is legacy maintenance work being done on the old IVR systems that we used to sell and there we see an opportunity to continue that work with minimal amounts of employees, handling the work for probably another 18 to 24 months. Its EBITDA positive and cash flow positive and we have some intangibles on that company's books that we are writing-off against EBITDA, though probably another 18 to 24 months on the VSA and a month on the pension.
Unidentified Analyst
Is that a former contract, the longer one, is that what's that has the restricted investments associated with it?
Ron Johnston
Actually yes, yes, they do, I'm sorry.
Ron Rossetti
No, no, Brad, I understand your question, it's the pension, our PSSI contract that has the restricted investments. So when that closes and there are two restricted investments; one is 6 million, and one is what 1.6 million.
Ron Johnston
1.4 now. The 6 million is backing up the bank that does our ACH processing.
Ron Rossetti
So it is 1.4 million that when the pension contract gets over, we should see in cash coming in.
Unidentified Analyst
So that's positive.
Ron Johnston
Yes.
Ron Rossetti
We would expect that to be in September.
Unidentified Analyst
Just to make sure, I think I know the answer to this question, but I'll ask it anyways. I noticed that just depreciation and amortization was up a bit this quarter and your CapEx hasn't really moved that significantly to reflect the higher D&A. Is that just the ChoicePay amortization that's a full quarter of ChoicePay amortization that's in that number is down, was that what's caused it to move up?
Ron Johnston
That's part of it Brad, and the other part of it is that we have some development work going on in the combination of the platforms, and those efforts, once they reach technological feasibility under GAAP, we capitalize the work going towards those programs, and then we'll amortize them once the work is completed, most probably over a three to five-year period.
Unidentified Analyst
It should stay around that level we saw this quarter going forward or maybe up a little bit?
Ron Johnston
I would say about where we are going forward for at least the next year and half.
Ron Rossetti
Capital expenditures should come down the actual fixed-asset expenditure should be coming down now because we did acquire our fixed-assets with the ChoicePay acquisition. We are adding to our server platform and form currently, but then going forward we think that the hard asset capital expenditures will begin to reduce.
Unidentified Analyst
So, maintenance CapEx should Ron Johnston, how much should that be?
Ron Johnston
I would say in the $1.5 million to the $1.8 million range.
Unidentified Analyst
Per annum?
Ron Johnston
Yes.
Ron Rossetti
That's maintenance cap, it's not total CapEx.
Ron Johnston
Right.
Operator
There are no further questions at this time.
Liz Bowman
As I mentioned at the beginning of this call the copy of [textures] are posted in the Investor Relations section of our website at www.tier.com. We invite shareholders and analysts to speak to management about the company and if they schedule a meeting by contacting our CFO, at 382-1333 or rjohnston@tier.com.
This concludes our earning release call for this third quarter of fiscal year 2009 for Tier Technologies. Thank you and good night.
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